NOT RATED Auto - Visit... · 2017-08-31 · Royal Enfield (RE) and . New clients ... the Yorozu...

VISIT NOTE 31 AUG 2017

JBM Auto NOT RATED

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Firing on all cylindersWe recently interacted with the management of JBM Auto Ltd (JBMA). The company is into the manufacturing of sheet metal (body-in-white and chassis) tools and dies. JBMA serves key segments including 4Ws (75% of revenue), CVs (10%), 2Ws (7%) and Tractors (8%). The company will to benefit from the robust growth in the PV segment, and also from the growth of its key customers like Ford, Renault, VECV, HCIL, TAFE, RE and HMSI. This, coupled with a rise in capacity utilisation at its plants (Indore, Pathredi, Sanand), should drive the company’s revenues and earnings. Also, a ramp up in the Bus business will aid growth in the bottom-line. We reckon 18% revenue CAGR and 30% PAT CAGR over FY17-FY20E, fuelled by improving operating leverage, ramp-up in the Bus business and acquisition of new clients. The stock is trading at 18/13x FY18/FY19E EPS. Our fair value for the stock is Rs 498 (16x Sept -19E EPS).

Key highlights

Well placed to ride on PV growth: PVs constitute the largest portion (two-thirds) of JBMAs revenues. Given the low car penetration in India, the long-term growth potential for the industry is massive. Sales’ growth of key customers like Ford, HCIL, Renault, Toyota, Tata Motors would augment the business.

Adding new clients across segments: Other than growth acceleration in the Indian PV market, acquiring new businesses is also supporting revenue

growth. In the past two years, JBMA has procured business from Renault, Fiat, Daimler SML Isuzu, Royal Enfield (RE) and HMSI. New clients’ addition would boost the company’s turnover in the long term.

Capacity utilisation: JBMA is gearing up to utilise its capacity to the fullest in the sheet metal division. The company has commenced full-fledged production in its new plant in Sanand for Ford India from FY17. We believe increasing utilisation at the Sanand plant will add significantly to revenues.

Ramp-up in Bus division: The Bus business, which was a drag on the company’s financials, has started catching up. Management expects this segment to start contributing (currently contributes 2% to revenue) meaningfully to the topline starting this fiscal.

Tooling is a high-margin business: Although the tooling division contributes ~6% to the total revenue, it enjoys 3x higher margins vs the component segment. This division witnessed 50% jump in FY17.

Financial Summary (Consolidated) Y/E Mar (Rs. mn) FY16 FY17 FY18E FY19E FY20E Net Sales 15,178 17,902 21,362 25,717 29,676 EBITDA 1,901 1,916 2,393 2,957 3,502 APAT 514.1 649.0 832.9 1,122.1 1,418.5 Diluted EPS (Rs) 12.8 15.9 20.4 27.5 34.8 P/E (x) 26.9 23.3 18.1 13.5 10.6 EV / EBITDA (x) 10.5 10.4 8.1 6.4 5.2 RoE (%) 18.9 19.1 20.9 23.5 24.7 Source: Company, HDFC sec Inst Research

INDUSTRY AUTOS

CMP (as on 30 Aug 17) Rs 370

Fair Value Rs 498

Nifty 9,884

Sensex 31,646

KEY STOCK DATA

Bloomberg JBMA IN

No. of Shares (mn) 41

MCap (Rs bn) / ($ mn) 15/235

6m avg traded value (Rs mn) 56

STOCK PERFORMANCE (%)

52 Week high / low Rs 413/195

3M 6M 12M

Absolute (%) 34.4 31.6 65.5

Relative (%) 32.8 21.5 54.3

SHAREHOLDING PATTERN (%)

Promoters 61.96

FIs & Local MFs 0.20

FPIs 0.21

Public & Others 37.63

Source : BSE

Abhishek Jain [email protected] +91-22-6171-7320

Sneha Prashant [email protected] +91-22-6171-7336

JBM AUTO : VISIT NOTE

Page | 2

Presence across OEMs JBMA Ltd is the flagship company of the JBM Group

primarily catering to the Automotive, Engineering and Design Services. It has three main segments: Sheet Metal Division (SMD), Tool Room Division (TRD) and Buses.

SMD deals with the manufacturing of metal components, assemblies and sub-assemblies, which roughly constitute the outer body of the vehicle. TRD caters to manufacturing dies and moulds, which can be customised according to the clients’ requirements. The Bus division, which was started in FY15, manufactures luxury city buses.

JBMA generates 91% of its revenues from the sheet metal component business, 6% from the tools business and 2% from Bus division. Key target segments include 4Ws (75% of revenue), CVs (10%),

2W (7%) and Tractors (8%), with OEM customers such as HCIL, Ford, VECV, M&M, TTMT, Renault Nissan, Daimler, Toyota, Escorts and TAFE.

In recent years, the company has procured business from Royal Enfield (RE), HMSI and Fiat, which is likely to elevate its turnover.

Over the years, JBMA has entered into various JVs with foreign partners to expand geographically, as well as added new products and clients. The company has entered into alliances/technology tie-ups with the Yorozu Company (Japan), Breda Menarini Bus S.P.A.(Italy), Magnetto Automotive (Italy), Sandhar Auto Components (India), and Ogihara (Thailand). These strategic partnerships have enabled the company to deliver various sheet metal products across OEMs.

