The scrip of small-sized auto ancillary firm Jay Bharat Maruti (JBML) has declined by 15% in the past three months despite improved financial performance in the last three quarters.
Incorporated in 1987, the company is a joint venture between the country's largest automaker Maruti Suzuki and few local partners. Maruti Suzuki owns a minority stake in the firm. The firm manufactures sheet metal components, assemblies and sub-assembles primarily for the Indian subsidiary of the Japanese automaker.
It operates through three plants with annual capacity of nearly 70,000 parts per day.
Most of its revenue comes from Maruti Suzki and the balance from other players such as Eicher Motors and Mahindra & Mahindra. To diversify its revenue share, the company has forayed into components for two-wheelers. This will help it sustain its growth momentum, since with the entry of many players in the small car segment, Maruti has witnessed a decline in market share in the past few months.
The company's revenue grew 33% to . 993 crore in the 12 months to December 2010 while net profit nearly doubled to . 34 crore. This can be attributed to the higher sales of passenger cars in the calendar year 2010. Passenger car sales grew 31% in 2010 as against 18% in the previous year.
One area of concern is the company's relatively high debt-equity ratio of 2.18 for FY10 on a standalone basis compared with the average of 1.3 for small-sized auto ancillary firms. However, the company has a return on equity of 29%, higher than its peer group, and highlights its profitability in the past few years. This can act as cushion and help it repay the debt in the coming years.
The stock trades at a price-earnings multiple of six. This is at a discount to its peers Subros and Autoline Industries, which trade at a P/E of seven and eight, respectively.
With the expectation of sustainable growth in the Indian economy and rising salaries, demand for passenger cars is expected to remain firm in the coming quarters. This augurs well for Jay Bharat Maruti.
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