Accumulate Jamna Auto Industries; target of Rs 35: Dolat Capital

Dolat Capital's research report on Jamna Auto Industries

Jamna Auto’s Q4FY20 numbers beat our estimates. Net Revenue was Rs 2.37bn (-57% YoY), due to the slowdown in the CV segment and the Covid-19 lockdown. However, operating margin sharply rose sequentially (+247bps QoQ) to 11.8% due to fall in RM prices and better product mix (high replacement volume). JMNA has resumed operations at all its eight manufacturing locations from May 2020. The company has incurred a capex of Rs 1bn in FY20 and has deferred any further capacity expansion plan to control leverage. The net debt in FY20 was Rs 1,521mn (vs Rs-198mn in FY19 and net DE ratio of 0.3 (vs 0 in FY19) at a comfortable level. We expect short-term demand for parabolic and lift axles to remain under pressure, due to the sharp fall in CV sales. However, revenue contribution from the aftermarket business is likely to help to protect margins. The company is primarily focusing on optimizing costs to protect margins.

Outlook

We forecast that the revenue/EBITDA will grow at 27/41% CAGR over FY21-23E, as we expect growth in the CV segment to revive after an uptick in economic activity. We recommend to Accumulate, with a TP of Rs 35 (17x Sept 22E EPS).

Jamna Auto Industries 13062020