Sheet Metal Contributes 91% To Total Revenue Segment-Wise EBIT Contribution

Source: Company, HDFC sec Inst Research Source: Company HDFC sec Inst Research

Component Division

76%

Tool Room Division

24%

JBMA's component division manufactures skin panels for doors, roofs, rear panels, front panels, bumpers; underbody parts like floor; upper body parts like pillar, roof header; chassis and suspension systems and other products like cross car beam, cross truck beam, oil pan assembly, fuel tanks, air tank assembly, cowl assembly, etc Major clients are Ford, Honda, Mahindra & Mahindra and Renault in the passenger segment; Ashok Leyland, VECV in the commercial vehicle space; HMSI and RE in 2W and TAFE in the tractor segment Ford contributes ~24% to total revenue, followed by Renault and Honda car at 10% each The company is continuously garnering new business from Ford, Mahindra, Honda, Fiat Chrysler, Volvo Eicher, Royal Enfield

Component Division91.3%

Tool Room Division

6.3%

Bus Division2.3%


Page | 3

PV Contributes ~75% Of Revenue Segment-Wise Revenue

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

JBMA has been focussing on enhancing its development capabilities that involve conceptualising the part design to its final production So far, Indian part makers were given the product designs by OEMs and manufactured them based on specifications given to them JBMA has three subsidiaries which are JBM Auto System Pvt. Ltd, JBM Solaris and JBM Ogihara Automotive India Ltd It also has two 50:50 JVs – JBM MA Automotive Pvt. Ltd. and INDO Toolings Pvt. Ltd The company’s manufacturing facilities and tool rooms are strategically located in close proximity of leading automobile hubs of India at Faridabad, Greater Noida, Nashik, Chennai, Sanand and Pune

PV75%

CV10%

2W7%

Tractor8%

14,508 16,549 19,153 21,854 24,972

768 1,149 1,246

1,322 1,403

420

1,200

2,800

3,600

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY16 FY17 FY18E FY19E FY20E

Rs mn.

Component Division Tool Room Division Bus Division


Page | 4

Company Structure

Company JBM Stake

Other Shareholders

Other Group Cos. Products Major Customers Plants

JBM Auto Ltd (Standalone)

Assemblies, Bonut, Rear Hood, Air Spring Member, Fuel Tank, BIW Parts, Chassis Parts, Benjobeam (Drive Line Parts), City Bus, School Bus

Honda Cars, M&M, VECV Eicher, Tata Motors, Escorts, TAFE, Atul Auto

Fridabad,Nashik, Indore , Sanand, Pathredi, Greater Noida, Ballabhgarh,Kosi Kotwan

Subsidiaries

1)JBM Auto System Pvt. Ltd. (JBMAS) 73.89% 26% Welded assemblies, Chassis , Suspension parts, Fuel fillers

Ford, Renault, RE Eicher, HMSI

Orgadam, Hosur, Maraimalai Nagar, Sanand

2) JBM Ogihara Automotive India Ltd. (JBMOA) 51% 49% Ogihara

Thailand Ltd. Fuel fillers, Body in white, Toyota Bangalore

3) JBM Solaris Electric Vehicles Pvt. Ltd. (JBMSEV) 80% 20% Solaris Electric Buses STUs

JV

1) Indo Toolings Pvt. Ltd (ITPL) 50% 50% Sandhar Auto Components Ltd.

Tools & dies VECV, JBM group companies Indore

2) JBM MA Automotive Pvt. Ltd. (JBM MA) 50% 50% Magnetto Automotive

Skin Panel, Body in white, Banjo Beam

Tata Motors, Fiat, M&M, Volkswagen Pune

Source: Company, HDFC sec Inst Research


Page | 5

Standalone biz: Willing to go the extra mile HCIL (Honda cars) contributes ~35% to JBMA’s

overall standalone revenue, whereas M&M, Tata Motors and Volvo Eicher contribute 10% each. PV contributes ~ 70% to the overall revenue, and CV and Tractors have a share of 15% and 10% respectively. PV and Tractor sales in India are outpacing the overall Automotive industry growth for many months, led by improving affordability in semi-urban areas and rising income levels in rural areas. We believe the company is well poised to benefit from strong domestic PV and Tractor demand. In addition, increasing revenue from Tata Motors (owing to revival in PV sales) and Volvo Eicher (gaining market share in CVs) bode well for the company. Apart from sheet metal, JBMA’s Bus division is also catching up, and is acquiring new orders from STUs.

Honda on the cusp of transition HCIL is one of JBMA’s major clients in its component

business after Ford (India), followed by Renault, Toyota, M&M, Volvo-Eicher, and TAFE. Despite a strong product pipeline, an expansive dealer network and an enviable brand, HCIL has lost market share in the last two years (down from 7.3% in FY15 to 5.2% in FY17). This, in turn, affected the sales of JBMA (revenue from HCIL went down by ~ 10%)

The inability to respond swiftly to changing market dynamics (like a switchover from the diesel to petrol variant, increasing preference of compact SUVs etc), has impacted HCIL’s progress in India. However, buoyed by the positive response for the WRV

crossover and 2017 City Sedan, HCIL is again strengthening its position. The company is aiming to revive its lost share in the growing Indian market, by (1) Launching several new cars like privilege edition of its premium Hatchback, Honda Jazz, Honda HRV, and the new Honda Civic,(2) Looking to leverage its 2W distribution network (HMSI in India has been a major success and commands 30% share in the local two-wheeler market) to expand the reach of the four-wheeler business, (3) Increasing localisation of this will provide a competitive cost advantage to HCIL. ,

Utilisation at Sanand reviving

JBMA had established its plant in Sanand for Tata Motors’ Nano project. However, owing to the failure of the project, the capacity has been underutilised, resulting in losses for the company. However, with Tata’s recently-launched Tiago and Tigor gaining strong traction in the market, the capacity is likely to be largely utilised efficiently. JBMA’s revenue (Conso) from Tata Motors has gone up by 24% YoY in FY17.

