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Tuesday, May 19, 2009

Jay Bharat Maruti Ltd:-A great auto ancillary stock

Scripscan:Jay Bharat Maruti Ltd
Traded in:Nse-bse

Story:Jay Bharat Maruti (JBM), set up as a joint venture with Maruti Suzuki in 1987, manufactures auto components like sheet metal parts, welded assemblies and exhaust systems. The auto-component industry depends on the auto industry’s prospects and JBM depends on the prospects of Maruti. While JBM started manufacturing two-wheeler parts from 2000-01, to de-risk itself from dependence on a single customer, its close links with Maruti have actually helped. Maruti Suzuki has helped JBM to improve its shop floor practices. It uses robotic systems in welding of critical parts. Manufacturing of rear axles with robotic welding has ensured higher quality and better productivity. So, while most auto companies are struggling to deal with a slowdown, thereby forcing their suppliers to reduce prices, JBM has an advantage. Maruti is doing well even as passenger car sales rose only 1.3% in 2008-09. Maruti’s net profit dipped in FY08-09 largely because of the rise in commodity prices and forex losses. But it has bucked the industry trend by recording higher sales volumes. Fortunately, Maruti has decided to buy more local parts. There will be a fresh bout of revenue flow for JBM when Nissan starts sourcing A-Star cars from Maruti soon. JBM has suffered declining sales in the past two quarters. However, in March 2009, profit grew 41% even though sales declined 3% compared to the year-ago period. Like other auto-component manufacturers, its margins are low, around 8%. Subdued growth and low margins have kept the valuation amazingly low. Its market-cap is a ridiculous 0.09 times sales and 1.15 times operating profit. Worth buying and holding for significant longterm gains.

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