Detailed Rationale

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

 

The ratings reaffirmation takes into account JAL’s expected modest revenue growth for fiscal 2021of 4-6% despite a decline of 20-22% in the auto components division revenues (55% of expected topline), owing to weak demand from the auto industry which is impacted by the Covid-19 pandemic. However, this will be offset by expected significant improvement in revenues from its original equipment manufacturing (OEM) bus division (34% of expected revenue in fiscal 2021 as against 12% in fiscal 2020) given the healthy orders at present and the expected order inflow. Due to prudent cost saving measures, profitability is likely to remain stable around 11-12% this fiscal.

 

JAL has received orders from multiple municipal corporation transport divisions to supply buses-outstanding orders of 1477 buses as on date. JAL has planned to set up a new subsidiary to cater to the electric buses demand as reflected in outstanding orders of 200 buses.

 

A capital expenditure (capex) of Rs 700-750 crore for various projects like Hodal plant expansion for bus manufacturing capacity-Rs 275 crore, Gross cost contract for MH Ecolife- Rs 260 crore and VT e-mobility-Rs 133 crore  is planned over the next two-three fiscals, which is to be funded by internal accrual and external debt. Despite the debt-funded capex, debt protection metrics should remain stable in fiscal 2021 with total debt likely to increase to Rs 650-700 crore. Interest coverage ratio is expected to improve to 4.3 times in fiscal 2021 from 3.9 times the previous fiscal. Gearing is likely to remain around 1 time in the near term and improve thereafter as debt is repaid progressively. Increase in cash accrual due to ramp up of new manufacturing facility and contribution from new projects will remain key monitorables.

 

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

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of all its subsidiaries and other joint ventures proportionately. That's because all these 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 long standing relationships with Maruti Suzuki India Ltd (MSIL; rated CRISIL AAA/Stable/CRISIL A1+), Ford India Pvt Ltd, Mahindra and Mahindra Limited (rated 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 overall revenues. Tooling business also accounts for about 10% of overall revenue and is a higher 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 like MSIL, Ford and others.

 

A diverse clientele provides revenue stability, as reflected in contribution to revenue of the passenger car, CV, and two- and three-wheeler segments at 65%, 10%, and 10%, respectively. Further, ramp-up in revenue from the tooling and OEM bus segment should support operating performance in the current fiscal.

 

• Long-standing market presence of JAL 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), is the flagship company, which 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. The group's combined turnover of about Rs 11,000 crore in fiscal 2020 (fully consolidating L+W) lends strong market presence and bargaining power.

 

• Significant improvement in bus division with healthy order book

Revenue from the bus segment is expected to further increase to over Rs 700 crore in fiscal 2021 from Rs 240 crore in fiscal 2020 with annual capacity likely to be expanded from the current 1500 to 6500 buses. Going forward, revenue is expected to scale up to over Rs 1000 crore due to healthy order book as well as new orders. Accordingly, profitability has improved fiscal 2020 onwards and operating margin has been at a typical 10-11% for the segment as against losses incurred till fiscal 2019. Current order book of 1477 buses and expected new orders will drive strong revenue growth of this segment. Sustained increase in scale and maintenance of improved profitability margin will support the business.

 

•  Comfortable financial risk profile

Networth and gearing are expected at a healthy Rs 700-750 crore and around 1.1 times, respectively, as on March 31, 2021. Interest coverage and net cash accrual to total debt (NCATD) ratios are estimated to have improved to 4.0-4.5 times and 0.24 time, respectively, in fiscal 2020, from 3.9 times and 0.18 time, respectively, the previous fiscal. An annual capex of Rs 200-250 crore is to be undertaken for the next 3 years to increase capacity in the bus segment in order to cater to increased demand for electric buses, to be funded through external debt (around Rs 300 crore) and accrual. Cash accrual expected at Rs 200-250 crore each in fiscals 2022, 2023 (Rs 150-170 crore expected in fiscal 2021) should comfortably cover  yearly debt repayments of Rs 60-80 crore.

 

Weaknesses:

• Working capital intensive operations

Consolidated gross current assets (GCAs) are expected at 160 days as on March 31, 2021, driven by high receivables and moderate inventory. Working capital requirement is sensitive to the tooling business, and hence, tends to be cyclical. Further, the tooling business is volatile with high rejection rates and requiring development of new moulds for OEMs, leading to higher working capital requirement.

 

• Exposure 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. Hence, increasing the proportion of higher-margin products 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 160-170 crore in fiscal 2021 (Rs 200-250 crore in fiscal 2022) should comfortably cover repayment obligations of Rs 60-65 crore. Fund-based limits of Rs 670 crore were utilised 77% on average (on drawing power) over the eight months ended December 2020.