VECV’s market share gain

Volvo Eicher Commercial Vehicles (VECV) is gaining substantial market share in the CV segment. Although VECV contributes ~4% to JBMA’s total sales, it is increasing rapidly. In FY17, revenue from VECV increased by 33% YoY. JBMA caters to its commercial vehicle customers like VECV, and Mahindra & Mahindra via the Indore facility, which was commissioned in FY15.

Honda is looking to leverage its 2W distribution network to expand the reach of its four-wheeler business HMSI has been rapidly growing its distribution network, and has a total of 5,379 dealer outlets, branches and sub-branches HCIL (Hona Cars) has 348 sales outlets in 233 cities HCIL has begun producing its larger and more powerful 1.6 litre iDect diesel engine at its facility in Tapukara Rajashthan The key competitors of JBMA are Caparo and Omax Auto in sheet metal business

http://auto.economictimes.indiatimes.com/tag/privilege+edition

http://auto.economictimes.indiatimes.com/tag/honda+jazz


Page | 6

Domestic HCIL Sales And Growth Market Share Of HCIL

Source: SIAM, HDFC sec Inst Research Source: SIAM, HDFC sec Inst Research

Tata Motors PV Sales And Growth VECV Volume And Market Share

Source: SIAM, HDFC sec Inst Research Source: SIAM, HDFC sec Inst Research

61.3

62.8

52.4

61.8

59.5

54.4

73.5

134.

3

189.

0

192.

1

157.

3

44%

2%

-17%

18%

-4% -8%

35%

83%

41%

2%

-18%

-40%

-20%

0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

%Vol. in '000

Sales Volume ('000) Growth % YoY

2.4% 2.1%2.7%

5.4%

7.3%6.9%

5.2% 5.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

FY11

FY12

FY13

FY14

FY15

FY16

FY17

1QFY

18

%

44.8

34.7

36.1

45.5

50.7

5.6 5.55.87

6.67.1

0

1

2

3

4

5

6

7

8

0.0

10.0

20.0

30.0

40.0

50.0

60.0

FY13

FY14

FY15

FY16

FY17

%Vol. in '000

Volume Mkt share(%) - RHS

Increasing PV sales of Tata Motors is leading to higher capacity utilisation in the Sanand Plant Increase in manpower productivity in Indore plantand optimisation of manufacturing cost will help expand margins

226.

9

227.

9

230.

5

285.

8

352.

2

368.

7

314.

5

198.

8

161.

5

149.

4

173.

0

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24% 23%

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16%

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-30%

-20%

-10%

0%

10%

20%

30%

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Vol. in '000

Sales Vol. ('000) Growth % YoY - RHS


Page | 7

Good traction in CNG bus segment

JBMA’s foray into the manufacturing of low-floor intra-city bus Citylife, along with its technical partner Breda Menarini Bus S.P.A. (Italy) in FY14 proved to be a drag on the company’s financials. Post this venture, the return ratio of the company was impacted severely, as the demand of these luxury buses was quite muted.

However, now the Bus business has started picking up, and company’s management expects this division to start contributing meaningfull to the topline starting this fiscal (targeting to sell 250+ Buses). The company has sold 50 units of CNG Buses to Noida Metro in 1QFY18 and 55 more are yet to be delivered. JBMA is aggressively looking at other regions such as Bengaluru, Haryana, and Mumbai through state transport undertakings (STUs). Apart from STUs, JBMA is focussed on institutional clients such as schools and airports.

The company has invested ~Rs 1.5bn till date in the project. The Buses, primarily targeted at state transport units (STUs), private schools and airports, will be manufactured in Faridabad (Haryana) and Kosi Kalan (UP), with an annual capacity of 2,000 units.

The cost of each Bus is Rs 7mn to Rs 8mn, and the closest rival is Volvo. If successful, this venture would be a game-changer for the company.

We believe the ramp up of the Bus business and achieving break-even will aid in overall margin expansion for the company. We expect that the Bus division to turn profitable by end of FY19.

Tools division: High-margin business

JBMA’s tooling division caters to various automobile segments, which have substantially high margins as compared to the component segment. The tooling division enjoys 3x higher margin, as compared to the component segment, though it contributes only ~6% of the total revenue.

However, with JBMA enhancing its technology and looking to foray into more geography, the revenue proportion from the tooling division is likely to increase, leading to an overall improvement in margins. In order to increase profitability, the tooling segment has ventured into the manufacturing of Transfer Dies, Progressive Dies and High Tensile Dies, and has also reduced the number of iterations in the production of tools. As per the management higher number of launches in PV and CV in F18/19 will help to significantly increase in revenue from this segment.

