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Sowmya Sundar

EXPOSURES can be considered in Jay Bharat Maruti (JBM), an auto component manufacturer deriving a major portion of its revenues from Maruti. Buoyant growth prospects for its primary customer, Maruti Udyog, attempts at diversifying the customer base and entry into the two-wheeler market, could scale up JBM's revenues and profitability. On an equity base of Rs 5.4 crore.

The stock trades at seven times its trailing 12-month earnings per share of Rs 6.21. At the current market price of Rs 44, one can accumulate the stock in small lots.

Business: JBM makes sheet metal components, assemblies and sub-assemblies for automobile original equipment manufacturers (OEMs). Maruti accounted for close to 90 per cent of its revenue in 2001-02. Recently it diversified into two-wheeler components. Its other customers include Yamaha, Eicher, M&M, TAFE and Delphi Automotives.

The Maruti impact: Maruti is JBM's primary customer and a large portion of its supplies is for Maruti's flagship brand `Maruti 800'. Though the passenger car market is crowded, Maruti 800 is placed in a niche segment as an entry-level car and is priced attractively.

Due to the attractive pricing and the lack of competition in that price band, Maruti would be able to push volumes and garner a higher share of the market. JBM's earnings performance in the last couple of quarters re-flects the robust sales clocked by Maruti.

Moreover, with Suzuki taking over Maruti, products are expected to be rolled out at a much faster rate than under the Government management. This would also reflect on JBM's turnover.

Diversification: JBM is now diversifying its customer base to reduce its dependability on Maruti. It supplies certain products to Delphi Automotive, an auto component manufacturer which supplies to various OEMs worldwide.

At a time when two-wheeler sales are showing robust growth rates, its foray into the two-wheeler component supply would provide an alternate revenue stream.

These attempts at diversification and adding new customers would reduce its dependence on Maruti and provide some cushion against Maruti's business cycles.

Risks: Given the increasing competition, Maruti might get aggressive on pricing, which is a common practice in the industry. This could have an impact on JBM as margins are already wafer thin.

However, rising volumes would compensate for the lower margins to some extent.

Also, there is a possibility of Suzuki opting for a new supplier. However, given Maruti's 29 per cent stake in the company and its long-standing relationship with the company, this is not of immediate concern.

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