| JBM Auto Limited | ||||||
| Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 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 JBM Auto Limited (JAL).
Ratings on the bank loan facilities of JAL continue to reflect the established market position with foray into e-bus manufacturing along with a diversified customer profile, longstanding presence in the auto components industry and average financial risk profile. These strengths are partially offset by high leverage in the bus manufacturing and operating division, working capital intensive nature of business and susceptibility to volatility in raw material cost and pricing pressures from OEMs.
Revenue in fiscal 2024 is expected to grow by 35-38% driven by significant increase in revenue from its original equipment manufacturing (OEM) bus division backed by a strong orderbook of 4,500 buses, continued growth in the automotive (auto) components division and new orders in the tooling division. Additionally, due to benefit of operating leverage and backward integration, operating profitability is likely to remain stable at 10-11% this fiscal. Slower-than-expected ramp-up in execution of bus OEM orderbook due to holdup in clearances, as seen last fiscal, will remain a key sensitivity factor.
The business risk profile of JAL is supported by improving revenue diversity with ramp-up of the bus segment. The company has received orders from multiple municipal corporation transport divisions to supply buses and has set up subsidiaries 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 only undertake maintenance capex, having undertaken major capex of Rs. ~600 crore in the last 3 years to expand its bus manufacturing capacity. The company is also expected to make investments (via equity infusion) of Rs. ~800 crore in the Gross Cost Contract (GCC) special purpose vehicles (SPVs) from fiscal 2024 to fiscal 2026 for the tenders it has won under CESL-1 and CESL-2, while the debt to be contracted by GCC SPVs is not expected to be backed by corporate guarantees by JAL for the full tenor of the loan, as communicated to CRISIL Ratings by JAL’s management. The maintenance capex and equity infusion in GCC SPVs are expected to be majorly funded though external debt. As a result, total debt is expected to increase from Rs. 1571 crore in fiscal 2023 to Rs. 1,850-1900 crore in fiscal 2024. However, debt/ETBIDA is expected to improve from 4.1 time in fiscal 2023 to ~3.5 time in fiscal 2024 driven by increased EBTIDA contribution from the bus OEM division. Debt increased from Rs. 1149 in fiscal 2022 to Rs. 1571 crore in fiscal 2023 driven by debt funded capex and increased short term debt taken to fund the cash flow mismatches from pending receivables from Ecolife Green One Mobility, which have now been largely cleared. Any change in the stance on corporate guarantees to be given for the debt taken by the GCC SPVs will remain a key monitorable.
With commercialization of the capital expenditure (capex) and a strong orderbook in the e-bus segment, cash accrual is expected to increase over Rs 270-290 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 times in fiscal 2024 from 3.7 time in fiscal 2023. Gearing is likely to be around 1.8-1.5 times in the medium term from 1.9 times in as on March 31, 2023. Lower-than-expected ramp-up in cash accrual resulting in sustained high leverage will be a key monitorable |
Analytical Approach CRISIL Ratings has changed its analytical approach and has combined the business and financial risk profiles of JAL and all its subsidiaries, apart from the special purpose vehicles. JBM Green and JBM EV Industries that are joint ventures of its subsidiary, JBM Electric Vehicle, have been fully consolidated because these entities are engaged in similar business lines, with a common management and strong business linkage. Other joint ventures have been consolidated to the extent of JBM Auto’s shareholding.
The special purpose vehicle (SPV) MH Ecolife Emobility Private Limited and Ecolife Green One Mobility Private Limited have been fully consolidated as the company has provided an unconditional and irrevocable guarantee against the project debt undertaken in the SPVs.
Further, CRISIL Ratings has moderately consolidated upcoming GCC SPVs and existing SPV, VT Emobility Private Limited, to the extent of equity commitment and cash flow mismatches during operations.
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 foray into e-bus manufacturing along with a diverse customer profile With longstanding relationships with Tata Motors Ltd (‘CRISIL AA/Stable/CRISIL A1+’) and Mahindra & Mahindra Ltd (‘CRISIL AAA/Stable/CRISIL A1+’) as well as commercial vehicle (CV) players such as VE Commercial Vehicles Ltd, JAL has a solid base of repeat business from these customers in the component business which accounts for ~80% of the revenue. 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 Tata Motors Ltd and Mahindra & Mahindra. The tooling business accounts for about ~7% of revenue and is a high-margin business, which continues to grow in line with the industry.
