Is Jamna Auto stock still a 'buy' after 440% rally in 4 years? Here's what ICICI Securities says

Jamna Auto, a prominent manufacturer of suspension products, has experienced a remarkable 440% increase in its share price over the past four years, reaching a new peak of ₹144 per share in April.

The stock is poised to continue its upward trend and achieve new record highs, driven by the company’s Lakshya 50XT vision. This strategic initiative focuses on mitigating risks associated with the cyclical commercial vehicle market through product innovation and capitalising on opportunities such as aging fleet replacements, electric buses, and the revival of the scrappage policy, as highlighted in a recent ICICI Securities note.

As a result, ICICI Securities has maintained a 'buy' rating on Jamna Auto with a target price of ₹170 per share, suggesting a potential upside of 23% from the stock’s previous closing price.

M&HCV sector recovery

The Medium and Heavy Commercial Vehicle (M&HCV) sector has rebounded strongly post-COVID, approaching its pre-pandemic peak of 3.9 lakh units in FY19. For FY24, volumes are projected at 3.7 lakh units. ICICI Securities notes that, despite this recovery, growth may moderate over the next few years due to structural factors.

These include sustained government support for capital expenditure (with the FY25 budget outlay at ₹11.1 lakh crore, or 3.4% of GDP), the need for fleet replacements due to aging vehicles, and the revival of the scrappage policy.

The government's emphasis on electric buses also contributes positively to the sector. With these structural drivers in place, the industry is projected to experience healthy growth in the high single digits over FY24–26, positioning Jamna Auto as a key beneficiary due to its leadership in the M&HCV suspension market.

The focus on electric buses also adds a positive dimension. With these structural drivers in place, the brokerage expects the industry to report healthy growth (high single digit) over FY24–26E, with Jamna Auto as a beneficiary given its leadership position in the M&HCV suspension space.

Strategic diversification

Jamna Auto’s Lakshya 50XT vision aims to boost sales from new products to 50% (from 47%), expand new market sales to 50% (from 21%), increase Return on Capital Employed (RoCE) to 50% (from 30%), and raise the dividend payout to 50% (from47%) by FY27.

ICICI Securities considers this plan a positive structural move for long-term growth. The company is also growing internationally, having signed an MoU with Eicher Motors and investing ₹125 crore in a new plant in Indore.

Robust financials

Jamna Auto demonstrates strong financial health with consistent RoCE above 25%, positive cash flow from operations.

"It has lean B/S (Debt: Equity at 0.2x as of FY24), thereby providing high margin of safety to our investment thesis and support valuations going forward," said the brokerage. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.