JBMA’s Bus manufacturing facility is situated at Faridabad (Haryana) and KosiKalan (UP) with an annual capacity of 2,000 units The company has invested ~Rs 1.5bn (group level investment Rs. 4 bn) till date in the Bus project The company has sold 50 units of CNG Buses to Noida Metro Rail Corporation in 1QFY18 and management is aiming to sell 250+ Buses this year Bus Division was a drag on the company’s financials (Rs 134mn/ Rs 103 mn losses in FY16/FY17) Remarkable jump of 50% in revenues in FY16-17 from the Tool Room Division


Page | 8

Segment-Wise Revenue(Standalone) Revenue And Revenue Growth Standalone Biz

Source: Company, HDFC sec Inst Research Source:Company, HDFC sec Inst Research

JBMAS- In top gear, backed by Ford and Renault JBM Auto System (JBMAS, 73% subsidiary)

commenced operations in May 1999, to supply auto components to Ford India. The company has four facilities - Maramalai Nagar, Oragadam, Hosur and Sanand. These plants cater to major OEMs including Ford, Renault-Nissan, Daimler, Royal Enfield and HCIL.

Ford: Booming sales

Being the preferred supplier of Ford India, JBMAS contributes ~24% to consolidated revenue and will be a key beneficiary of Ford’s growth. Ford India closed the year with an encouraging 36% growth in combined domestic and exports, led by its youngest portfolio of world-class products, a differentiated customer experience and low cost of ownership. The company has been focusing on

efforts to reduce repair and maintenance costs of its cars, and to enhance dealership experience through various customer engagement initiatives, including social media. Ford India encashed on the rising trend of SUV demand in India, with its Ecosport model being one of the better offerings. Furthermore, Ford is also increasing its exports from India, as it enjoys lower cost of production in the country. Ford has started exporting cars produced at its manufacturing facility at Sanand (Gujarat) to Europe from FY17.

JBMAS commissioned a manufacturing plant in Sanand in FY16 for Ford, and has commenced production from FY17. The company produces components like C-pillar, D-pillar, cowl top, shotgun and high-level sub-assemblies, and has an initial capacity of 2,40,000 vehicles.

Ford has started exporting cars produced at its manufacturing facility at Sanand in Gujarat to Europe. The company builds the Figo Aspire and Figo hatchback at the Sanand plant After a slow start, export of cars from Ford India’s factory at Sanand during FY17,which produced 78,930 cars for export, at par with the shipment abroad from its Chennai factory

4,477 5,100 4,981 5,519 6,071 6,678 7,346

1,177 897 683 1,036

1,098 1,164

1,233 434

1,200 2,400

2,800

6 7 8 3

3

3

3

-

2,000

4,000

6,000

8,000

10,000

12,000

FY14

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

Rs Mn

Component Division Tool Room DivisionBus Division Others

6,00

1

5,66

9

6,98

0

8,35

7

10,2

25

11,3

58

4.8%

-5.5%

23.1%19.7%

22.4%

11.1%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

-

2,000

4,000

6,000

8,000

10,000

12,000

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

Revenue (Rs Mn) Growth % YoY - RHS

http://www.india.com/topic/ford

http://www.india.com/topic/ford

http://www.business-standard.com/search?type=news&q=chennai


Page | 9

Ford Domestic Volume On The Rise Strong Growth In Export Volume Of Ford

Source: SIAM, HDFC sec Inst Research

Source: SIAM, HDFC sec Inst Research

Renault Is Riding On Kwid Revenue And Revenue Growth Of JBMAS

Source: SIAM, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Strong growth at Ford (exports) will be a key driver for JBMA’s improving performance Increasing capacity utilisation will help to expand overall EBITDA margin of the company

98.5

92.6

77.2

84.5

75.1

79.9

91.4

-

20.0

40.0

60.0

80.0

100.0

120.0

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Vol. in '000

12.2

25.6

29.3

48.1

81.7

104.

0

158.

5

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Vol. in '000Export vol. ('000)

98.5

92.6

77.2

84.5

75.1

79.9

91.4

-

20.0

40.0

60.0

80.0

100.0

120.0

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Vol. in '000

7,21

1

7,19

7

8,41

4

9,92

9

11,7

16

13,8

25

24%

0%

17% 18% 18%18%

-5%

0%

5%

10%

15%

20%

25%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

%Rs mn



Page | 10

Renault is riding on Kwid’s success

The recent success of Renault-Nissan in India’s PV market has given a great boost to JBMAS’ sales. In FY17, Renault was the second-highest contributor to JBMAS’ sales. Kwid's success has propelled the Renault-Nissan alliance to the seventh spot in Indian domestic sales. Renault’s domestic sales jumped up 65%/89% for FY16/FY17. A large part of the success was attributed to the sourcing of local components. Renault India has firmly set its sights on getting a 5% (currently 4%) market share by end of CY17. It aims to achieve this mark by expanding its outlets and service centers, as well as entering the volumes segment with a new budget car. Enthused by the global success of its sub-4-metre Kwid, Renault is set to make India a hub not only for manufacturing, but also for design and development for the export market, which is a positive for JBMAS’ business.

RE and HMSI is adding to the business

The company is also doubling the capacity of Royal Enfield (2W) and Daimler (CV), which will aid in revenue growth of the company from FY18 onwards. The company has also started supplying parts to HMSI.