The company has also ventured into the e-bus division since 2019 with 12% of the company’s revenue coming from this segment in fiscal 2023. With a strong focus on e-bus manufacturing and execution of 4,500 bus orders in the 3 years, revenue contribution from this segment is expected to increase to ~30% in fiscal 2024, supporting the revenue diversification of the company.
A diverse clientele provides revenue stability, with top 5 customers accounting for 50% of the revenue. Ramp-up in revenue from OEM bus segment should support diversification of revenue and operating performance this fiscal.
Longstanding presence in the auto components industry Industry presence of over 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 group company, manufactures large and medium sheet-metal components, chassis, suspension parts, assemblies, and sub-assemblies for Maruti Suzuki India Ltd (MSIL; ‘CRISIL AAA/Stable/CRISIL A1+’). Neel Metal Products Ltd, wnother group company, supplies steel components (steel blanks and tubes) to JAL and JBML as input for sheet metal components.
Average financial risk profile Networth and gearing were moderate at Rs 840 crore and 1.9 times, respectively, as on March 31, 2023. Interest coverage and net cash accrual to total debt (NCATD) ratios reduced to 3.7 times and 0.15 time, respectively, in fiscal 2022 from 4.83 times and 0.20 time, respectively, the previous fiscal, due to debt funded capex and increased debt due to cash flow mismatches from pending receivables from Ecolife Green One Mobility, which have now been largely cleared.
Over the next 2-3 years, JAL is likely to only undertake maintenance capex,having undertaken major capex of Rs. ~600 crore in the last 3 years to expand its bus manufacturing capacity. The company is also expected to make investments of Rs. ~800 crore in the GCC SPVs from fiscal 2024 to fiscal 2026 for the tenders it has won under CESL-1 and CESL-2. The capex and equity infusion are expected to be majorly funded though external debt. As a result, total debt is expected to increase from Rs. 1571 crore in fiscal 2023 to Rs. 1,853 crore in fiscal 2024. However, debt/ETBIDA is expected to improve from 4.1 time in fiscal 2023 to ~3.5 time in fiscal 2024 driven by increased EBTIDA contribution from the bus OEM division.
With commercialization of the capital expenditure (capex) and a strong orderbook in the e-bus segment, cash accrual is expected to increase over Rs 270-290 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 times in fiscal 2024 from 3.7 time in fiscal 2023. Gearing is likely to be around 1.8-1.5 times in the medium term from 1.9 times in as on March 31, 2023. Lower-than-expected ramp-up in cash accrual resulting in sustained high leverage will be a key monitorable
Weakness: High equity commitments in the in bus OEM division with ramp up in orders Revenue from the bus segment is expected to increase to Rs ~1,600 crore in fiscal 2024 from Rs 240 crore in fiscal 2020 driven by execution of healthy orderbook of ~4,500 buses. A sustained increase in scale and profitability will support the business. Profitability was impacted in fiscal 2023 with EBIT of 1% in this division due to lower-than-expected execution of orderbook. However, with aforementioned ramp up in bus order book execution and government’s increased focus on e-buses in public transport, EBIT margins are expected to reach 9-10% this fiscal.
Due to the ramp up in orderbook, the company will require to make equity infusion of Rs. ~800 crore in the GCC SPVs from fiscal 2024 to fiscal 2026 for the tenders it has won under CESL-1 and CESL-2. The maintenance capex and equity infusion are expected to be majorly funded though external debt. As a result, total debt is expected to increase from Rs. 1571 crore in fiscal 2023 to Rs. 1,850-1900 crore in fiscal 2024 keeping the financial risk profile average. Any higher than expected debt funded equity infusion in the GCC SPVs will remain a key rating sensitivity factor.
Working capital-intensive operations Consolidated gross current assets (GCAs) are at 182 days as on March 31, 2023 and expected to be around ~170 days in the medium term, 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. Any increase in working capital cycle due to execution of bus orders resulting in 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 290-360 crore over the medium term, should comfortably cover debt obligation of Rs 150-220 crore. Fund-based limits of Rs 1091 crore were utilised 65% on average over the 12 months ended June 2023. |
Outlook: Stable CRISIL Ratings believes JAL will continue to benefit from its established position in the auto components industry, healthy relationships with OEMs and moderate financial risk profile |
Rating Sensitivity Factors Upward Factors
Downward Factors
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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 buses and one Skill Development Centre (SDC). It has also set up various subsidiaries to cater to the increased demand from the electric bus segment. |
Key Financial Indicators*
*CRISIL Ratings adjusted numbers |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
**Fully interchangeable with Non fund based |
Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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