Rating Rationale
January 24, 2020 | Mumbai
JBM Auto Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated 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 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, pricing pressures from original equipment manufacturers (OEMs), and loss making, albeit improving bus division.

JAL's operating performance is expected to remain subdued over the medium term on account of the slowdown in the domestic automobile industry. However, this should be partly offset by expected increase in revenue from the tooling and bus divisions with healthy order book (expected revenue contribution at 18-20% over fiscals 2020 and 2021, compared to 15% in fiscal 2019).

Despite moderate growth outlook with expected decline of 7-10%, operating profitability is expected to remain at 12% this fiscal with higher contribution from the tooling division and improving profitability of the bus division. As a result, despite the subdued growth outlook, cash accrual is expected to be only marginally lower than the earlier expectation. Cash accrual will increase to Rs 170-200 crore at a slower pace compared to earlier expectations. The ratings also take into account the completion of the amalgamation of its subsidiaries, JBM Auto Systems Pvt Ltd and JBM MA Automotive Pvt Ltd, effective from January 1, 2020.

Despite muted growth in cash accrual, financial risk profile is expected to remain comfortable on account of low capital expenditure (capex) and stabilisation of working capital cycle. Total debt increased to Rs 797 crore as on March 31, 2019, from Rs 699 crore as on March 31, 2018, against expectation of reduction in debt. This was because of increase in debtor days and booking of a large bus order during March 2019. As a result, debt metrics such as interest coverage ratio moderated to 4.9 times in fiscal 2020, compared to 5.54 times in the previous fiscal.

Gearing is expected to remain over 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.

Going forward, working capital is expected to normalise with debtors improving to 85-90 days in fiscal 2020 against 110 days in fiscal 2019. Low capex intensity, normalisation of working capital, and healthy cash accrual are expected to result in reduction in total debt to below Rs 650 crore by March 31, 2020. Liquidity is expected to remain adequate with unutilised bank lines and healthy cash generation.

Analytical Approach

CRISIL has combined the business and financial risk profiles of all its subsidiaries and other joint ventures proportionately. This is 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 presence in the sheet metal components sector and diversified customer profile
JAL has an established market position in the sheet metal components sector, driven by healthy relationships with clients. The products cater to passenger vehicle, commercial vehicle, two-wheeler, and three-wheeler OEMs. Its customers include large OEMs, such as Mahindra & Mahindra Ltd (M&M; rated 'CRISIL AAA/Stable/CRISIL A1+'), Tata Motors Ltd (TML; rated 'CRISIL AA-/Negative/CRISIL A1+'), and Renault Nissan Automotive India Pvt Ltd. Increase in business from existing customers and new customers, such as FIAPL, Royal Enfield, and VE Commercial Vehicles Ltd through other group companies, will enhance customer diversity and scale of operations over the medium term. 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 segment, driven by orders for new models of OEMs, and increase in revenue from the bus division are both likely to 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 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 9,700 crore lends strong market presence and bargaining power.

CRISIL believes JAL will leverage the group's overall brand equity to win fresh orders and customers in the auto segment.

* Comfortable financial risk profile
Healthy financial risk profile of JAL with consolidated networth  of Rs 554 crore and gearing of 1.44 times as on March 31, 2019. Interest coverage and net cash accrual to total debt ratios also remained comfortable at 4.9 times and 0.22 time, respectively, with healthy cash accrual of Rs 177 crore in fiscal 2019.

Steady improvement in revenue and moderate operating profitability should help generate annual net cash accrual of more than Rs 180-200 crore over the medium term. The gearing is expected to improve gradually and remain below 1 time over the medium term. Moderate capex, progressive reduction in debt, and healthy cash accrual should help strengthen the financial risk profile.

Weaknesses
* Working capital-intensive operations
Consolidated gross current assets (GCAs) were around 152 days as on March 31, 2019, 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.

* Loss-making, albeit improving bus division amid intense competition
JAL commercialised its bus division in fiscal 2016, however the scale-up is yet to materialise, despite improvement in fiscal 2019. This also led to continuing losses in the business. Execution of the new order of 300 buses to Navi Mumbai Municipal Corporation, Spicejet Ltd, and InterGlobe Aviation Ltd, is expected to significantly improve the performance of the division in the near term. Timely execution and new order inflow will remain a key monitorable. CRISIL believes that the bus division faces intense competition from the large players and will continue to monitor its 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

Cash accrual is expected to be Rs 150-180 crore per annum in fiscals 2020 and 2021. JAL also has access to fund-based limits of Rs 800 crore, utilised at 61% on an average over the 12 months through August 2019. No major planned capex lends comfort with debt repayment of Rs 70 crore against net cash accrual of Rs 150-180 crore. CRISIL expects internal accrual, cash and cash equivalent, and unutilised bank lines to be sufficient to meet its debt obligation, as well as incremental working capital requirement.

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 diversity and improvement in operating profitability by 200 bps
* Improvement in financial risk profile and liquidity with debt to earnings before interest, tax, depreciation, and amortisation (EBITDA) ratio below 1-1.5 times on a sustained basis 

Downward Factors
* Higher-than-expected, debt-funded capex adversely impacting credit metrics with debt to EBITDA ratio of more than 3 times
* Sustained increase in working capital requirement leading to GCAs of more than 200 days
* Operating profitability is significantly weaker than expected, leading to lower cash accrual.