Adding new clients continuously in the international market opens up great opportunities for JBMAS in the export market. The company is also exporting sheet metal parts for Volvo.

JAOI gaining on Toyota’s upswing JOAI is a subsidiary of the company (JBMA and

Ogihara Thailand hold 50% stake each). The company, established in February 2009, has a well-equipped plant located in Bengaluru in TKM Onsite Supplier Park. JOAI Limited is instrumental in the production of different kinds of press parts, nuts/bolt welds, assembly parts and fuel pipes required in the Automobile industry.

Toyota is JOAI’s key client. Toyota sales in India are in an upsurge, with its wide range of offerings from sedans to SUV segments. Rising sales in premium segment cars bodes well for JOAI. Toyota’s domestic sales have risen 12% YoY in FY17. Both the new Fortuner and Innova Crysta have contributed to this growth. The robust demand of the two vehicles helped the company make up for five months of absence in the Delhi-NCR region during first half of FY17, when diesel cars and SUVs with engine capacity of 2,000cc and above were banned.

Rising volume of Renault will aid revenue The company is doubling the capacity of Royal Enfield (2W) and Daimler (CV) Toyota had launched a slew of vehicles last year in India including Innova Crysta, new Fortuner and an updated version of Etios and Liva Toyota is doing quite well on the sales front and to capture more market share, the company will bring in six more models in next two years


Page | 11

Revenue And Revenue Growth JBM Ogihara Automotive India

Domestic Toyota Volume On The Rise

Source: Company, HDFC sec Inst Research Source: SIAM, HDFC sec Inst Research

Bright future for electric Buses Apart from CNG and diesel Buses, under the JV with

Solaris, JBMA launched ECOLIFE - India's first 100% electric Bus, which was unveiled in the Auto Expo, Feb 2016. Solaris has expertise in developing electric Buses, while JBMA would provide its in-house engineering and design expertise, market knowhow, manufacturing facilities, and infrastructure. The vehicle will be powered by lithium batteries. With the Indian government pushing for electric vehicles, JBMA is in a sweet spot to reap the benefit of this. In

fact, in the new tax regime, GST of 43% on Hybrid vehicles and 12% on completely electric vehicles has been implemented. It clearly signals the government’s inclination towards promoting 100% electric vehicles in the country

The Haryana government has announced that electric Buses will be introduced in Gurugram on the pattern of those in Poland. In the first phase, 75-100 electric Buses would be operated. We expect the Solaris JV will start yielding results from FY19.

Solaris Bus & Coach is one of the major producers of city, intercity and special-purpose buses as well as low-floor trams in Europe

790

1,286 1,466

1,671 1,905

-7%

63%

14% 14% 14%

-20%-10%0%10%20%30%40%50%60%70%

-

500

1,000

1,500

2,000

2,500

FY16

FY17

FY18

E

FY19

E

FY20

E

%Rs mnRevenue (Rs Mn) Growth % YoY - RHS

51 55.4

46.9

63.8

84.1

160.

2

165.

5

128.

8

141.

3

128.

5

143.

4

11% 8%

-15%

36% 32%

91%

3%

-22%

-22%10%

-9%

-40%

-20%

0%

20%

40%

60%

80%

100%

0

20

40

60

80

100

120

140

160

180

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

%Vol. in '000

Sales Volume ('000) Growth % YoY - RHS


Page | 12

JVs enhance product offerings, customer base JBM MA Automotive Pvt. Ltd. (JBM MA)

JBM MA was established as a JV between JBMA and the Italy-based Magnetto Automotive to manufacture skin panels, sheet metal components and welded assemblies, to cater to automotive manufacturers.

The company has tied up with Fiat for its new vehicle (Jeep) launch in India. Fiat has launched its made-in-India Jeep Compass recently which is receiving overwhelming response.

Indo-Toolings Private Limited (ITPL)

ITPL is a 50:50 Joint Venture of JBMA and Sandhar Technologies Limited located at Indore, the industrial and commercial capital of Madhya Pradesh. ITPL is the complete solution provider for all kinds of tooling requirement, including stamping tools, plastic injection moulds, PDC dies, fixtures etc.

Revenue And Revenue Growth Of JBM MA Revenue And Revenue Growth Of Indo Tooling


JBM MA was established as a JV between the JBMA and the Italy-based Magnetto Automotive to manufacture skin panels, sheet metal components and welded assemblies, which cater to automotive manufacturers Key clients: FIAT, Tata Motors, VW, M&M, Piaggio and GM 1,519 1,580 1,592

1,6871,789 1,896

12%

4%

1%

6% 6% 6%

0%

2%

4%

6%

8%

10%

12%

14%

0

500

1,000

1,500

2,000

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

%Rs mn.Revenue (Rs Mn) Growth % YoY - RHS

116 110 97

139 148

159 170

0%-5% -12%

43%

7%

7%

7%

-20%

-10%

0%

10%

20%

30%

40%

50%

-

50

100

150

200

FY14

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

%Rs mnRevenue (Rs Mn) Growth % YoY - RHS

http://auto.economictimes.indiatimes.com/tag/jeep+compass


Page | 13

Financials Revenue to record 18% CAGR over FY17-20E

We estimate consolidated revenue to exhibit 18% CAGR over FY17-20E, likely to be propelled by strong growth in the PV industry. Rise in capacity utilisation at its plants (Indore, Pathredi, Sanand) and procuring new business from Ford, Renault Nissan, Fiat, Daimler, SML Isuzu, Royal Enfield (RE) and HMSI) are likely to boost revenue and earnings over the medium to long-term period.

