Rating Rationale
March 28, 2022 | Mumbai
India Japan Lighting Private Limited.
Ratings reaffirmed at 'CRISIL A / Stable / CRISIL A1 '
 
Rating Action
Total Bank Loan Facilities RatedRs.345.5 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of India Japan Lighting Private Limited (IJLPL).

 

The ratings continue to reflect the strong operational and financial support from the parent,  Koito Manufacturing Co Ltd (Koito), improving business risk profile of IJLPL driven by increase in adoption of LED lights in vehicles and improving demand scenario for automobiles.

 

Performance was impacted by slowdown in the domestic automotive sector during the pandemic, which led to a 7% decline in revenue from the domestic and international markets to Rs 578 crore in fiscal 2021. Gradual recovery in offtake from original equipment manufacturers (OEMs), led by a revival in demand for passenger vehicles (PVs) helped improve operating performance of IJPL. During the nine months ending December 31, 2021, revenue has grown 72% year-on-year to Rs 610 crore from Rs 354 crore in the corresponding period of the previous fiscal, supported by steady order flow from major OEMs. With increase in scale of operations and rationalisation of expenses, operating margin has improved to 8.25%, from 4.44% over the same period. IJLPL is likely to register ~40% year-on-year rise in revenue to over Rs 800 crore and margin of ***%. Over the medium term, the company is expected to register revenue growth of 15-20% per annum supported by steady automobile demand and increased adoption of LED lights in the PV segment. Margins should settle at 9-10% in the medium term, aided by better fixed cost absorption.

 

The rating also factors in the healthy financial risk profile, marked by comfortable debt protection metrics; interest coverage ratio was at 28.31 times for the nine months ended December 2021, against 17.80 times as of December 2020. Debt levels are low with capital expenditure (capex) and working capital being funded through internal accruals. Gearing therefore is estimated to be low at 0.06 times as on March 31, 2022. Improved profitability and low debt should support these metrics over the medium term. Liquidity is also supported by surplus of Rs 90 crore as on Dec 2021 and sparsely utilized bank limit of Rs 69 crore.

 

The ratings continue to draw comfort from the strong operational and financial support, via loans or equity from the parent, Koito Manufacturing Co Ltd (Koito), and its corporate guarantee given to the term loan availed by IJLPL. Koito has a strong position in the global automotive lighting components segment, with established relationships with key clients such as Suzuki Motor Corporation, Toyota Motor Corporation, etc. and a diversified revenue base. Further, its financial risk profile is healthy, as reflected in robust credit metrics and adequate liquidity. IJLPL functions largely as an extension of Koito in India, and deals with common clients and bankers.

 

The ratings of IJLPL continue to be supported by its strong market position, customer base and its healthy financial risk profile and liquidity. These rating strengths are partially offset by exposure to risks related to cyclicality in the auto industry, large exposure to OEMs and volatility in input prices and capacity utilization.

Analytical Approach

To arrive at the ratings, CRISIL Ratings has factored in support from its parent, Koito. IJLPL will continue to derive significant financial, operational and management benefits, given its strong linkages with Koito.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong financial and operational support from the parent, Koito: Koito has extended sizeable financial support to IJLPL, via equity and debt to meet capex and service the debt obligation. The parent also offers strong technical expertise for setting up facilities and know-how for the manufacturing processes. Besides IJLPL has gained key customers, such as MSIL and TKML through its relationship with Koito. Any change in stance of support from Koito remains a key rating sensitivity factor.

 

  • Adequate market position, supported by an established customer base: IJLPL caters to established OEMs such as MSIL, Tata Motors Ltd (TML; 'CRISIL AA-/Negative/CRISIL A1+'), TKML and Nissan Motor India Pvt Ltd (NMIPL) and enjoys a healthy share of business. Supplies to these OEMs enable the company to hold a healthy market share in the passenger car and utility vehicle lighting systems.

 

  • Healthy financial risk profile: Financial risk profile is healthy with capex being funded through internal accrual and support from the parent. Post repayment of major portion of debt to MUFG Bank Ltd and Mizuho Bank in fiscal 2021, debt protection metrics are comfortable. Gearing was low at 0.03 time as on March 31, 2021. Net cash accrual to total debt and interest coverage ratios are also projected at 1.86 times and 41.67 times, respectively, in fiscal 2022, as compared to -2.49 times and 28.19 times, respectively, in fiscal 2021.

 

Weaknesses:

  • Exposure to risk arising from large exposure to auto OEMs: IJLPL derives over 90% of its revenue from auto OEMs. High dependence on OEMs makes the performance susceptible to their business cycles. Further bulk of revenue comes from customers such as MSIL, TKML, HCIL and RNAIPLH. However, healthy market share enjoyed by these OEMs mitigates this risk.  Further, the company is also exploring options to diversify its customer profile.

 

  • Susceptibility to volatility in input prices and capacity utilisation: IJLPL mostly caters to large OEMs and hence, does not have the cushion to fully pass on any increase in raw material prices, given the competitive intensity and limited bargaining power. Also, the company imports nearly 35% of its requirement, and thus, remains vulnerable to any unfavorable movement in foreign exchange rates too. CRISIL Ratings believes that given the capital intensity in operations, optimal utilisation will be critical to maintain a healthy operating margin. Besides, the company will remain partly vulnerable to any adverse movement in input cost.