About the Company

JAL was incorporated in 1996 and 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 auto OEM industry and caters to diverse 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. JAL 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, and others. The organisational structure enables each business unit to chart its own future and simultaneously leverage synergies across its competencies. JAL has 8 manufacturing facilities, six for sheet metal components and tooling, and two for the bus division.

Amalgamation of JBM Auto Systems and JBM MA with JAL has been completed post approvals from the National Company Law Tribunal, effective from January 1, 2020.

For the six months ended September 30, 2019, JAL, on consolidated basis, reported a net profit Rs 40 crore on net sales of Rs 1,034 crore.

Key Financial Indicators
Particulars Units 2019 2018
Revenue Rs crore 2171 2045
Profit after tax (PAT) Rs crore 110 107
EBITDA margin % 12% 11.8%
Adjusted gearing Times 1.44 1.51
Interest coverage Times 4.9 5.5

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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 Cr) Rating
Assigned with Outlook
NA Term loan NA NA Jan-23 18.06 CRISIL A/Stable
NA Term loan NA NA Jul-24 45.36 CRISIL A/Stable
NA Term loan NA NA Jan-24 10 CRISIL A/Stable
NA Cash Credit* NA NA NA 40 CRISIL A/Stable
NA Cash Credit** NA NA NA 63.25 CRISIL A/Stable
NA Cash Credit NA NA NA 66 CRISIL A/Stable
NA Cash Credit# NA NA NA 95 CRISIL A/Stable
NA Cash Credit@@ NA NA NA 192.5 CRISIL A/Stable
NA Cash Credit$$ NA NA NA 47 CRISIL A/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 123.15 CRISIL A/Stable
NA Long Term Loan NA NA Feb-2022 2.81 CRISIL A/Stable
NA Long Term Loan NA NA Mar-2020 15.81 CRISIL A/Stable
NA Letter of credit &
Bank Guarantee##		 NA NA NA 130 CRISIL A1
NA Letter of credit & Bank Guarantee NA NA NA 81 CRISIL A1
NA Letter of credit &
Bank Guarantee@		 NA NA NA 25 CRISIL A1
NA Letter of credit & Bank Guarantee$ NA NA NA 31 CRISIL A1
NA Letter of Credit NA NA NA 45 CRISIL A1
*Interchangable with Rs. 5 Cr. of Non fund based
**Interchangable with Non fund based
#Interchangable with Rs. 12 Cr. of Non fund based
$Interchangable with Working Capital Demand Loan
##Interchangable with Rs. 100 Cr. of fund Based
@Interchangable with Rs. 20 Cr. of fund Based
@@Interchangeable with letter of credit & bank guarantees
$$Interchangeable with letter of credit & bank guarantees upto Rs 15 crore
 
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%
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  718.94  CRISIL A/Stable      30-11-19  CRISIL A/Stable  03-10-18  CRISIL A/Stable    --  -- 
            22-11-19  CRISIL A/Stable           
            17-10-19  CRISIL A/Stable           
Non Fund-based Bank Facilities  LT/ST  312.00  CRISIL A/Stable/ CRISIL A1      30-11-19  CRISIL A/Stable/ CRISIL A1  03-10-18  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
Cash Credit* 40 CRISIL A/Stable Cash Credit* 40 CRISIL A/Stable
Cash Credit** 63.25 CRISIL A/Stable Cash Credit** 63.25 CRISIL A/Stable
Cash Credit 66 CRISIL A/Stable Cash Credit 26 CRISIL A/Stable
Cash Credit# 95 CRISIL A/Stable Cash Credit# 95 CRISIL A/Stable
Letter of Credit 45 CRISIL A1 Letter of credit & Bank Guarantee## 130 CRISIL A/Stable
Letter of credit & Bank Guarantee## 130 CRISIL A/Stable Letter of credit & Bank Guarantee 81 CRISIL A1
Letter of credit & Bank Guarantee 81 CRISIL A1 Proposed Long Term Bank Loan Facility 466.27 CRISIL A/Stable
Long Term Loan 18.62 CRISIL A/Stable Term Loan 73.42 CRISIL A/Stable
Proposed Long Term Bank Loan Facility 123.15 CRISIL A/Stable Letter of credit & Bank Guarantee@ 25 CRISIL A/Stable
Term Loan 73.42 CRISIL A/Stable Letter of credit & Bank Guarantee$ 31 CRISIL A/Stable
Cash Credit@@ 192.5 CRISIL A/Stable      
Cash Credit$$ 47 CRISIL A/Stable      
Letter of credit & Bank Guarantee@ 25 CRISIL A/Stable -- 0 --
Letter of credit & Bank Guarantee$ 31 CRISIL A/Stable      
Total 1030.94 -- Total 1030.94 --
*Interchangable with Rs. 5 Cr. of Non fund based
**Interchangable with Non fund based
#Interchangable with Rs. 12 Cr. of Non fund based
$Interchangable with Working Capital Demand Loan
##Interchangable with Rs. 100 Cr. of fund Based
@Interchangable with Rs. 20 Cr. of fund Based
@@Interchangeable with letter of credit & bank guarantees
$$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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