The commencement the company’s Bus division is expected to record significant growth in revenue of the standalone business.

Multiple levers for margin expansion

Despite a tough macro environment over the last few years, JBMA has maintained EBITDA margins in the 12% range. However, in FY17, it slipped to 10.7%, owing to losses in the Bus business. The company is now aiming to improve margin from here-on with a recovery in the PVsegment and better operating leverage. Further, new value-added products are expected to drive better plant utilisation (currently at ~65% on two shift basis) and margins in the coming years. We have conservatively taken 110bps margin expansion over FY17-20E.

Revenue To Grow At 18% CAGR Over FY17-20E EBITDA Margin To Improve Hereon


With the ramp up of company’s Bus division, it expects to record significant growth in revenue of the standalone business Rising graph of Ford and Renault will boost its subsidiary JBMAS’ sales In FY17, margins declined owing to increased expenses in the Bus segment, which is likely to recover in FY18

13,6

39

15,5

69

15,1

78

17,9

02

21,3

62

25,7

17

29,6

76

(7.9)

2.2

9.2

18.0 19.3 20.4 15.4

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

25.0

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY14

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

%Rs mn


1,49

2

1,90

8

1,90

1

1,91

6

2,39

3

2,95

7

3,50

2

10.9

12.3 12.5

10.7

11.2 11.511.8

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY14

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

%Rs mn

EBITDA (Rs Mn) EBITDA Margin (%) - RHS


Page | 14

Debt And Interest Expenses To Go Down ROE And ROCE To Improve In Coming Years


PAT to grow at 30% CAGR over FY17-20E

We estimate PAT to grow at 30% CAGR over FY17-20E, against 18% over FY13-FY17. This will be led by revenue CAGR of 18% and 110bps margin expansion on the back of improvement in operating leverage. Debt repayment, coupled with the fall in interest rates, is likely to augur well for PAT growth. As a result, ROE and ROCE are expected to increase to 24%/16% by FY20E from 19%/11% in FY17, respectively.

FCF generation to improve, going ahead

Strong topline growth, coupled with an improvement in margins, is expected to boost the operating cash flow for JBMA, going ahead. The strong FCF is also expected to be a key driver for a reduction in the debt-equity ratio.

Going ahead, given the strong cash flow generation on the back of impressive topline growth and margin improvement, we expect JBMA’s net debt-to-equity to come down to 0.4x by FY20E from 1.2x in FY17.

Key risks JBMA forayed into Bus manufacturing in FY14 by

unveiling a low-floor intra-city Bus, which was a drag on its financials. However there have been orders procured from STUs. Apart from CNG and diesel Buses, under the JV with Solaris, JBMA launched ECOLIFE - India's First 100% electric Bus, and is looking to invest ~3bn over 4-5 years. Higher capex for the Bus division may again negatively impact the earnings of the company.

An improvement in operating leverage, debt repayment and, coupled with the fall in interest rates are likely to augur well for PAT growth

2,63

6

4,73

6

4,89

9

4,92

4

4,28

8

4,03

8

3,78

8

360 349

528 529 493

464 436

-

100

200

300

400

500

600

-

1,000

2,000

3,000

4,000

5,000

6,000

FY14

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

%Rs mn.

Debt (Rs Mn) Interest Cost (Rs Mn) - RHS

24.5

32.5

18.9 19.1 20.9

23.5 24.7

12.8 15.1

10.4 11.3 11.9 13.9 15.3

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

FY14

FY15

FY16

FY17

FY18

E

FY19

E

FY20

E

% ROE ROCE


Page | 15

Key Assumption Segment Wise Revenue(Rs mn) FY16 FY17 FY18E FY19E FY20E Component Division 14,508 16,549 19,153 21,854 24,972 Growth (%) -1% 14% 16% 14% 14% Tool Room Division 768 1,149 1,246 1,322 1,403 Growth (%) -22% 50% 8% 6% 6% Bus Division 420 1,200 2,800 3,600 Growth (%) 186% 133% 29% Total 15,276 18,118 21,599 25,976 29,975 Growth (%) -2% 19% 19% 20% 15% Inter segmental rev 98 216 238 260 300 Total Revenue 15,178 17,902 21,362 25,717 29,676 Growth (%) -2% 18% 19% 20% 15% JBM Auto Standalone 5,669 6,980 8,357 10,225 11,358 Growth (%) -6% 23% 20% 22% 11% Subsidiaries JBM Auto System Ltd 7,197 8,414 9,929 11,716 13,825 Growth (%) 0% 17% 18% 18% 18% JBM Ogihara Automotive India Limited 790 1,286 1,466 1,671 1,905 Growth (%) -7% 63% 14% 14% 14% JBM Solaris Electric Vehicle Private Limited 0 0 0 400 800 Joint Ventures JBM MA Automotive Private Limited 1,580 1,592 1,687 1,789 1,896 Growth (%) 4% 1% 6% 6% 6% Indo Toolings Private Limited 96.7 138.6 148.3 158.7 169.8 Growth (%) -12% 43% 7% 7% 7% Source: Company, HDFC sec Inst Research

