JBM AUTO LIMITED BSE: Sector: AUTO COMPONENTS

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1 9 th December 2015 JBM AUTO LIMITED BSE: Sector: AUTO COMPONENTS View - BUY CMP : Rs. 197 Target Price: Rs. 300 BUSINESS BACKGROUND JBM Auto is the flagship company of the JBM Group and was set up in 1990, mainly to manufacture tools, dies and moulds at Faridabad. It also established a press shop for manufacturing sheet metal parts and welded sub-assemblies to meet the growing stringent quality requirements of automobile industry. JBM is engaged in the manufacturing of tools, dies and moulds. It operates in three segments: Sheet Metal Division (for manufacturing sheet metal components, assemblies, subassemblies), Tool Room Division (for manufacturing tools, dies and moulds) and Special Purpose Vehicle (SPV) division (for development and assembly of SPV. JBM's manufacturing facilities and tool rooms are strategically located in close proximity of leading automobile hubs of India at Faridabad, Chennai, Kosi, Greater Noida, Nashik, Chennai, Sanand and Pune. JBM products are widely used in two-wheelers, cars, tractors and trucks, white goods industries and other sectors in India and overseas INVESTMENT HIGHLIGHTS KEY FACE DATA VALUE Rs 5.00 DIVD YIELD % WK HI/LOW 277/134 NSE CODE JBMA BSE CODE JBMA MARKET CAP RS 805 CRS Strong Q2 & FY15 Performance JBM Auto reported a sales of Rs 414 crs in Q2 FY14 led by better product mix.this was reflected in a higher EBIDTA growth of 13% at Rs crs from Rs 45,24 crs in Q2 last year and a strong 21% increase in PAT. The PAT for Q2FY16 stood at Rs crs as compared to Rs crs in Q2 last year. A noteable positive feature of Q2FY16 performance was the strong operating performance both on the EBIDTA and PAT front. For FY15 the company has recorded a topline of Rs 1556 crs, a EBIDTA of Rs 191 crs while PAT is placed at Rs 76 crs. JBM Auto has paid a dividend of 50% for FY15. vscore: vscore (Value Score) is our proprietary company rating system f Focus on a diversified product basket by JBM should make it a stronger player going ahead JBML has diversified business model across various product segments like sheet metal components and assemblies, air tanks, body in-white parts, corner modules, cross car beam, cross members, chassis and suspension systems, door impact beam, exhaust systems, fuel tanks, fuel fillers, high tensile fasteners, Heat shields, skin panels, tailor welded blanks, tubes and tubular parts. These products are used in passenger cars/suvs, 2 wheelers 3 wheelers, commercial vehicle (LCV/HCV), farm equipment, construction equipment and railway locomotives SHAREHOLDING PATTERN PROMOTERS - 62% BANKS, MFs & DIIs - 3% FIIs - % PUBLIC - 35% KEY FUNDAMENTALS YE FY16 FY17 FY18 Rev Gr% PBT Gr% PAT Gr% EPS Gr% Roe % RoCE % EPS (Rs) Precise Advice Assured P/E (x) 9 8 7

