Jamna Auto Industries Ltd – BUY, Target ₹ 130

Target (Rs) Potential Upside % CMP Investment Horizon:
₹ 130
15
₹110-114
12 Months

Jamna Auto Industries Ltd. (JAI), founded in 1954, is a key player in making suspension parts, mainly leaf and parabolic springs, for Medium and Heavy Commercial Vehicles. Based in Delhi, the company runs 10 manufacturing units across India, with the capacity to produce around 3,00,000 metric tonnes annually. 

The company caters to an extensive clientele that includes major CV OEMs such as Tata Motors, Ashok Leyland, VECV, and more. 

JAI offers a wide range of products for various commercial vehicles, including trucks, buses, and tractors. 

Recently, they expanded into the agriculture sector, launching products like rotavators and cultivators. 

Despite branching out, their main focus remains on leaf springs, a major part of their sales. The company is recognized for its quality and reliability, making it a top choice among commercial vehicle makers, both in India and internationally.

Why should you invest in JAI?

  • Cyclical recovery and infrastructure-led growth provides strong revenue visibility: The commercial vehicle industry in India, especially for medium and heavy vehicles, is bouncing back strongly. After a dip in sales to 2.25 lakh units in FY20, it’s expected to reach around 3.6 lakh units in FY23. 

Thanks to the government’s big spending on infrastructure and increased private investment, sales might even hit a new high of about 4.0 lakh units in FY24. JAI, a major player in vehicle suspension parts, is set to benefit greatly from this upswing. 

Sales for JAI are predicted to grow by 15% annually from FY23 to FY25, boosted by more exports, sales in the aftermarket, and a shift to parabolic springs. This growth should also improve 

JAI’s profit margins from 11.5% in FY23 to around 13-14% by FY25. In short, the revival in the commercial vehicle sector is a big plus for JAI’s business and growth in the next few years.

  • Diversification strategy – Lakshay 50XT and new product development to enhance portfolio: JAI is working on an ambitious plan called Lakshay 50XT. Their goal is to get half of their sales from new products and half from new markets by FY27. 

They’re also aiming for a 50% return on capital and to pay out 50% of their profits as dividends by the same year. By Q2FY24, they’ve already made 48% of their sales from new products and 20% from new markets. 

JAI is expanding into the agriculture sector with products like rotators and cultivators and has started making machined castings for Ashok Leyland at its Rudrapur factory. They are also hoping to start making Bogie Brackets soon. On top of this, JAI is growing geographically. 

They plan to open a new plant in Adityapur by the second half of FY24, which will help them supply parabolic springs to Tata Motors, pushing this technology further into the Indian commercial vehicle market.

  • Valuation and Outlook: JAI is set for a promising future, thanks to several factors that favour its growth. The company is a leader in the commercial vehicle (CV) suspension product market and is well-positioned to benefit from the increasing demand in this sector. 

JAI’s expansion into new areas like agricultural equipment, including rotavators and fertilisers, shows its strategic move to diversify and reduce dependence on the CV market. This diversification is expected to boost JAI’s overall sales and offer stability against market ups and downs. 

Additionally, the company is making strides in the European aftermarket by adding new distributors, which helps increase its global presence and reach more customers. JAI is also focusing on becoming more efficient and embracing digital technology, which will help in cutting costs and increasing revenue. 

Considering all these positive aspects, we recommend buying JAI shares for a 12-month investment period. We estimate the stock’s value at Rs. 130, which is about 15.6% higher than the current market price, based on our analysis.

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