Outlook: Stable

CRISIL Ratings believes that JAL will maintain its credit risk profile over the medium term on the back of an established position in the auto components industry, healthy relationships with OEMs, and comfortable financial risk profile.

Rating Sensitivity factors

Upward factors

• Expansion in scale of operations supported by improving customer/product diversity and increase in profitability
• Improvement in financial risk profile and liquidity for instance debt/earnings before interest, tax, depreciation and amortisation (EBITDA) ratio below 2.5-2.6 times on a sustained basis 

 

Downward factors

• Higher-than-expected debt funded capex adversely impacting credit metrics with debt/EBITDA of more than 3.0-3.5 times on a sustained basis
• Increase in working capital requirements leading to GCAs of more than 200 days or bank limit utilisation above 90%
• Profitability is significantly weaker-than-expected 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 services to esteemed clients that 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 and the associations include Arcelor Mittal, Cornaglia, Dassault Systems, JFE Steel, Ogihara, Solaris Bus & Coach S.A. and Sumitomo. The organisation's structure enables each business unit to chart its own future and simultaneously leverage synergies across its competencies. JAL has 8 manufacturing facilities -6 for sheet metal components and tooling and 2 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.

 

For the nine months ended December 2020, JAL on a standalone basis reported profit-after-tax of Rs 20 crore (Rs 53 crore for the corresponding period last year) on revenue of Rs 1235 crore (Rs 1483 crore).  

Key Financial Indicators

Particulars	Units	2020*	2019*
Revenue	Rs crore	1962	2231
Profit after tax (PAT)	Rs crore	69	98
EBITDA margin	%	12.5%	12.9%
Adjusted gearing	Times	1.01	1.44
Adjusted Interest coverage	Times	3.95	4.9

*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 cr)	Complexity levels	Rating assigned with outlook
NA	Term loan	NA	NA	Apr-23	16.67	NA	CRISIL A/Stable
NA	Term loan	NA	NA	Oct-24	45.36	NA	CRISIL A/Stable
NA	Term loan	NA	NA	May-22	11.11	NA	CRISIL A/Stable
NA	Term loan	NA	NA	Jan-23	15.58	NA	CRISIL A/Stable
NA	Term loan	NA	NA	May-24	55.26	NA	CRISIL A/Stable
NA	Term loan	NA	NA	Jan-24	9.38	NA	CRISIL A/Stable
NA	Term loan	NA	NA	Mar-24	15.38	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan	NA	NA	NA	30.00	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan*	NA	NA	NA	14.25	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan	NA	NA	NA	1.00	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan	NA	NA	NA	82.50	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan	NA	NA	NA	139.50	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan*	NA	NA	NA	115.00	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan	NA	NA	NA	25.00	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan	NA	NA	NA	67.00	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan*	NA	NA	NA	25.00	NA	CRISIL A/Stable
NA	Cash credit & working capital demand loan*	NA	NA	NA	40.00	NA	CRISIL A/Stable
NA	Letter of credit & bank guarantee	NA	NA	NA	56.00	NA	CRISIL A1
NA	Letter of credit & bank guarantee	NA	NA	NA	60.00	NA	CRISIL A1
NA	Letter of credit & bank guarantee	NA	NA	NA	145.00	NA	CRISIL A1
NA	Letter of credit & bank guarantee	NA	NA	NA	24.00	NA	CRISIL A1
NA	Letter of credit & bank guarantee	NA	NA	NA	37.95	NA	CRISIL A1
NA	Proposed term loan	NA	NA	NA	1.01	NA	CRISIL A/Stable
NA	Letter of credit & bank guarantee	NA	NA	NA	0.05	NA	CRISIL A1
NA	Letter of credit & bank guarantee#	NA	NA	NA	20.00	NA	CRISIL A/Stable
NA	Letter of credit & bank guarantee	NA	NA	NA	88.00	NA	CRISIL A1

*Fully interchangable with Non fund based

#Fully interchangable with Fund Based

Annexure – List of entities consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
JBM Ogihara Automotive pvt ltd	100%	Joint venture
Indo Toolings Pvt Ltd	100%	Subsidiary
JBM Ogihara Die tech Pvt Ltd	100%	Joint venture
JBM Solaris Electric vehicles Pvt Ltd	100%	Joint venture
JBM Electric Vehicles Pvt Ltd	100%	Subsidiary
MH Ecolife Emobility Pvt Ltd	100%	Subsidiary
VT e-mobility pvt ltd	100%	Subsidiary

CRISIL consolidates 100% of the above entities