Company Name – JBM Auto Limited (JBM Auto)
Current Share Price – INR 450 (July 13, 2022) Market Cap – INR 5,322 cr |
1. What is interesting about the stock?
The world is reeling under two major issues relating to mobility – environmental pollution and congestion. Of the 20 most polluted cities in the world, 14 cities are in India. Transport is one of the biggest contributors to pollution and public transportation accounts for 90% of transport. Thus, the transition to sustainable & clean mobility is a necessity and not an option. With this vision in mind, new players are emerging in the electric vehicle space, JBM Auto being one of them.
JBM Auto was incorporated in 1990 mainly to manufacture tools, dies, and molds for the automobile industry, from its Faridabad facility. Subsequently, in 1993, the company entered the sheet metal components manufacturing business for OEMs other than Maruti Suzuki to benefit from the growing demand from the automotive sector. Further, in 2006, JBM Auto started its Special Purpose Vehicle division engaged in the fabrication and assembly of bodies of heavy vehicles. It currently manufactures over 5 lakhs of auto components and assemblies daily. It exports components to Sweden, Brazil, Belgium, Vietnam, Romania, North America, Russia, and Japan for world-renowned auto OEMs. JBM Auto is the only Indian company to have transformed into an OEM from Auto component manufacturing within 20 years of its inception.
JBM Auto has commissioned a first-of-its-kind e-mobility platform to facilitate seamless induction, running, charging, and maintenance of electric buses in the country. This offering
comes in as a just-in-time solution and has been deployed in the cities of Ahmedabad, Gujarat, and Port Blair, Andaman & Nicobar. The Company created a unique ‘Well to Wheel’ ecosystem aimed at provisioning green & sustainable public transport solutions to be the preferred complete e-mobility ecosystem provider encompassing electric vehicles, charging infra, and power infra to maintenance & support, thereby, optimizing the total cost of ownership for the customers. It manufactures BS-VI compliant 12m LF Buses which run on CNG and in the EV space, the 12m LF Electric Buses, and 3 variants of the 9m HF. JBM has entered into a JV with the European EV giant Solaris for the technological know-how. This vertical of JBM Auto operates under its two subsidiaries (51% stakes in both), viz, JBM Green Energy & JBM EV Industries. JBM Green Energy is engaged in manufacturing complete lithium-ion battery packs for electric vehicles, to meet the localization norms for electric vehicles as outlined in various government policy initiatives. JBM EV Industries manufactures key aggregates and auto systems for electric vehicles. This helps to reduce the Total Cost of Ownership (TCO) for the fleet operators & bus aggregators. JBM has acquired prestigious orders from DTC for 700 nos. of 12m CNG BS-VI buses and 200 nos. of 12m EV buses, which are under execution. Order from BMTC, Bangalore has also been bagged by JBM.
Barring the battery, all high-level electronics and electrical components are either being sourced locally or developed locally by the Company. JBM has roped in 25 local companies to meet the requirements of its key electronics & electrical components. The Company is also engaged in developing in-house critical software & controllers for electric buses.
Key Strengths
Joint Venture partner Solaris Bus & Coach SA provides support for the technology transfer of Electric Buses in India.
Improved revenue growth & sustainable increase in EBITDA during FY21-22.
The market size for electric buses used for public transportation in India is expected to explode. JBM's E-mobility ecosystem is favorably positioned to leverage this market opportunity.
Key Weaknesses
STUs, schools & airports are the only customers they currently cater to, hence these fleet operators will have different requirements based on geography & practical use cases. Corporate orders have still not picked up.
Stiff competition from Olectra Greentech, Tata Motors & Ashok Leyland in terms of better pricing & products can prove a dampener to JBM Auto’s growth
Currently, it has only one Electric Bus model, JBM ECO-LIFE, on offer. Competitors have different models with equally diverse variants to cater to specific customer needs.
2. Key Historical Financials
Company has shown strong revenue growth in FY22 after poor results in FY21.
JBM Auto revenue increased by 44% in Q4FY22 vs Q4FY21 with stable EBITDA margins
Cash flow convertibility (CFO/EBITDA) has been poor in FY22 with an increase in working capital
ROCE/ROE has improved in FY22 vs FY21
3. What is my view on company valuation?
JBM Auto stock has seen a brilliant run over the past year, giving ~150% returns. With a P/E of ~34x, JBM Auto is better priced than its direct competitor Olectra Greentech whose P/E is ~130x. However, the higher debt levels (D/E of 1.5x) of JBM Auto versus the debt-free status of Olectra Greentech might prove to be a dampener. JBM Auto has been trying to aggressively reduce its debt over the past 5 years, but due to higher investments, an increase in working capital & product development costs related to Electric buses, it has struggled to maintain higher Free Cash Flows (FCF).
The stock has been on a downtrend since January 2022 and hence investors are advised to exercise caution while investing at current levels. Post stock split (FV 10:2) the stock has seen a 20% correction and hence more consolidation at current levels or below cannot be ruled out. Long-term investors can keep monitoring the stock evaluation accumulation at lower levels.
4. What are the risks to the investment analysis?
Key risks to investment analysis are:
Due to the long gestation time taken in the tendering process and delivery mechanism, a multi-fold positive impact on company financials could take a lot more time than expected.
Prices of key raw materials like Nickel, Neon gas for the Li-ion Battery have shot up recently due to the Russia-Ukraine war, which could negatively affect the financials of Electric Vehicle makers in the next few quarters.
About the Author
I have over 7 years of work experience in the Automobile Industry & Technology Sector in India. Currently, I am working as a Research & Development Engineer at a Global Automobile major helping them scale their Electric Vehicles ambitions.
I hold Master’s & Bachelor’s degrees in Engineering from the Indian Institute of Technology, Madras (IITM).
I am an insignificant public investor & have an avid interest in Trekking, Photography, and Cybersecurity.
Disclosure
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.