Liquidity: Strong

Liquidity is strong, marked by expectation of support from the parent, Koito, both on an ongoing basis and in case of exigencies. On a standalone basis, IJLPL will have sufficient cash accrual to cover the term debt obligation and capex plans in the medium term. The company also has enough headroom in the bank limit (fund-based limit of Rs 69 crore was unutilised in the 12 months ended December 31, 2021). IJLPL has cash surplus of around Rs 90 crore as on December 31, 2021.

Outlook: Stable

CRISIL Ratings believes that the business risk profile of IJLPL will continue to benefit from steady order flow from established OEMs, with gradual revival in demand for PVs, steady profitability and its healthy financial risk profile. The credit risk profile should also be aided by financial and operational support from the parent Koito.

Rating Sensitivity factors

Upward factors:

  • Significant improvement in credit risk profile of Koito
  • Revenue growth of over 10-12% on a sustained  basis and steady operating margin of 8-9%, leading to substantial cash accrual, largely driven by gain in market share with existing customers and diversification of clientele
  • Further improvement in financial risk profile and liquidity

 

Downward factors:

  • Deterioration in credit risk profile of Koito and/or change in stance of support
  • Steep moderation in revenue by more than 20% on a sustained basis and decline in operating margin significantly impacting cash flow
  • Any major capex, leading to higher dependence on debt, particularly external bank borrowing

About the Company

IJLPL was incorporated in December 1996, as an equal joint venture between Lucas-TVS and Koito. In fiscal 2015, it became a subsidiary of Koito, when the latter infused Rs 200 crore by way of equity to increase its stake to 70.11%. In fiscal 2020, Koito increased its stake to 100% by buying out the balance 30% stake from Lucas-TVS, for a consideration of Rs 148.5 crore.

 

IJLPL manufactures headlamps, rear combination lamps, fog lamps, and other signal/indicator lamps for auto applications. Its key customers include MSIL, TML, TKML, and NMIPL. The company has production facilities in Puduchatram near Chennai (Tamil Nadu), and Bawal (Haryana). It also has assembly operations at Hinjewadi in Pune (Maharashtra).

Key Financial Indicators

Particulars

Unit

2021

2020

Operating income

Rs crore

578

630

Profit after tax (PAT)

Rs crore

- 89

-41

PAT margin

%

-15.3

-6.5

Adjusted debt/ adjusted networth

Times

0.03

0.22

PBDIT / interest and finance charges

Times

28.19

0.56

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Complexity level Rating assigned with Outlook
NA Bank guarantee NA NA NA 20 NA CRISIL A1
NA Bank guarantee NA NA NA 20 NA CRISIL A1
NA Bank guarantee NA NA NA 40 NA CRISIL A1
NA Bank guarantee NA NA NA 35 NA CRISIL A1
NA Bank guarantee NA NA NA 20 NA CRISIL A1
NA Bill discounting NA NA NA 20 NA CRISIL A1
NA Short-term loan NA NA NA 14 NA CRISIL A1
NA Short-term loan NA NA NA 13 NA CRISIL A1
NA Short-term loan NA NA NA 55 NA CRISIL A1
NA Long-term loan NA NA Jul-2025 100 NA CRISIL A/Stable
NA Proposed long-term bank loan facility NA NA NA 8.5 NA CRISIL A/Stable
Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT/ST 210.5 CRISIL A1 / CRISIL A/Stable   -- 11-02-21 CRISIL A1 / CRISIL A/Stable   -- 27-12-19 CRISIL A1 / CRISIL A/Stable CRISIL BBB+/Positive / CRISIL A2
Non-Fund Based Facilities ST 135.0 CRISIL A1   -- 11-02-21 CRISIL A1   -- 27-12-19 CRISIL A1 CRISIL A2
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 20 MUFG Bank Limited CRISIL A1
Bank Guarantee 20 Mizuho Bank Limited CRISIL A1
Bank Guarantee 40 ICICI Bank Limited CRISIL A1
Bank Guarantee 35 HDFC Bank Limited CRISIL A1
Bank Guarantee 20 Sumitomo Mitsui Banking Corporation CRISIL A1
Bill Discounting 20 HDFC Bank Limited CRISIL A1
Long Term Loan 50 MUFG Bank Limited CRISIL A/Stable
Long Term Loan 50 Mizuho Bank Limited CRISIL A/Stable
Proposed Long Term Bank Loan Facility 8.5 Not Applicable CRISIL A/Stable
Short Term Loan 14 MUFG Bank Limited CRISIL A1
Short Term Loan 55 Mizuho Bank Limited CRISIL A1
Short Term Loan 13 Sumitomo Mitsui Banking Corporation CRISIL A1

This Annexure has been updated on 28-Mar-2022 in line with the lender-wise facility details as on 16-Dec-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Auto Component Suppliers
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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