Rating Rationale
August 07, 2020 | Mumbai
JBM Auto Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.1140 Crore (Enhanced from Rs.1030.94 Crore)
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

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

The rating reaffirmation takes into account expected decline of 20-25% in the auto components division (78% of revenues in fiscal 2020) revenues of JAL, on account of weak demand from auto industry in fiscal 2021 induced by the Covid-19 pandemic. However, this will be offset partially by expected significant improvement in revenues from its original equipment manufacturing (OEM) bus division (12% of revenue of FY20) given healthy order book at present and expected further inflow of orders. Due to decline in business volumes in fiscal 2021, operating profitability is expected to moderate by 100-150 bps this fiscal.

However, JAL has adequate liquidity in the form of unutilised drawing power of Rs 45-50 crore, undisbursed term loan of Rs 30 crore and new sanctioned working capital facilities of Rs 80 crore. JAL's bank limit utilisation remained at 85% in June, 2020. Adequate liquidity cushion along with realisation of debtors will support to sustain the impact of pandemic in near term.

Despite lowering of capex in fiscal 2021, debt protection metrics to remain moderate in fiscal 2021 due to lower profitability and expectation of total debt to remain at around Rs 600 crore in fiscal 2021. Debt metrics such as interest coverage ratio is estimated to moderate to 4 times in fiscal 2020, compared to 4.9 times in the previous fiscal. Gearing is expected to remain just below 1 time in the near term and improve thereafter as debt is repaid progressively. Any higher-than-expected capex or steep moderation in credit metrics on account of the prolonged slowdown in the automobile industry, will remain a rating sensitivity factor.

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 automotive (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 original equipment manufacturers (OEMs).

Analytical Approach

CRISIL 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 - Details of Consolidation, 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 Limited (MSIL; rated 'CRISIL AAA/Stable/CRISIL A1+'), Ford India private ltd, Mahindra & Mahindra (rated 'CRISIL AAA/Stable/CRISIL A1+') as well as commercial vehicle (CV) players like Daimler and Eicher Motors, JAL has a solid base of repeat business from these customers. Top 5 customer contribute about 60% to overall revenues. Tooling business also contributes about 10% to overall revenue from customers and is a higher margin business. JAL has also initiated relationships to supply to 2-wheeler manufacturers like HMSI & Eicher which is seen as a buffer to its major PV clients like MSIL, Honda and others.

A diverse clientele provides revenue stability, as reflected in contribution to revenue of the passenger car, commercial vehicle, and two- and three-wheeler segments at 65%, 10%, and 10%, respectively. Furthermore, ramp-up in revenue from the tooling and OEM bus segment, driven by orders are both likely to support operating performance in the current fiscal. As a result due to this revenue diversity decline in revenue is estimated to be lower at 9-10% in fiscal 2020 as compared to 20% decline for the auto components industry.

* 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 risk profile. Jay Bharat Maruti Ltd (JBML, a JV 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 also has an established presence in sheet metal components and 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.

* Improving bus division with healthy order book
JAL's bus revenues is estimated to increase to Rs 236 crore in fiscal 2020 from Rs 18 crore in fiscal 2018. Due to scale up of operations, operating profitability of the division also improved with earnings before interest and tax (EBIT) margin moving from -65% to 3.5% during the period. Current order book of 320 buses, with estimated revenue of 360-400 crore and expected new orders will drive strong revenue growth of this segment in the medium term. Timely execution and new order inflow will remain monitorable.

* Comfortable financial risk profile
Healthy financial risk profile of JAL with expected net worth (consolidated) of around Rs 630 crore and gearing of 0.97 time as on March 31, 2020. Interest coverage and NCATD are estimated to moderate to 4 times and 0.26 times respectively in fiscal 2020, from 4.9 and 0.22 times respectively in the previous fiscal.

JAL's liquidity has moderated on account of shutdown of operations in April 2020 reflected in increased bank limit utilisation levels averaging 75% over 4 months ended April 2020. While liquidity in the short term is adequate to cover any fixed expenses, any prolonged shutdown of operations may impact liquidity further, and remains a key monitorable.

Lowering of capex, progressive reduction in long term debt, and cash accrual of Rs 140-150 crore will support to maintain gearing below one time in fiscal 2021.
 
Weaknesses:
* Working capital intensive operations
Consolidated gross current assets (GCAs) are estimated around 144 days as on March 31, 2020, driven by high receivables and moderate inventory. Working capital requirement is sensitive to the tooling business, and hence, tends to be cyclical. Furthermore, the tooling business is volatile with high rejection rates and requiring development of new moulds for OEMs, leading to higher working capital requirement. Due to the apparent slowdown, fresh orders are expected to be slower than earlier anticipated. Capacity utilizations are expected to come down in the near future putting downward pressure on overall performance.

* 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

JAL has adequate liquidity driven by expected cash accruals about Rs.155-170 crore in fiscal 2020 and Rs 140-150 crore in fiscal 2021. JAL also has access to fund based limits of Rs.670 crore, utilized to the tune of 75% on average (on drawing power) over the last 4 months ended April 2020. No major planned capex lends comfort with repayments in fiscal 2021 of Rs 80 crore Vis a Vis net cash accruals of 140-150 crore. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements.

