This Auto Ancillary Stock is Up 70% in One Month. More Gains Ahead?

If you thought the hype around electric vehicles has died down, then think again.

Over the last one month, shares of this auto ancillary company have risen more than 70% on the back of bright prospects in the EV space.

The stock is also a multibagger having jumped over 240x since listing.

If you're wondering which company this is, let me save you some time. The stock is none other than JBM Auto.

The company's shares have witnessed a significant surge of late. This surge is part of a larger upward trend that has been observed throughout the week, resulting in remarkable gains for the company.

So what's driving the stock price?

Let's find out.

Promoter infusion and growth prospects of bus subsidiary

JBM Auto's subsidiary, JBM Ecolife Mobility Private Limited, recently received an infusion of funds from its promoter, Nishant Arya.

This development has transformed the subsidiary's ownership structure, further emphasizing its critical role in the company's future growth plans. JBM Ecolife manufactures 100% electric, zero emission buses.

Earlier this year, JBM Auto, the flagship company of the JBM group had expressed its intention to secure additional funds for the bus business. Moreover, it set ambitious targets for the subsidiary, aiming for a threefold growth in bus revenue in FY24.

This growth projection is accompanied by an impressive tenfold increase in sales volume.

The company plans to deploy 5,000 electric buses across the country by the end of the financial year 2024. To fulfil its target the company is planning to invest Rs 5 bn in capacity building and improving technology.

Currently the production capacity is 3,000 buses, which is not sufficient to address the growing demand.

The management also hinted that a part of this deployment will be done with Convergence Energy Services' latest tender. Recently the company participated in the state-owned CESL along with other electric bus OEMs for a new tender of 4,675 electric buses.

As per a Reuters report, JBM Auto will supply 1,781 electric buses in three states.

The AutoExpo 2023 marks the company's entry in the long-range electric luxury coach segment with its fully electric 12-meter Galaxy coach.

JBM Auto leading contender to acquire controlling stake in SML Isuzu

According to media reports, the company is also the leading contender to acquire a controlling stake in automaker SML Isuzu.

SML Isuzu's Japanese promoters are looking to exit the company and have entered into an advanced stage of discussions with JBM Auto for the sale of their stake.

However, the report did not mention any other bidders for the stake.

JBM is mulling various options to acquire the shareholding, including cash as well as a share swap deal, added Reuters in its report. It has started a due diligence process. The deal is likely to value SML at a premium to its current share price.

The potential acquisition is expected to allow JBM Auto to gain a foothold in new markets related to commercial vehicles, including the school bus segment.

Financials lag

While the above mentioned developments bode well for the company, JBM Auto's financials have not kept up.

The company recently reported a weak fourth quarter for FY23. JBM recorded a double-digit decline in key parameters such as revenue and net profit for the March 2023 quarter.

The company's revenue declined by 5.7% YoY while net profit declined by 66% YoY. Operating profit margins also came in lower at 10.7%. contracting from 11.3% in the year ago period.

However, the company's board recommended a final dividend of Rs 1.3 per share.

Brijesh Bhatia on JBM Auto

We reached out to Brijesh Bhatia, lead chartist at Equitymaster, for a technical perspective on the stock.

Here's what he shared...

JBM Auto's stock has experienced a remarkable rally, surging by over 70% in the past four weeks.

The rally in the stock is supported by the bullish momentum observed in both the sectorial index and the benchmark index.

The recent rally in the stock price has been accompanied by strong trading volumes, reaching the highest levels observed on a weekly basis since 2017 (marked in black in the chart).

The surge in volumes suggests heightened investor interest and participation, indicating a significant change in market sentiment towards the stock.

The recent trend accompanied by strong volumes signals the resurgence of the bulls in the market, indicating that the stock has the potential to move higher.

JBM Auto Weekly Chart

 

The Risk

However, it is important to consider the risks associated with the current rise in the stock price.

The notable risk is the Relative Strength Index (RSI) which is trending in an extremely overbought zone.

The RSI is a commonly used technical indicator that measures the speed and change of price movements, providing insights into whether a stock is overbought or oversold.

When the RSI enters the overbought zone, it suggests that the stock's price may have risen too far, too fast, and could potentially be due for a correction or consolidation.

An extremely overbought condition indicated by the RSI (marked red circle) raises cautionary flags.

While the rally and strong volumes indicate a positive market sentiment, investors should be mindful of the possibility of a potential pullback or correction in the stock's price in the near term.

Traders and investors should monitor the price movements and other technical indicators to assess the sustainability of the rally and manage their positions accordingly.

How JBM Auto shares have performed recently

JBM Auto shares have risen by more than 70% in the last month. Over the last six months, the stock price is up more than 160%.

The stock has been a multibagger since it listed on the exchanges. It has risen 240x since 2004.

JBM Auto shares touched their 52-week high of Rs 1,381.20 on 3 July 2023 while they touched a 52-week low of Rs 361.70 on 28 September 2022.

About JBM Auto

JBM Auto is engaged in the manufacturing and sale of sheet metal components, tools, dies & molds. The company also sells spare parts and accessories and takes maintenance contracts for buses.

It derives 75% of its revenue from the auto components segment and 12% from the OEM segment. It derives the remaining revenue from the tool room division.

The company has also developed electric buses and has delivered its first order of 30 electric buses in FY20. Currently, it has an order book for 1,500 buses out of which 200 are electric.

JBM Auto has 15 manufacturing facilities located in Haryana, UP, Maharashtra, Gujarat, MP, Rajasthan, and Tamil Nadu. Most of its facilities are located near manufacturing hubs of large OEM companies like Ford, Mahindra, Renault, Nissan, etc.

To know more about the company, check out JBM Auto fact sheet and quarterly results.

You can also compare JBM Auto with its peers on our website.

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If auto ancillary stocks interest you, here is a list of the best auto ancillary stocks in India. We suggest using the Equitymaster Stock Screener to filter these stocks.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...