2 Presence across OEMs: JBM Auto generates 91% of its revenues from the sheet metal component business (EBITDA margins: 8-9%), and 9% from the tools business (EBITDA margins: 22-23%). Key target segments include 4Ws, CVs, farm equipment and construction equipment, with OEM customers such as Honda, Ford, VECV, MM, TTMT, Nissan, Daimler, Toyota, Escorts and TAFE. JBMA has also formed foreign JVs to expand geographically, while adding new products/clients Presence across most OEMs JBM Auto has 15 manufacturing facilities across UP, Gujarat, Haryana, MP, Rajasthan, Tamil Nadu, Karnataka and Maharashtra. It generates 91% of revenues from the sheet metal component, assembles and sub-assemblies business (EBITDA margins 8-9%), and the remaining 9% from the tools, dies and moulds business (EBITDA margins ~22-23%). JBMA s key focus segments are 4Ws, CVs, farm equipment and construction equipment, with OEM customers such as Honda, Ford, VECV, MM, TTMT, Nissan, Daimler, Toyota, Escorts and TAFE. JBM also controls various subsidiaries which cater to large OEM customers Incorporated in 2007, JBM MA Automotive Pvt Ltd (JBMMA) is a 50:50 joint venture (JV) between JBM Auto Limited (JAL, part of the JBM Group) and MA SPA, Italy (MA, Part of the CLN Group). JBM Auto has invested `30.4 crore towards the equity capital in this JV. The JV has been formed to undertake the manufacture and supply of sheet metal parts namely skin panels, under body panels and other assemblies to Tata Motors Limited (TML), Fiat India Automobiles Private Ltd (FIAPl - Tata Fiat JV) and the Volkswagen Group. It began commercial production from its plants at Pune (Maharashtra) on 15th January, 2009 and is currently supplying parts for TML s Indica and current supplies sheet metal components limited to the Indica Vista model of TML. This plant registered sales of Rs 3 bn in FY15. Indo-Toolings Private Ltd (ITPL) is 50:50 joint venture of JBM Auto and Sandhar Technologies Ltd and is the largest and best equipped Commercial Tool Room in Central India, located at Indore, the industrial and commercial Capital of Madhya Pradesh. ITPL is the complete solution provider for all kinds of tooling requirement, including stamping tools, plastic injection moulds, PDC dies, fixtures etc. In April, 2009, JBMAL acquired a 73.89% interest from Thyssenkrupp Tallent Limited (TKTL) in the ThyssenKrupp JBM (P) Ltd., a joint venture between JBM and TKTL, known as JBM Auto System Private Limited (JBMASL). After this acquisition, JBMASL has become subsidiary of the Company. JBMAL holds 2.95 crore shares in JBMASL aggregating `29.5 crore JOAI is a joint venture company between JBM Group of India and Ogihara Thailand. The company established in February 2009, has a well equipped plant located at Bangalore in TKM Onsite Supplier Park. JOAI Limited is instrumental in the production of different kinds of press parts, nuts/bolt weld, assembly parts and fuel pipes required in the automobile industry JBM Auto s manufacturing facilities and tool rooms are strategically located in close proximity of leading automobile hubs of India at Faridabad, Greater Noida, Nashik, Chennai, Sanand and Pune for catering to diversified clients. JBM Auto has focused on sharpening its designing, simulation and engineering (CAD/CAM/CAE) capabilities. JBM Auto through use of latest industry great software CATIA, UG, Die Design Bundle, I-DEAS, C3P, VISI CAD is hence well poised to deliver customised solutions with speed and accuracy. JBM's manufacturing plants are certified ISO 9001, OHSAS, ISO and TS JBM Auto is expanding its Indore Facility and now diversifying in to Passenger Buses JBM's expansion projects at Pithampur, Indore (M.P.) to cater to Volvo Eicher Commercial Vehicles (VECV) and Mahindra two wheelers (M2W) projects for supply of sheet metal components, assemblies etc. commenced production from 20 July The Patheri unit commenced production from 01 February JBM plans set up a new manufacturing plant in Indore at an investment of Rs 100 crs and the new unit is expected to be operational later this year. JBM Auto has also forayed into bus manufacturing by unveiling India's first true low-floor intra-city bus CITYLIFE at the Auto Expo 14. JBM Auto along with its technical partner BredaMenarini Bus S.P.A.(Italy) has invested ~Rs 1.5bn till date in the project. The buses, primarily targeted at state transport units (STUs), private schools and airports, would be manufactured at the company's state-of-the-art facilities at Faridabad (Haryana) and KosiKalan (UP) with an annual capacity of 2,000 units. Over the next five years, the company plans to emerge as an integrated bus manufacturer (in both the CNG and diesel segments).

3 The cost of each bus is Rs 8mn-Rs 10mn and the closest rival is Volvo (and not AL/TTMT), even as Volvo buses are 20% costlier. If successful, this venture would be a game changer for the company, significantly boosting its revenues and PAT over the next two years. The company expects to maintain EBITDA margins for the segment at 11-12%. JBM Auto has also installed new facilities for manufacturing of passenger buses and other allied products at its manufacturing units situated at Ballabgarh (Faridabad) and Kosi Kalan (Mathura). These expansions shall give JBM a big leap forward to generate the revenue for the future growth. Two Greenfield facilities for the bus venture are being set up in Delhi-NCR with a phased investment of Rs 500 crs, with the main plant to be located at Kosi while the second facility will be located at Ballabhgarh, both near Faridabad in Haryana. While fabrication and the bus structure will be made at the Ballabhgarh plant, the Kosi facility will assemble the buses. Initially 60-seater CNG city buses and diesel powered coaches will be produced with the Kosi unit to kick off production with an initial capacity of 1,800 buses annually that will be ramped up as per demand. Subsequently, inter-city, articulated and hybrid buses will be introduced in a phased manner. The CNG city buses are expected to be powered by a 7-litre engine delivering 230 hp and 280hp. The coaches will have on offer 7-, 9 - and 11-litre diesel engines delivering 280 hp, 320hp and 400hp respectively. JBM Auto has got a order for 200 Buses and expects to starts commercial operations for its Bus unit from Q2 of FY16. On full capacity of 1800 buses the company expects a Topline of Rs 1400 crs in the next 3 years. In terms of its auto components basket, JBM is a supplier of body-in-white and chassis parts for the Ford EcoSport SUV as well as the Honda Amaze saloon and will also supply a range of components ranging from skin panels, axles, body-inwhite, chassis parts, exhausts and suspension parts to new models to come from Maruti Suzuki. In line with the changing trend, JBM is focusing on enhancing its development capabilities that involves conceptualising the part design to its final production. Thus far, Indian part makers were given the product designs by OEMs and manufactured the parts based on specifications given to them. Now JBM is building competencies in chassis and suspension, designing complete cabs for CVs, new exhaust systems and other customer solutions. JBM has also kicked off partial production of complete cabs for the new trucks from VE Commercial Vehicles. JBM Auto s in-house R&D, based in Delhi-NCR, works in sync with its global R&D centres in Italy and Germany-owned by JBM subsidiaries. JBM is involved in the design of all vehicle types right from concept stage including packaging and engineering and is working on projects with Volvo, Fiat, Mahindra & Mahindra, Volkswagen AG, Ashok Leyland, Tata Motors and other OEMs. It also provides engineering services to Mercedes-Benz/Daimler, Lamborghini and McLaren. JBM is also strong in verticals like suspension, vehicle integration, electronics and trim and JBM is now tapping these avenues for growth. While the parts maker is focusing on optimising its investments this fiscal, it continues to work on several new projects even as it waits for the market to pick up. Steady financial performance - topline growth and margin expansion We estimate JBM Auto s earnings to witness a CAGR of 20% plus over FY16-18E. This will be driven by steady revenue growth (18% -20% CAGR over FY16-18E) and a steady EBITDA margin expansion over the same period. Over the last 3 years starting 2011 onwards, JBM has maintained its operating margins between 12% to 13% since last 3 years. Also it has been able to maintain a return on equity of 26% and a ROCE of around 12%. Also, considering the fact that JBM is largely a domestic power player where working capital requirements are large and profit margins are competitive JBM has a D :E of 1.56:1 as on Mar 2015 on a net worth of Rs 283 crs as on March 2015.