Outlook: Stable

CRISIL 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, a healthy relationship with OEMs, and a comfortable financial risk profile.
 
Rating Sensitivity Factors
Upward factors
* Sustained improvement in scale of operations supported by improving customer/product diversity and improvement in operating profitability
* Improvement in financial risk profile and liquidity for instance debt/EBITDA below 1-1.2 times on sustained basis 
 
 Downward factors
* Higher than expected debt funded capital expenditure adversely impacting credit metrics with Debt/EBITDA more than 3-3.5 times
* Sustained increase in working capital requirement leading to gross current assets days of more than 200 or bank limit utilisation above 90% on sustained basis
* Operating profitability is significantly weaker-than-expected leading to lower cash accruals.

About the Company

JAL was incorporated in 1996 and is engaged in the manufacturing of sheet metal components, assemblies & Sub-assemblies, Tools, Dies & Moulds. JBM 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, Volkswagen and many more. 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., Sumitomo, etc. The organization's structure enables each business unit to chart its own future and simultaneously leverage synergies across its competencies. JBM Auto has 8 manufacturing facilities -6 for Sheet metal components and tooling and 2 for Bus.

Key Financial Indicators
Particulars Units 2020* 2019
Revenue Rs crore 1947 2171
Profit after tax (PAT) Rs crore 69 107
EBITDA margin % 11.5% 12%
Adjusted gearing Times 0.97 1.44
Adjusted Interest coverage Times 4 4.9
*Unadjusted numbers

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
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 345.00 NA CRISIL A/Stable
NA Cash Credit & Working Capital demand loan* NA NA NA 194.25 NA CRISIL A/Stable
NA Letter of credit & Bank Guarantee# NA NA NA 20.00 NA CRISIL A/Stable
NA Letter of credit & Bank Guarantee NA NA NA 411.00 NA CRISIL A1
NA Proposed Term Loan NA NA NA 1.01 NA CRISIL A/Stable
*Fully interchangable with Non fund based
#Fully interchangable with Fund Based
 
Annexure - List of Entities Consolidated
Sr.No Subsidiary Companies: Subsidiary/ Joint Venture Extent of consolidation
1 JBM Ogihara Joint Venture 100%
2 Indo Toolings Pvt Ltd - 100%
3 JBM Ogihara Die tech Pvt Ltd Subsidiary 100%
4 JBM Solaris Electric vehicles Pvt Ltd Subsidiary 100%
CRISIL consolidates 100% of the above entities
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  709.00  CRISIL A/Stable  27-05-20  CRISIL A/Stable  30-11-19  CRISIL A/Stable  03-10-18  CRISIL A/Stable    --  -- 
        24-01-20  CRISIL A/Stable  22-11-19  CRISIL A/Stable           
            17-10-19  CRISIL A/Stable           
Non Fund-based Bank Facilities  LT/ST  431.00  CRISIL A/Stable/ CRISIL A1  27-05-20  CRISIL A/Stable/ CRISIL A1  30-11-19  CRISIL A/Stable/ CRISIL A1  03-10-18  CRISIL A/Stable/ CRISIL A1    --  -- 
        24-01-20  CRISIL A/Stable/ CRISIL A1  22-11-19  CRISIL A1           
            17-10-19  CRISIL A/Stable/ CRISIL A1           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Term Loan 168.74 CRISIL A/Stable Cash Credit 66 CRISIL A/Stable
Cash Credit & Working Capital demand loan 345 CRISIL A/Stable Cash Credit*** 40 CRISIL A/Stable
Cash Credit & Working Capital demand loan* 194.25 CRISIL A/Stable Cash Credit** 63.25 CRISIL A/Stable
Letter of credit & Bank Guarantee# 20 CRISIL A/Stable Cash Credit% 95 CRISIL A/Stable
Letter of credit & Bank Guarantee 411 CRISIL A1 Cash Credit@@ 192.5 CRISIL A/Stable
Proposed Term Loan 1.01 CRISIL A/Stable Cash Credit$$ 47 CRISIL A/Stable
-- 0 -- Letter of Credit 45 CRISIL A1
-- 0 -- Letter of credit & Bank Guarantee## 130 CRISIL A/Stable
-- 0 -- Letter of credit & Bank Guarantee@ 25 CRISIL A/Stable
-- 0 -- Letter of credit & Bank Guarantee$ 31 CRISIL A/Stable
-- 0 -- Letter of credit & Bank Guarantee 81 CRISIL A1
-- 0 -- Long Term Loan 18.62 CRISIL A/Stable
-- 0 -- Proposed Long Term Bank Loan Facility 123.15 CRISIL A/Stable
-- 0 -- Term Loan 73.42 CRISIL A/Stable
Total 1140 -- Total 1030.94 --
*Fully interchangable with Non fund based
#Fully interchangable with Fund Based
***Interchangable with Rs.5 Cr.of Non fund based
**Interchangable with Non fund based
%Interchangable with Rs.12 Cr.of Non fund based
$Interchangable with Working Capital Demand Loan
##Interchangable with Rs.100 Cr.of fund Based
@Interchangable with Rs.20 Cr.of fund Based
@@Interchangeable with letter of credit & bank guarantees
$$Interchangeable with letter of credit & bank guarantees upto Rs 15 crore
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation

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