Jamna Auto Inds Ltd, Buy

FINQ, January 31, 2008

Jamna Auto Inds Ltd, Buy

CMP: Rs 58 Target Price: Rs 100

Q3FY2008 Result Update

Jamna Auto Ltd (Jamna) declared its consolidated performance for the first time in Q3FY2008. Several developments took place during the quarter which we believe are in line with our expectations. We continue to maintain ‘BUY’ on the stock with a price target of Rs 100.

Key highlights

􀁺 The Hon’ble High Court of Punjab & Haryana recently approved the

amalgamation of Jai Parabolic Springs Ltd (JPSL) and MAP Springs, with Jamna. The three have been amalgamated with effect from July 1, 2007.

􀁺 Post-merger, the company is focusing on consolidating its presence in

the domestic spring and replacement market and enter the high-margin export market. Many of the company’s customers have announced new product launches which will translate into growth in demand for Jamna’s products.

􀁺 Jamna Auto concluded acquisition of the assets of the leaf-spring plant

of Tata Motors’ Ltd at Jamshedpur for a consideration of around Rs. 180mn which it plans to install at its upcoming Greenfield facility at Jamshedpur.

Financial Highlights

Jamna posted consolidated net sales of Rs 1348.8mn for Q3FY2008 and Rs 3096.2mn for 9MFY2008. Growth in topline during the quarter was contributed mainly by increase in volumes of the parabolic springs. Prices of steel, one of the key raw materials for Jamna, surged by around 6-7% during the quarter under consideration, however Jamna was able to pass on the increase to its customers thereby protecting its margins. The EBIDTA margin was in line with our expectation and it stood at 10.9% for Q3FY2008 and 11.5% for 9MFY2008. The net profit margin was lower than expected mainly on account of higher interest cost. Net profit margin stood at 3.1% for Q3FY2008 and at 3.4% for 9MFY2008. Jamna has undertaken capacity expansion for which additional debt has been raised. Going forward we expect the net profit margin to be in line with our expectations once the enhanced capacity become operational.

Valuation

At CMP of Rs 58, the stock trades at a P/E of 16.9x FY2008E, 7.5x FY2009E and

4.7x FY2010E our EPS estimates of Rs 3.4, 7.7 and 12.4 respectively. We continue to maintain ‘BUY’ on the stock with a price target of Rs 100.