JBM Auto

While the sector outlook for automobiles and automotive components is very bright given the government’s emphasis on transition to electric mobility, JBM Auto has a valuation that is extremely expensive as the share prices have soared significantly.

After acquiring the much-needed boost, the Indian benchmark indices finally touched all-time highs on the bourses and then continued to set new records in subsequent sessions. A majority of stocks reached 52-week highs as well. JBM Auto is one example. Its shares are consistently soaring high and breaking records with each passing trading session. In just one month, its shares have climbed around 45 per cent, delivering returns of more than 200 per cent over the past year. In such a bullish market environment, any investor would consider grabbing the opportunity. But rather than focusing only on the returns that a stock provides, one must also be aware of the business and the financial performance of the company. 

JBM Group is a global conglomerate with operations in more than 25 locations across 10 countries throughout the world. JBM Auto Ltd. is an Indian multinational automotive company with headquarters in Haryana. Its primary purpose when it was founded was to manufacture tools, dies and moulds. In 1996,the company expanded into the automotive components’ business, and since then it has grown to become one of the top suppliers of automotive components to OEMs in India and worldwide. The business segments of the company include automotive components, buses and electric vehicles, renewables, electric vehicle (EV) aggregates and EV charging infrastructure.

the company expanded into the automotive components’ business, and since then it has grown to become one of the top suppliers of automotive components to OEMs in India and worldwide. The business segments of the company include automotive components, buses and electric vehicles, renewables, electric vehicle (EV) aggregates and EV charging infrastructure.

Sector Overview
The company is in the automotive components or automotive ancillary industry, with one of its primary operations being the sale of automotive parts. Rising incomes, greater infrastructure spending and higher manufacturing incentives have boosted the automobile sector and, ultimately, the automotive components industry. The organised and unorganised sectors make up the automotive component industry. The organised sector includes high-value precision instruments while the unorganised sector primarily serves the aftermarket category and comprises low-value products.

It employs about 1.5 million people and contributes significantly to the country’s macroeconomic growth and employment status. Considering the immense potential this segment offers, the Indian government has set a goal of making India a global powerhouse for automotive component manufacturing by 2026. The Indian automotive components industry is a diversified one, offering a variety of goods and services such as wheels, tyres, body parts, electronic components, suspension and brake components, and engine and transmission components. 

The company also conducts a majority of its operations in the EV industry with a focus on providing EV charging infrastructure. Considering that India imports about 80 per cent of its crude oil needs, dependency on conventional energy resources is not a viable option as the population and demand for automobiles both grow. Here comes the importance of EVs into the picture! The Indian EV market is predicted to expand at a CAGR of 49 per cent between 2022 and 2030. This expansion will present numerous opportunities for businesses in the industry, including EV manufacturers, battery producers and charging station operators. 

Sector Outlook
The government has allowed 100 per cent FDI under the automatic route for the automotive components industry. In the coming years, the automotive components industry is predicted to grow at a compound annual growth rate (CAGR) of 8-10 per cent, achieving a value of USD 200 billion by 2026. More than 25 per cent of the industry’s output is currently exported with key markets in Europe, North America and Asia. Due to the huge number of players, India has a competitive advantage in the areas of shafts, bearings and fasteners used in automobiles, which will probably lead to greater exports in the upcoming years. 

The government is dedicated to the EV market and aims to reach 30 per cent electric mobility by 2030 as well as 100 per cent domestic EV manufacture under its ‘Make in India’ initiative. The government has also launched numerous initiatives to encourage the production and use of electric vehicles in the country, including FAME India (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India) and the PLI scheme for production of automobiles and automotive components.

Furthermore, the ongoing emphasis on creating charging infrastructure and promoting renewable energy sources is in line with what is needed for a successful EV environment. Surat, Pune, Ahmedabad, Bengaluru, Hyderabad, Delhi, Kolkata, Mumbai and Chennai are among the first lot of megacities on which the government is focusing more intensely. Once the EV infrastructure in these megacities is fully developed, the government plans to gradually extend its coverage to other cities. The National Highways Authority of India (NHAI) is building EV charging stations and other wayside amenities along highways and expressways. The market is currently dominated by two-wheelers, but there is growing demand for electric cars and buses.

Financial Overview
Even though the automotive component and EV industries have an optimistic outlook that is beneficial to the company, an investor needs to be aware of the financial aspects of the business. Considering the company’s quarterly performance, on a consolidated basis it reported a modest decline in revenue of 5.8 per cent from ₹1,072.29 crore registered in Q4FY22, recording total revenue of ₹1,010.06 crore in Q4FY23. The operating profit fell nearly 14 per cent when compared to the same quarter last year. The net profit for the fourth quarter of FY23 tumbled 67.22 per cent from ₹85.64 crore to ₹28.07 crore. 

In terms of annual performance, the company managed to raise its net sales by 20.81 per cent to ₹3,857.38 crore from ₹3,193.05 crore in the previous year ended March 2022. On the other hand, the net profit of the company fell, registering drop of 20 per cent to ₹124.39 crore as against ₹156.19 crore during the previous year. It is clearly visible that the company is having difficulty improving its profitability. It could be because industry players have reduced margins due to severe competition, which makes it difficult for companies to pass on increases in raw material prices to customers. At the time of writing, the company was valued on the market at ₹15,940 crore, with the promoters holding sizeable 67.53 per cent of the company. 

Institutional investors have a modest stake of 1.71 per cent while non-institutional investors own 30.76 per cent. Although the ROE and ROCE ratios are considerably fair at 19 per cent and 13 per cent, respectively, they are still quite low as compared to those of its competitors. Furthermore, the dividend yield is low at 0.10 per cent. The shares of the company have soared more than 150 per cent in the past six months and by 200 per cent over the last year, making its valuation extremely expensive. As a result, the stock has a PE ratio of 125 times, which is several times the industry average. It is trading at 15 times its book value. Thus, taking into account all the essential factors, we recommend AVOID.