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CD Equisearch
Jamna Auto (Buy)
CMP: ₹222
Target: ₹272
Weak economic activity coupled with GOI’s demonetisation drive pinched cargo movement and thus affected demand for commercial vehicles in the second half of last fiscal. ICRA, a credit rating agency, expects the Indian CV industry to grow by 6-8 per cent in the current fiscal driven by increased thrust on infrastructure and rural sectors, among others.
Jamna’s after-market progress hit skids in the last few quarters not least because of intense competition and India’s demonetisation of high currency notes. Yet roll out of GST this fiscal would undoubtedly underscore the resilience of the organised market. Its recently announced capital investments would do anything but greatly increase capacities. The Lucknow plant , for instance, is aimed at meeting Tata Motors’ demand for having component suppliers next door and the same holds for the Indore plant (for Eicher Motors). Such tweaks enforced with R&D finesse not only breeds productivity gains but cements OEM market share.
The stock currently trades at 16.7x FY17e EPS of ₹13.12 and 14.3x FY18e EPS of Rs 15.28. Margin expansion and recognition of prodigious cash discounts made up for poor volume growth in FY17 to induce marginal earning upgrades. Scanty domestic demand for highly efficient parabolic springs and India’s murky off take of air suspension products have failed to cast spell on Jamna's value added product line.
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