Jamna Auto’s on the move with rise in truck demand

ET INTELLIGENCE GROUP: Jamna Auto, a supplier of leaf springs to commercial vehicle (CV) makers, has been a key beneficiary of a turnaround in the demand cycle for CVs after it witnessed the worst contraction in volumes in the last 20 years. Higher utilisation of its capacities has yielded earnings growth of 142% in FY16.

The blend of rich product mix and lower fixed cost per unit increased operating margin by 410 basis points year-on-year to a record high of 15.5% in the March quarter. The company holds nearly 66% market share in supplying leaf spring to the truck makers such as Ashok Leyland, Tata Motors and Bharat Benz. It is the world’s third largest leaf spring manufacturer.

The company dominates the parabolic spring type suspension with a market share of 90-95% and enjoys superior margins than conventional leaf spring suspension. It will ramp up its capacity to 2,20,000 tonnes by FY17-end from 1,80,000 tonnes. The company is targeting a volume growth of 15% in the current fiscal after having on an average 20% growth in the previous two fiscals.

The target looks achievable for two reasons. One, given the pickup in freight movement, heavy commercial vehicles (HCV) growth is expected to remain above 15%. Also, light CV (LCV) segment is showing signs of recovery. This could increase the offtake of parabolic spring.

The other reason is that the company targets 33% incremental revenues from new products such as lift axle, air suspension, 33% revenue from aftermarket and exports and 33% return on capital employed.

Currently, the aftermarket for suspension segment has a market size of about Rs 1,600-1,800 crore. The unorganised players have market share of over 85% and their products are cheaper by 15%.

The company expects it can gain sizeable market share from the unorganised sector after the implementation of the Goods and Services Tax (GST) bill. It has set up a new plant in Hosur to serve export markets and large players such as Daimler and Volvo. It aims for 10% export revenue in the next few years from 2% currently. At the Friday’s closing price of `159, the stock was available at 11.5 times the FY18 projected earnings.