Likely volume growth of its key customers likes Ford, Renault, VECV, HCIL, TAFE, RE and HMSI will boost overall revenue PV, CV and tractor will be key growth drivers of revenue


Page | 16

Valuation The company is likely to benefit from robust growth in the PV segment, and the likely growth of its key customers like Ford, Renault, VECV, HCIL, and TAFE. This, coupled with a rise in capacity utilisation at its plant (Indore, Pathredi, Sanand), should drive the company’s revenues and earnings. In addition, a ramp up in the Bus business will also aid profitability. We expect revenue CAGR at 18% and PAT CAGR at 30% over FY17-FY20E. Our fair value for the stock is Rs 498 (16x Sept -19E EPS).

One-Year Forward P/E Band

Source: Company, Bloomberg, HDFC sec Inst Research

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

Sep-

14

Dec-

14

Mar

-15

Jun-

15

Sep-

15

Dec-

15

Mar

-16

Jun-

16

Sep-

16

Dec-

16

Mar

-17

Jun-

17

P/E (x) Mean +1 SD -1 SD

Peer Valuation

Mcap (Rsbn)

CMP (Rs/sh) Rating TP

Adj EPS (Rs/sh) P/E (x) EV/EBITDA (x) RoE (%) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

Bharat Forge 266 1,143 NEU 1,088 30 31.2 40.6 38.2 36.7 28.2 22.2 18.4 14.7 14.9 17.1 19.3 Exide Industries 168 198 BUY 262 8.2 10 11.9 24.3 19.8 16.7 14.6 13.8 11.7 17.4 21.4 23.7 Balkrishna Industries 151 1,562 NEU 1,654 74 89.9 105.6 21.1 17.4 14.8 13.5 11.3 9.9 29.9 29.7 30.6 Endurance Tech 137 970 NEU 918 23.5 30.6 37.4 41.4 31.7 25.9 19.1 15.5 13 20.8 22.5 22.7 Suprajit Engineering 37 280 NEU 312 8.5 11.5 15.5 32.8 24.3 18.1 19.8 15.1 11.9 22.3 24.3 26.1 Jamna Auto 19 234 BUY 281 13.1 12.6 17 17.8 18.6 13.8 10.5 9.4 7.4 36.4 27.4 30.7 Ramkrishna Forgings 16 552 NEU 533 0.6 20.2 33.8 877.8 27.3 16.3 16 10 7.7 0.4 10.8 14.2 JBM Auto # 15 370 NR 498 15.9 20.4 27.5 23.3 18.1 13.5 10.4 8.1 6.4 19.1 20.9 23.5 Subros 13 224 BUY 318 5.9 10 13.8 38.2 22.4 16.2 9.1 6.8 5.4 10.1 15.7 19.3 NRB Bearings 12 120 BUY 161 5.6 6 7.3 21.5 20.1 16.4 11.8 10.3 8.9 18.1 17.1 18.6 Lumax Autotech 6 510 BUY 681 23.5 30.6 37.4 21.7 16.7 13.6 9.1 6.8 5.5 12.2 15.1 16.2 Source: Company, HDFC sec Inst Research, # Fair Value

Our target multiple (at a 25% premium to JBMA’s historical mean) is premised on strong earnings outlook (18% CAGR over FY17-20E), margin expansion (110bps to 11.8% in FY20E)


Page | 17

Income Statement (Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E Net Revenues 15,178 17,902 21,362 25,717 29,676 Growth (%) 9.2 18.0 19.3 20.4 15.4 Material Expenses 10,219 12,225 14,740 17,744 20,476 Employee Expenses 1,710 1,953 2,243 2,675 3,027 Other Operating Expenses 1,347 1,808 1,987 2,340 2,671 EBITDA 1,901 1,916 2,393 2,957 3,502 EBITDA Margin (%) 12.5 10.7 11.2 11.5 11.8 EBITDA Growth (%) (0.3) 0.8 24.9 23.6 18.4 Depreciation 590 608 640 723 780 EBIT 1,312 1,308 1,752 2,234 2,721 Other Income (Including EO Items) 64 105 85 90 95

Interest 528 529 493 464 436 PBT 848 885 1,344 1,860 2,381 Tax (Incl Deferred) 219 258 390 577 738 RPAT 629 627 954 1,283 1,643 EO (Loss) / Profit (Net Of Tax) - 111 - - RPAT before MI 629 737 954 1,283 1,643 Minority Interest (106) (79) (112) (152) (215) RPAT after MI 523.8 658.6 842.6 1,131.7 1,428.1 Less dividend to preference shareholder 9.6 9.6 9.6 9.6 9.6

