Buy Jamna Auto Industries; target of Rs 62: Dolat Capital Market

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Dolat Capital Market's research report on Jamna Auto Industries

Jamna Auto’s posted decent numbers in Q2FY21 amid challenging environment. EBIDTA grew 3% YoY to Rs 166mn with expanded margin of 8.9% (+149bps YoY), led by cost control measures and richer mix (increase in mix for replacement revenue). Capex in H1FY21 was Rs 34mn, CFO stood at Rs 1.43bn and the company generated FCF of Rs 1.39bn driven by efficient working capital management. The company has also reduced its net debt to Rs 65mn (vs Rs 1.52bn at the end of FY20). Net DE ratio stands at 0.06 at the end of H1FY21. Jamna Auto is an ideal play on the ongoing revival in CV demand given its 66% market share in domestic OEMs markets. CV numbers are showing sequential improvement led by strong traction from ICV (7.5-16 tonnes) and Tipper segment. M&HCV volume is also showing recovery and expected to show growth in H2FY21. In order to de-risk its portfolio, company has introduced several new products in the after-market which will help to increase the content per vehicle. These include: 1) springs allied products - U-Bolt Center Bolt, Bush, Hanger Shackle and Spring Pin and 2) Lift Axle allied products - mainly Air bellow/ spring. The company is primarily focusing on optimizing costs by rationalizing salaries, overheads and warehouse cost management. It has also digitized the complete after-market business to improve supply chain efficiency.

Outlook

We forecast that the Revenue/EBITDA will grow at 39/80% CAGR over FY21-23E. At CMP the stock is trading at 15x for FY23E EPS and 2.7x for FY23E BV. Recommend Buy with TP Rs 62 (based on 20x FY23E EPS).

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