JBM Auto : a business pivot underway?
I recently wrote an article on Ashok Leyland and Olectra Greentech, talking about the EV opportunity in commercial vehicles (CVs) like e-buses, e-LCVs and e-trucks.
The CV industry has a high barrier to entry, so there are limited players operating in this segment — but the existing operators are going to be BIG beneficiaries of the upcoming boom of infrastructural spending in India.
Roads are getting better. There is a gradual movement towards clean mobility. Penetration of e-buses is expected to go from 3% currently to 20% by FY26.
The GoI has launched various programmes under the National Electric Mobility Mission like FAME-II, PLI schemes for advanced cell chemistry, automobiles and auto components, battery waste management rules, battery swapping policy etc.
What I am striving to understand and deduce — is which company is going to capture a significant market share of this EV revolution in the CV space.
In this article, I am going to talk about a multi-bagger company which has delivered a 240x return since 2004 — JBM Auto.
At a market capitalization of INR 22,500 CRORE — trading at a P/E of 149 times, the stock looks extremely expensive and has already run up quite a bit in the last one year. So, not an ideal time to BUY the stock, but an ideal time to learn about the business.
How does JBM Auto make money?
JBM Auto — part of the JBM Group — is primarily an auto ancillary company. The business is divided into 3 segments viz.
I. Auto Components & Systems [62% of total topline]
This is the main business of the company where it manufactures various auto components and assemblies that go inside automobiles. As per the company’s website, almost every automobile in India has a JBM auto component inside it — which is quite impressive.
EBITDA margins in this division range from 6-7%. Auto component companies in general do not command a premium in the market and have low mid-single digit margins.
It manufactures a comprehensive range of auto components which include BIW, chassis and suspension systems, pedal boxes, tubular products, safety critical components and various auto assemblies.
It supplied auto systems & assemblies to 1.5 million passenger cars in FY23. Supplies to global OEMs like VW, Skoda, MG, Stellantis, etc.
Is an end to end solutions provider for all business segments including 2-wheelers, 3-wheelers, passenger vehicles, commercial vehicles, farm and construction equipment.
II. Tooling Room business [6% of total topline]
Under this division, the Company manufactures tools, dies and moulds for the automotive industry. These tools & dies are then used by various OEMs to shape and form various components which form part of the overall vehicle.
The tooling business is custom based and highly cyclical in nature. EBITDA margins in this division are generally high [in the range of 20-22%] since it involves custom development and engineering.
Some of the dies manufactured by JBM are used in-house for manufacturing various auto components. In that sense, JBM can create it’s own tools & dies and this should lead to better operational efficiencies over the long term.
III. OEM Business [31% of total topline]
Under this division, the Company designs, develops, manufactures and sells buses [diesel, CNG and electric]. EBITDA margins in this division range from 8-10%.
The Company entered into the bus manufacturing business in 2013 introducing a bus named ‘Citylife’ with applications in intra-city travel, schools and airport transportation.
This was a major PIVOT from it’s staple auto components business.
3 YEARS LATER — in 2016 — the Company made another pivot and entered the e-bus segment. And now, the company’s vision is to cater to the entire EV ecosystem which is called as ‘JBM E-Verse’
We’re talking about electric buses. Making Li-ion batteries. Battery Management Systems and other EV aggregates. Setting up EV charging stations. Undertaking remote diagnostics of electric buses. Vehicle service management etc.
In effect, providing end to end e-mobility solutions to clients.
Timeline of events:
In 2016, JBM Auto enters into a JV with Solaris Bus & Coach for manufacturing electric and hybrid buses. Solaris — a company based in Poland is one of the major producers of city, intercity and low floor trams in Europe.
JBM unveils a fully electric bus ‘Ecolife’ developed in partnership with Solaris at an Auto Expo [in February 2016].
JBM acquires 100% stake in Solaris — w.e.f. 15th September 2022 — Solaris becomes a 100% subsidiary of JBM (renamed as JBM EV Technologies).
On January 6th 2021 — incorporates JBM Ecolife Mobility with the focus to sell electric buses and expand EV charging infrastructure for e-buses. The company partnered with Microvast — a Chinese provider of fast charging battery power systems — to produce pure electric buses.
