Nirmal Bang has issued an initiating coverage report on Jamna Auto Industries in which the stock has been recommended as one of the best to buy.
The reason Jamna Auto Industries is described as the best stock to buy is because it has multiple growth drivers ahead.
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Nirmal Bang has explained that Jamna Auto Industries is expected to report strong 21% earnings CAGR over FY18-FY21E due to :
1) Broad-based growth in domestic commercial vehicle (CV) industry over FY19-FY20E, which will directly impact demand for the company’s products,
2) JAI’s first-mover advantage in introducing non-conventional (parabolic) springs which will improve its margin profile in the coming two years and
3) Rising proportion of revenues from the replacement market and new products such as lift axle and air suspension helping in diversifying its sales mix.
JAI is among the largest leaf spring manufacturers globally with a production capacity of 240,000tn/year. It enjoys ~70% OEM market share and will be a key beneficiary of the sustained strong performance of the commercial vehicle (CV) industry.
It is also stated that premium product mix and improved revenue mix in the high-margin after-market segment coupled with better operating leverage will result in ~70bps margin expansion, driving a strong 21% earnings CAGR over FY18- FY21E.
Jamna Auto Industries already enjoys return ratios of >30% and strong free cash flow generation and is a quality play on the domestic CV industry.
The target price assigned is Rs99 which is 18x Sept. 2020E EPS.
In fact, JAI’s stock price has outperformed the broader indices over the past few months on the back of strong volume and earnings growth and also healthy double-digit margins. The stock has been a strong performer over the past one year because of improved demand.