APAT attributable to equity shareholder

514.1 649.0 832.9 1,122.1 1,418.5

Adjusted EPS (Rs) 12.8 15.9 20.4 27.5 34.8 EPS Growth (%) -31% 24% 28% 35% 26%


Balance Sheet (Consolidated) As at March (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Share Capital - Equity 304 304 304 304 304 Share Capital - Preference Reserves 3,233 3,892 4,645 5,677 6,995 Total Shareholders Funds 3,537 4,196 4,949 5,980 7,299 Minority Interest 746 825 937 1,089 1,303 Long Term Debt 1,489 1,516 1,366 1,216 1,066 Short Term Debt 3,409 3,408 2,921 2,821 2,721 Total Debt 4,899 4,924 4,288 4,038 3,788 Net Deferred Taxes 522 662 675 689 703 Long Term Provisions & Others 480 234 247 247 247 TOTAL SOURCES OF FUNDS 10,184 10,841 11,095 12,042 13,339 APPLICATION OF FUNDS Net Block 7,285 7,565 7,734 8,111 8,431 CWIP 98 - 100 100 100 Goodwill - - - - Investments 395 162 162 162 162 LT Loans & Advances 158 518 158 158 158 Total Non-current Assets 7,936 8,245 8,154 8,531 8,850 Inventories 2,880 2,557 3,219 3,875 4,472 Debtors 2,913 3,550 3,687 4,368 5,041 Other Current Assets 1,381 1,318 1,845 1,963 2,335 Cash & Equivalents 75 29 90 93 599 Total Current Assets 7,249 7,453 8,842 10,300 12,446 Creditors 3,878 3,636 4,405 4,988 5,880 Other Current Liabilities & Provns 1,124 1,222 1,495 1,800 2,077

Total Current Liabilities 5,002 4,857 5,900 6,788 7,957 Net Current Assets 2,248 2,596 2,941 3,511 4,488 TOTAL APPLICATION OF FUNDS 10,184 10,841 11,095 12,042 13,339



Page | 18

Cash Flow Statement(Consolidated) Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E Reported PBT 848 885 1,344 1,860 2,381 Non-operating & EO items 111 - - - Interest expenses 528 529 493 464 436 Depreciation 590 608 640 723 780 Working Capital Change (439) (654) (360) (567) (472) Tax Paid (181) (118) (377) (563) (724) Other operating Items OPERATING CASH FLOW ( a ) 1,346 1,360 1,741 1,917 2,401 Capex (929) (790) (909) (1,100) (1,100) Free cash flow (FCF) 416 571 832 817 1,301 Investments Non-operating Income INVESTING CASH FLOW ( b ) (929) (790) (909) (1,100) (1,100) Debt Issuance/(Repaid) 121 (47) (200) (250) (250) Interest Expenses (528) (529) (493) (464) (436) FCFE 10 (6) 139 103 615 Others Dividend (79) (90) (90) (100) (110) FINANCING CASH FLOW ( c ) (455) (617) (770) (814) (796) NET CASH FLOW (a+b+c) (38) (46) 62 3 505 Opening bal of Cash & Cash Equ 113 75 28 90 94 Closing Cash & Equivalents 75 28 90 94 599


Key Ratios (Consolidated) FY16 FY17 FY18E FY19E FY20E PROFITABILITY (%) GPM 32.7 31.7 31.0 31.0 31.0 EBITDA Margin 12.5 10.7 11.2 11.5 11.8 APAT Margin 4.1 4.1 4.5 5.0 5.5 RoE 18.9 19.1 20.9 23.5 24.7 RoIC (or Core RoCE) 9.5 9.8 10.9 12.9 15.0 RoCE 10.4 11.3 11.9 13.9 15.3 EFFICIENCY Tax Rate (%) 25.8 29.2 29.0 31.0 31.0 Fixed Asset Turnover (x) 1.06 1.21 1.40 1.62 1.79 Inventory (days) 69.3 52.1 55.0 55.0 55.0 Debtors (days) 70.0 72.4 63.0 62.0 62.0 Other Current Assets (days) 33.2 26.9 31.5 27.9 28.7 Payables (days) 93.3 74.1 75.3 70.8 72.3 Other Current Liab & Provns (days) 27.0 24.9 25.6 25.6 25.6

Cash Conversion Cycle (days) 52.2 52.3 48.7 48.5 47.8 Debt/EBITDA (x) 2.6 2.6 1.8 1.4 1.1 Net D/E (x) 1.4 1.2 0.8 0.7 0.4 Interest Coverage (x) 2.5 2.5 3.6 4.8 6.2 PER SHARE DATA (Rs) EPS 12.8 15.9 20.4 27.5 34.8 CEPS 29.9 30.3 39.1 49.2 59.4 Dividend 1.8 2.0 2.0 2.3 2.5 Book Value 86.7 102.8 121.3 146.6 178.9 VALUATION P/E (x) 26.9 23.3 18.1 13.5 10.6 P/BV (x) 4.3 3.6 3.1 2.5 2.1 EV/EBITDA (x) 10.5 10.4 8.1 6.4 5.2 EV/Revenues (x) 1.2 1.1 0.9 0.7 0.6 OCF/EV (%) 7.1 7.2 9.5 10.6 13.9 FCF/EV (%) 2.2 3.0 4.6 4.5 7.5 FCFE/Mkt Cap (%) 0.1 (0.0) 1.0 0.7 4.4 Dividend Yield (%) 0.5 0.6 0.6 0.7 0.7



Page | 19

1 Yr Price Movement

Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

0

50100150200250300350400

Aug-

16

Sep-

16

Oct

-16

Nov

-16

Dec-

16

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

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Jul-1

7

Aug-

17

JBM


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Disclosure: We, Abhishek Jain, MBA & Sneha Prashant, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. 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In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. 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HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

mailto:[email protected]


Page | 21

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