Currently JBM Auto has an order book of 5,000+ e-buses. Production capacity of 3,000 e-buses per annum. It is planning to invest INR 500+ CRORE in capacity building and improving technology. And has set an ambitious target of 3x growth in bus revenues in FY24.
What are the tailwinds?
Now that we have an understanding of the business model, let’s see what are some of the tailwinds that the Company is riding on.
A growth oriented management — In 1990, the Company was in the business of manufacturing tools, dies & moulds for the automobile industry — from it’s Faridabad facility.
In 1993, the Company entered the sheet metal components manufacturing business.
In 2006, started it’s Special Purpose Vehicle (SPV) division engaged in fabrication and assembly of bodies of heavy vehicles.
In 2013 — entered into bus manufacturing. In 2016, made it’s first fully electric bus in partnership with Solaris. In 2021, incorporated another subsidiary to sell e-buses and set up EV charging infrastructure. In 2022, completely acquired Solaris.
In the present scenario, the management is currently spearheading the Company to capture the entire EV value chain.
Nishant Arya — the Managing Director of JBM Auto — has been instrumental in driving the Company to explore new growth domains such as buses, electric vehicles, EV infrastructure & aggregates, renewables & environmental management.
He doesn’t look like a guy who would shy away from opportunities — and has the ability to make bold decisions to drive the business forward. The share price has been reflective of that.
Not every day, do you see an auto components maker venturing [and competing] in the CV space — which is dominated by marquee players like Eicher Motors, Tata Motors, Ashok Leyland etc.
Large client base — supplies auto components to majority of the OEMs in India counting players like Volvo, Fiat, M&M, VW, Ashok Leyland, Tata Motors, Bajaj Auto, Ford, Skoda, MG etc.
It also provides engineering services to Mercedes Benz (Daimler), Lamborghini and McLaren.
Acquired new business from Volvo Eicher, TVS, Panasonic, Daikin & Ohsung in the tooling business.
Manufacturing facilities — operates 17 state of the art manufacturing facilities.
The Company’s manufacturing facilities and tool rooms are strategically located in close proximity of leading automobile hubs of India at Faridabad, Greater Noida, Nashik, Chennai, Sanand and Pune for catering to diversified clients.
As per the FY23 annual report — the Company has set up INDIA’s largest dedicated integrated EV ecosystem and electric bus manufacturing facility with integrated electronics manufacturing facilities.
The Company wants to set up a Li-ion giga-factory in India in the near future. However, no management commentary was available to understand the specifics of when and how this giga-factory would be set up.
Extract from JBM Auto FY23 annual report. Growth levers — the management believes that growth will come from the EV eco-system. If you read the FY23 annual report, you’d see that the management has quite literally ONLY covered the EV opportunity with only a few pages on the auto-components business (which is the main business) + the tooling business. Below is a broad strategy for future growth:
Develop new products like trolley buses + hydrogen buses through technical tie-ups. Enter new segments like seaports / airports for smart cargo mobility.
Explore addition of new overseas market for the EV portfolio (e-buses, batteries & chargers) in countries like Singapore, Middle-East, UK, Australia, Europe.
Explore partnerships for JBM e-Verse:
for BaaS (Battery as a Service) solution which includes battery, charging and management solutions — to be deployed in India + other key markets.
to set up manufacturing base for electric buses and lithium batteries outside India to cater to the international market.
in cell manufacturing & EV aggregates (BMS, VCU, TCU) to cover the entire gamut of electric mobility.
Existing Order book — Executing existing order book of 5,000+ e-buses. The company is investing >500 CRORE to enhance production capacity.
Won a 7,500 CRORE order from CESL to deliver 1,390 electric buses.
The company would benefit from increased bus demand in airports — increasing requirement of low tarmac buses.
Entered into a partnership with Jindal Steel for fabrication of 500+ energy efficient and light weight stainless steel electric buses — helping the company to transition from carbon steel to stainless steel.
Acquisitions — JBM Auto is in advanced talks to acquire controlling stake in SML Isuzu, which would allow the company to gain foothold in new markets related to commercial vehicles (inc. the school bus segment).
