Thursday, December 3, 2015

Annual Report Analysis (Jamna Auto Industries) Part 1...

This is my first post in the series of Annual Report Analysis. I will discuss facts presented in annual report of some companies which i find interesting. The idea of the post is to discuss if there is something interesting happening with some companies. I will present my analysis of the facts presented in the annual report of the companies. My idea here is to initiate a discussion on these companies with like minded people so that we could come to an outcome. In the passage below i present facts from the current annual report of the company and in italics is my analysis of the facts present in the annual report. I have presented my understanding of the company and i will continue to present further facts on the company as my study goes deeper. Till then here is my first post on this auto component company Jamna Auto Industries (JAI).

 Company Description
JAI is an Indian multinational Automotive parts company headquartered in Yamuna Nagar, India. It has its central office in New Delhi, India. It is one of Asia's largest Automotive parts producers

Annual Report 2015

  • Six plants across the country in Haryana, Gwalior, Chennai, Jamshedpur, Hosur & Pantnagar covering bases across regions (Company seems to be spread out across the country with no bias towards a specific region)
  • Growth in Commercial Vehicles (CV) market is directly linked with manufacturing activity, viz manufacturing & construction. in FY15 Medium & Heavy Commercial Vehicles (MHCV) performed better vehicle Light Commercial Vehicle (LCV) segment lagged due to a slowdown in rural income (Commercial vehicles, especially MHCV segment should do well over the next 3-5 years because of pickup in government capex across sectors, activity in mining, construction, roads and other asset intensive industries, reduced fuel cost and passage of GST)
  • “The positive results from our internal Project 'Lakshya' have well-positioned JAI to ride the CV upcycle. As mentioned in our earlier annual reports, 'Lakshya' has been carefully designed to strengthen our business model by diversification in products and markets to protect against the cyclical nature of our business.” (This seems to be something interesting and will have to look over prior annual reports to find out what Project Lakshya actually is and when did they start and what do the company want to achieve?”
  • JAI is India’s largest and among the world’s top three players in Multileaf Springs. (A small company and a leader in its space with a virtual monopoly in the segment. Interesting!!)
  • JAI has, in the past, successfully exported to global majors such as Ford and GM. We now plan to expand our relationship with these global players as an optimal sourcing base for their global requirements. We have the potential to become a hub for global OEMs and are in the process of building meaningful capacities to increase our presence in exports and the aftermarket segment.(Trying to develop an export market for its product to diversify revenue base)
  • In FY16, we plan to spend Rs 75 crore to expand capacity by 30,000 MTPA which will come on line by Q1FY17 at our Hosur plant.(Capex and timeline outlined for the expansion of existing plant at Hosur for exports, Revenues will start flowing in from H1FY17)
  • ROCE improvement is a major target in Lakshya. We saw significant improvement in FY15 with ROCE at 22%, compared to 12% in FY14. Going forward, we plan to have our net block equal to net worth in the next two years. FY15 saw us continue to strengthen the balance-sheet with reduced leverage and healthy cash flows with Rs 78 crore of free cash flow in FY15 and our total debt including current maturities reduced from Rs 125 crore in FY14 to Rs 64 crore in FY15. (Ok, now i seem to be getting a hang of the project, the company plans to improve efficiency, thus reducing load on working capital, also JAI wants to have net worth equal to net block, hence going forward capex will only be linked to internal accruals, thus reducing interest burden, improving profitability and derisk business from vagaries of cyclicity. Debt has halved in a year which will have a significant impact on bottomline. This project Lakshya looks nice)
  • In FY15, ICRA upgraded our ratings: Long Term Rating from LBBB- to A-, Short Term Rating from A3 to A2+ and further improved Long term rating to 'A' and Short term 'A1' in the month of April 2015.(Even credit rating agencies seem to be recognizing te potential, multiple upgrades and reduction in overall debt will lead to drastic reduction in interest costs in FY16, should verify with H1FY16 results)
  • In order to improve liquidity of the company's shares in the stock markets, it is proposed to sub-divide (stock split) each Equity Share of Rs 10 each into 2 Equity Shares of Rs 5 each.(Ok, this is something i could do without. However the management seems to be on a mission to improve stock price)
  • Project Lakshya: Launched on April 2012- Derisk revenue (33% revenue from new products & markets), Maximising efficiency (33% break even point), Financial Goals - Achieve 33% ROCE, 33% dividend payout & Net block to be funded by Net Worth
  • We, at JAI, are very excited about the future of the CV industry. With outlook for infrastructure projects, coal mining and roads projects improving, we expect the CV industry to return to its 2012 peak levels. We, at JAI, are ready to cruise ahead with a leaner structure. We expect the next couple of years to be exciting, marked by increases in market share and new products growth. (Management commentary seems positive, also supported by positive macro factors for the industry)
  • Our pipeline of products also include air suspension and new generation springs, rationalized our portfolio and consciously reduced low margin business. We aim to decrease our dependence on top clients by increasing our overall business with other clients we serve.
  • In the last year, we have undertaken minimal capex for maintenance while our business has outperformed expectations. This has resulted in robust ROCE at 22% for FY15, which is a substantial improvement from 12% in FY14. (Management seems to be walking the talk, also being supported by uptick in sector)

    In the next post i will discuss further on what this Project Lakshya is all about and dig further into previous annual reports and also quarterly financials of this company to come to a better understanding on this company.


    Disclaimer: This is not an investment recommendation. I am merely presenting facts presented in the annual report of the company. None of this should be construed as an investment advice. The idea of the post is to discuss companies where something interesting is happening in the company. I might own shares in companies which i discuss in these posts.

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