Detailed Rationale

CRISIL Ratings has reaffirmed its 'CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of JBM Auto Limited (JAL).

 

JAL will likely see healthy revenue growth of more than 20% in fiscal 2023 driven by recovery in the automotive (auto) components division, new orders for the tooling division and significant increase in revenue from its original equipment manufacturing (OEM) bus division. The OEM bus division contributed 22% to revenue in fiscal 2022 as against 12% in fiscal 2020. The growth for the segment will be driven by healthy orderbook and expected order inflow. Slower-than-expected ramp-up will remain a key sensitivity factor. Due to prudent cost saving measures, benefit of operating leverage and backward integration, operating profitability is likely to remain stable at 11-12% this fiscal.

 

The business risk profile of JAL is supported by improving revenue diversity with ramp-up of the bus segment. JAL has received orders from multiple municipal corporation transport divisions to supply buses—it has outstanding orders for 1,066 buses. JAL has set up a subsidiary to cater to the electric buses demand. It has also increased its bus manufacturing capacity and continues to invest either directly or through partnership with local operators.

 

Over the next 2-3 years, JAL is likely to undertake capex of Rs ~200 crore p.a. It undertook capex/investments of about Rs 700-800 crore in the past four years for various projects such as gross cost contract for MH Eco life (Rs 260 crore) and VT e-mobility (Rs 133 crore). The capex was funded through internal accrual and external debt. As a result, total debt increased to Rs 1371 crore in fiscal 2022 from Rs 845 crore in fiscal 2021, leading to moderation in gearing to 1.42 times as on March 31, 2022 from 1.26 times as on March 31, 2021. CRISIL expects gearing to improve with benefit of start of new capacities and GCC projects in the current fiscal.

 

With commercialisation of the capital expenditure (capex), cash accrual is expected to increase over Rs 250 crore per annum over next two fiscals. This will comfortably cover the annual consolidated debt obligation of Rs ~150 crore. With improved performance, the interest coverage ratio is expected to improve to 4-5 times in fiscal 2023. Gearing is likely to remain at 1.3 time as on March 31, 2023, and improve thereafter to below 1 time as debt is repaid. Lower-than-expected ramp-up in cash accrual resulting in sustained high leverage will be a key monitorable

 

The ratings continue to reflect the established market position of JAL in the sheet metal components sector with diversified customer profile, longstanding presence in the auto components industry, and average financial risk profile. These strengths are partially offset by large working capital requirement, susceptibility to volatility in raw material cost and pricing pressures from OEMs.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of JAL and all its subsidiaries and other joint ventures proportionately. This is because all the entities, collectively referred to as JAL, have significant business and financial linkages.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established business position with a diverse customer profile

With longstanding relationships with Maruti Suzuki India Ltd (MSIL; ‘CRISIL AAA/Stable/CRISIL A1+’), Ford India Pvt Ltd, Mahindra and Mahindra Ltd (‘CRISIL AAA/Stable/CRISIL A1+’) as well as commercial vehicle (CV) players such as Daimler and Eicher Motors, JAL has a solid base of repeat business from these customers. The top five customers contribute about 60% to revenue. The tooling business accounts for about 8% of revenue and is a high-margin business. JAL has also initiated proceedings to supply to two-wheeler manufacturers such as Honda and Eicher Motors, which is seen as a buffer to its major passenger vehicle clients such as MSIL and Ford.

 

A diverse clientele provides revenue stability, as reflected in the revenue contribution of the passenger car, CV, and two- and three-wheeler segments at 65%, 15% and 6%, respectively. Ramp-up in revenue from the tooling and OEM bus segment should support operating performance this fiscal.

 

• Longstanding presence in the auto components industry

Industry presence of two decades, strong product portfolio, and established clientele will continue to support the business. Jay Bharat Maruti Ltd (JBML, a joint venture with MSIL), the flagship company, manufactures large and medium sheet-metal components, chassis, suspension parts, assemblies, and sub-assemblies for MSIL. Neel Metal Products Ltd supplies steel components (steel blanks and tubes) to JAL and JBML as input for sheet metal components.

 

• Significant improvement in bus division with healthy order book

Revenue from the bus segment is expected to increase to Rs ~1,000 crore in fiscal 2023 from Rs 240 crore in fiscal 2020 with annual capacity likely to be expanded from 1,500 to 3,500 buses. The revenue is expected to rise to over Rs 1,200-1,500 crore due to healthy order book as well as new orders. Profitability has improved from fiscal 2020 and the operating margin has been at 10-11% compared with losses incurred till fiscal 2019. Current order book of more than 1,066 buses and expected new orders will drive strong revenue growth of this segment. Sustained increase in scale and maintenance of improved profitability will support the business.

 

• Average financial risk profile

Networth and gearing were moderate at Rs 897 crore and 1.4 times, respectively, as on March 31, 2022. Interest coverage and net cash accrual to total debt (NCATD) ratios improved to 4,8 times and 0.19 time, respectively, in fiscal 2022 from 3.77 times and 0.14 time, respectively, the previous fiscal. Capex of Rs ~200 crore p.a. over the next three years will increase capacity in the bus segment to cater to increased demand for electric buses, and will be funded through external debt and accrual. Despite increase in working capital intensity, the short-term debt will not increase significantly as JAL plans to avail no-recourse factoring in the near term. Debt is at Rs 1371 crore as on March 31, 2022. With this, the debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio will remain improve to 3-3.3 times in this fiscal and below 3 times in fiscal 2024 against 3.5 times in fiscal 2022.