4 Business Outlook & Stock Valuation On a rough cut basis, in FY16, Topline will see a steady rise wherein Topline is expected to touch Rs 1600 crs in FY16E. On the bottomline level we expect the company to record a PAT of Rs 87 crs in FY16E. Thus on a conservative basis, JBM Auto should record a EPS of Rs 21 for FY16E. For FY17E and FY18E our expectation is that earnings traction for BPL would continue to be strong wherein we expect a EPS of Rs 25 and Rs 28 respectively. Also another attractive point for JBM is that the current market cap of JBM at Rs 805 crs, the JBM stock trades a market cap to sales multiple of just 0.50x on FY16E whereas the potential revenue over the next 2 years is over Rs 2000 crs and where the current market cap is below the balance sheet size of Rs 1383 crs as on Sept We believe that there are multiple levers for upside in the JBM Auto stock wherein consolidated PAT has jumped from Rs 21 crs in FY11 to Rs 76 crs in FY15 (with ROE at 20%+ for past four years). With the commencement of the bus division in FY16, the management expects to record significant growth in revenue and PAT (guidance: 20%+ revenue CAGR over the next 2-3 years). This coupled with expansions at Indore, Madhya Pradesh (skin panels and large sub-assemblies for Volvo and other 2W parts for MM), at Rajasthan (for Honda Cars) and at Sanand, Gujarat (for Ford India) is likely to drive revenue and earnings over the next 2-3 years. JBM Auto plans to incur a capex of Rs 2.5bn over the next two years on new capacities and the bus business, with D/E not more than 1x going forward Looking at JBM s steady financial track record, strong product domain and dominant market share and strong promoters we expect the stock to get re rated in future. Hence we believe that the JBM Auto stock should be purchased at the current price for a price target of around Rs 300 over the next two years. FINANCIALS For the Year Ended March RsCrs FY15A FY16E FY17E FY18E Net Sales EBIDTA EBIDTA % Interest Depreciation Non Operational Other Income Profit Before Tax Profit After Tax Diluted EPS (Rs) Equity Capital Reserves Borrowings GrossBlock Investments

5 KEY CONCERNS Any sharp down turn in the Automotive Industry can impact JBM Auto financials adversely. Also any negative development in the Indian economy could also impact JBM s financials negatively. DISCLAIMERS AND DISCLOSURES, Avinash Gorakshakar, Research Analyst Registration no INH comply with the qualification and certification requirements under SEBI (Research Analyst) Regulations, I have been working in the Indian Capital markets for over 24 years and earlier worked with several leading domestic financial intermediaries. All of the views expressed in research reports issued by me reflect my personal views about the subject company or companies at the given point of time and I do not receive/accept any kind of compensation, directly or indirectly related to specific recommendations or views expressed in reports issued by me. I/my relative s does not at any point of time of issuing the reports have any material conflict of interest in the subject company neither I was/am/will be engaged in market making activity for the subject company. The investment discussed or views expressed in reports issued by me may not be suitable for all investors. The user assumes the entire risk of any use made of this information. I/nor any person connected with my report, accepts any liability arising from the use of research document. The recipients of research document should rely on their own investigations and should consult their own advisors to determine merit and risks of such investments. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions including those involving futures, options and other derivatives as well as non-investment grade securities involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. Opinions expressed in research reports will be based on the current opinions as of the date appearing in research report. While I endeavor to update on a reasonable basis the information discussed in research reports, there may be regulatory, compliance, or other reasons that prevent me from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. In so far as reports include current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.