However, there has been no further communication from management on this acquisition for the past one year. Is the acquisition going through? What will be the synergies? Is it a good fit for JBM?
No commentary whatsoever. And historically — most acquisitions in general do NOT work out.
What are the points of concern?
Lack of management commentary — for a company with a market capitalization of INR 22,000+ CRORE, you’d expect detailed quarterly presentations talking about the direction of the business — but there is none.
There are no quarterly earnings call transcripts. No investor PPTs. No metrics to track how many e-buses were sold in a quarter. What is the best selling auto component. No revenue forecast for FY24. No EBITDA guidance.
Some of the questions that I’d like answers to:
What is the average selling price of a JBM electric bus? Is it lower compared to Olectra / PMI Electro Mobility / Ashok Leyland?
What is JBM Auto’s market share in the e-bus segment? How much does it expect to capture in the future?
How much revenue is being generated from chargers? How many chargers have been deployed? What is the broad roadmap?
The management said they’d be investing INR 500+ CRORE to develop EV manufacturing facilities — how much will be financed by debt? How much through internal profits? Is more capex planned in addition to INR 500 CRORE?
The management wants to set up a Li-ion Giga-factory in India — what will be the capex required? When does the management expect to complete the construction? Will the Li-ion battery packs be used only for internal consumption?
What is the update on the SML Isuzu acquisition? How much is the company going to pay for it? What synergies is the company seeing here?
What are some risks in the business? What are some key events that investors should be aware of?
There are various other questions / data points I’d like to have if I was an investor in the company and the lack of information makes it very difficult to track recent developments + the direction of the company.
THIS IS A BIG RED FLAG!
Declining margins — in the auto components business, margins are difficult to get. You are supplying to BIG OEMs with a lot of purchasing power who drive the selling price and how much you’re going to get paid. In that sense, the industry is governed by low margins — however there are operational efficiencies through which margins can be gradually increased.
However — if you look at the return ratios of JBM Auto, it has been low across the counter for FY23 due to higher finance costs and depreciation.
5Y Financials of JBM Auto High debt to equity — JBM Auto’s D/E ratio has been on the rise and generally a debt to equity ratio of >1 is a cause of concern because the interest cost starts taking a bite off your profits. I’d keep a close watch on this number to ensure that this ratio doesn’t exceed > 2 times.
Extract from JBM Auto FY23 annual report Contingent Liabilities — as at 31 March 2023, the Company has contingent liabilities of >200+ CRORE — which if it materializes would have a direct impact on profits.
Conclusion
JBM Auto — is a business undergoing a pivot. A very critical pivot in the history of the company. It wants to transition from being a major auto components supplier, to being a MAJOR player in the EV eco-system. Ambitious. Bold. But capital intensive. And very competitive.
MILLION DOLLAR QUESTION: Can it make that transition and be one of the winners in this space?
I think there’s a lot of positives for the Company.
It already has electric buses on Indian roads. Order book of 5,000+ e-buses. Capacity of 3,000 e-buses per annum and it is investing to increase the production capacity. Wants to launch new EV variants. Explore hydrogen buses at some point. Wants to capture other pieces of the EV ecosystem and provide end to end e-mobility solutions to clients.
It wants to get into Li-ion cell manufacturing. Take it’s EV ambitions overseas and set up manufacturing bases outside India as well. But, how far away are we from all these milestones? On that, there’s no clear commentary from the management.
The Company has been able to increase it’s revenue from sale of e-buses from INR 549 CRORE in FY23 to INR 1,109 CRORE in 9MFY24 — which means that growth in sale of e-buses for FY24 (full year) could be close to 3x like management estimated.
OEM business is more profitable than the auto components business and increase in the OEM business should help the company in expanding margins.
However, one thing that disappointed me greatly — is the lack of information for investors to act upon. I wish the company would put out more data points out there for investors to understand how quickly the company is ramping up it’s EV ambitions.
From a valuations perspective — the company is trading at a P/E of 149 times. The stock is extremely expensive, since there has been a MONUMENTAL jump in the share price in the last couple of years.
My advice would be to keep this stock in your watchlist and track it closely. A major correction in the stock price, might make it attractive. But at the current valuations, I wouldn’t touch the stock with a 10 foot pole.
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[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]