 

Cash accrual, expected at Rs 250-350 crore each in fiscals 2023 and 2024, should comfortably cover yearly debt obligation of Rs ~150 crore.

 

Weaknesses:

• Working capital-intensive operations

Consolidated gross current assets (GCAs) are at 202 days as on March 31, 2022, driven by high contract assets and moderate inventory. Working capital requirement is sensitive to the tooling business, and hence, tends to be cyclical. The tooling business is volatile with high rejection rates and requiring development of new moulds for OEMs, leading to higher working capital requirement.

 

Further, increase in proportion of bus division is expected to increase working capital cycle leading to GCA days sustaining at elevated levels of 200 days in the medium term. Large increase in GCA days will remain key monitorable.

 

• Susceptibility to volatility in raw material cost and pricing pressures from OEMs

Profitability remains susceptible to pricing pressures from OEMs and volatility in raw material cost. The operating margin was at 9-13% over the past five years. Increasing the proportion of high-margin products, developing a value chain and altering the product mix will be critical to maintain the margin. Given the high dependence on the auto sector, revenue is also vulnerable to inherent cyclicality in the sector.

Liquidity: Adequate

Cash accrual, expected at Rs 250-350 crore over the medium term, should comfortably cover debt obligation of Rs ~150 crore. Fund-based limits of Rs 886 crore were utilised 64% on average (on drawing power) over the 10 months ended May 2022. Further enhancement in working capital limits to support the increased scale of operations will remain a key monitorable.

Outlook: Stable

CRISIL Ratings believes JAL will continue to benefit from its established position in the auto components industry, healthy relationships with OEMs and average financial risk profile

Rating Sensitivity factors

Upward factors

• Expansion in scale of operations supported by improving customer/product diversity and increase in profitability resulting net cash accruals over Rs 250 crore
• Improvement in the financial risk profile, driven by healthy increase in cash accrual and/or equity infusion, for instance debt/earnings before interest, tax, depreciation and amortisation (Ebitda) ratio below 2.8-3 times on a sustained basis 

 

Downward factors

• Larger-than-expected debt-funded capex adversely impacting credit metrics with debt to Ebitda ratio of over 3.5 times on a sustained basis
• Increase in working capital requirement leading lower cushion in bank limits; for instance bank limit utilisation above 90% on a sustained basis
• Significantly weaker-than-expected profitability leading to lower cash accrual

About the Company

Incorporated in 1996, JAL manufactures sheet metal components, assemblies and sub-assemblies, tools, dies and moulds. It is primarily a Tier-1 supplier of key systems and assemblies to the automotive OEM industry and caters to reputed clients which include Ashok Leyland, Bajaj, Daimler, Fiat Chrysler, Ford, Honda, Hero, JCB, Mahindra, Maruti Suzuki, Renault, Nissan, TATA, Toyota, TVS, Volvo Eicher and Volkswagen. The group has alliances with more than 15 renowned companies globally, including with Arcelor Mittal, Cornaglia, Dassault Systems, JFE Steel, Ogihara, Solaris Bus & Coach SA and Sumitomo. The organisational structure enables each business unit to chart its own future and simultaneously leverage synergies across its competencies. JAL has 16 manufacturing facilities' 14 for sheet metal components and tooling and two for bus. It plans to set up a separate entity, JBM Electric Vehicles Pvt Ltd, to cater to the increased demand from the electric bus segment.

Key Financial Indicators

Particulars	Units	2022 (Provisional)	2021
Revenue	Rs crore	3214	1990
Profit after tax (PAT)	Rs crore	156	50
PAT margin	%	4.9	2.5
Adjusted gearing	Times	1.42	1.26
Adjusted Interest coverage	Times	4.81	3.77

*Unadjusted numbers

Any other information: Not applicable

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	Proposed Term Loan	NA	NA	NA	81.59	NA	CRISIL A/Stable
NA	Term Loan	NA	NA	May-23	15	NA	CRISIL A/Stable
NA	Term Loan	NA	NA	Jan-25	73.01	NA	CRISIL A/Stable
NA	Term Loan	NA	NA	Jan-24	86.13	NA	CRISIL A/Stable
NA	Term Loan	NA	NA	Jun-24	8.52	NA	CRISIL A/Stable
NA	Term Loan	NA	NA	Dec-25	45	NA	CRISIL A/Stable
NA	Term Loan	NA	NA	Dec-25	40	NA	CRISIL A/Stable
NA	Term Loan	NA	NA	Jun-27	75	NA	CRISIL A/Stable
NA	Cash Credit & Working Capital Demand Loan*	NA	NA	NA	115	NA	CRISIL A/Stable
NA	Cash Credit & Working Capital Demand Loan*	NA	NA	NA	35	NA	CRISIL A/Stable
NA	Cash Credit & Working Capital Demand Loan*	NA	NA	NA	40	NA	CRISIL A/Stable
NA	Cash Credit & Working Capital Demand Loan	NA	NA	NA	686.75	NA	CRISIL A/Stable
NA	Letter of credit & Bank Guarantee	NA	NA	NA	319	NA	CRISIL A1

* - Fully interchangeable with Non fund based

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
JBM Ogihara Automotive Pvt Ltd	51%	Joint venture*
Indo Toolings Pvt Ltd	100%	Subsidiary
JBM Ogihara Die Tech Pvt Ltd	51%	Joint venture*
JBM Solaris Electric Vehicles Pvt Ltd	79.89%	Joint venture*
JBM Electric Vehicles Pvt Ltd	100%	Subsidiary
MH Ecolife Emobility Pvt Ltd	100%	Subsidiary
VT e-mobility Pvt Ltd	62%	Joint Venture*

*To the extend of equity