Rating Rationale
October 17, 2019 | 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 the ratings on the bank facilities of JBM Auto Limited (JAL) at 'CRISIL A/Stable/CRISIL A1'.
 
The ratings reflect established market position in sheet metal components with diversified customer profile, long standing market presence of JBM Group in auto component industry and comfortable financial risk profile. The ratings are partly offset by working capital nature of business, exposure to volatility in raw material cost and 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 owing to the slowdown in domestic automobile industry. However, this should be partly offset by expected increase in revenues from tooling business and revenues from bus division with healthy order book (expected revenue contribution at 18-20% over fiscals 2020 and 2021 compared to 15% of 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 of more profitable tooling revenues and improving profitability of bus division. As a result, albeit the subdued growth outlook, cash accruals are expected to be marginally lower than earlier expectation. Cash accruals will increase to Rs 170-200 crore at a slower pace compared to earlier expectations.
 
Financial risk profile is expected to remain comfortable despite lower growth in cash accruals due to expected low capex intensity and normalisation of working capital. 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. This is due to increase in debtor days and booking of large bus order during March 2019. As a result, debt metrics such as interest coverage moderated to 4.9 times in fiscal 2020 compared to 5.54 previous fiscal and improvement in gearing was slower at 1.44 times.
 
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 and/or steep moderation in credit metrics due to prolonged slowdown in the automobile industry will remain a rating sensitivity factor. 
 
Going forward, working capital is expected to normalise with debtor days improving to 85-90 days in fiscal 2020 against debtor days of 110 days in fiscal 2019. Low capex intensity, normalisation of working capital and healthy cash accruals are expected to result in reduction in total debt to below Rs 650 crore by March 31, 2020. Liquidity to remain adequate with unutilised bank lines and healthy cash generation. Any higher than expected moderation in cash accruals and/or steep moderation in credit metrics due to prolonged slowdown in the automobile industry will remain a rating sensitivity factor.

Analytical Approach

CRISIL has combined the business and financial risk profiles of all its subsidiaries and JBMAPL fully (from fiscal 2018) and other joint ventures proportionately. That's because all these entities, collectively referred to as the 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 MSIL, Ford, Mahindra & Mahindra as well as CV players like Daimler and Eicher, JAL has a solid base of repeat business from these customers. Company 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.
 
* Sustained operating performance despite the evident industry wide slowdown
The company's operating performance is expected to track the past trend with a slight uptick in margins despite the scaling down of operations that is expected to hit the industry and the economy as a whole. In these volatile times, CRISIL expects JAL to show strong resistance to the industry trend and leverage its superior market position to register better than industry average performance.
 
* Comfortable financial risk profile
Healthy financial risk profile of JAL with net worth (consolidated) of around Rs 554 crore and gearing of 1.44 times as on March 31, 2019. Interest coverage and NCATD also remained comfortable at 4.9 times and 0.22 times respectively, with healthy cash accruals 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. Gearing of JAL is expected to improve gradually and remain below 1 time in the medium term. Moderate capex, progressive reduction in debt, and healthy cash accrual should help strengthen the financial risk profile.
 
Weakness
* Working capital intensive operations
Due to the apparent slowdown, fresh orders are expected to slow down over the near term with many OEMs shutting their plants to normalise production levels. This can be observed from increasing debtor and inventory days. Capacity utilizations are expected to come down in the near future putting downward pressure on overall performance.
 
* Loss making, albeit improving bus division with high competitive intensity.
JAL commercialised its bus division in fiscal 2016, however the scale up is yet to materialise completely, despite the improvement in FY19. This also led to continuing losses in the business. Execution of the new order of around 300 buses to Navi Mumbai Municipal Corporation, Spicejet Limited & 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 monitorable. CRISIL believes that the bus division faces intense competition from the large players and will continue to monitor the performance.
 
Liquidity: Adequate
JAL has adequate liquidity driven by expected cash accruals of more than Rs.150-180 crore per annum in FY20 and FY21 and cash and cash equivalents of Rs.10 crore as on March 31, 2019. JAL also has access to fund based limits of Rs.800 crore, utilized to the tune of 61% on an average over the 12 months ended August 19. No major planned capex lends comfort with repayments of 115 crore Vis a Vis Net cash accruals of 177 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 factor
* 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 for instance debt/EBITDA below 1-1.5 times on sustained basis  
 
Downward factor
* Higher than expected debt funded capital expenditure adversely impacting credit metrics with Debt/EBITDA more than 3 times
* Sustained increase in working capital requirement leading to gross current assets days of more than 200
* Operating profitability is significantly weaker-than-expected leading to lower cash accruals

About the Company

JBM Auto Ltd (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.

YTD performance experienced some moderation with sales of 389 crore in Q1FY20 as compared to 482 crore in Q1FY19, however improvement in operating efficiency saw operating margin improve to 12.7% vs 12.5% , with PAT of 16 crore vs 24 crore same period last year.

JAL as on September 2019 had received shareholder approval as well as approval from NCLT Mumbai and NCLT Delhi for merger of JBM Auto Systems and JBM MA with JBM Auto. Company is just awaiting written approval from NCLT Mumbai for merger of JBM MA. Management expects these mergers to be complete by Q3FY20.

Key Financial Indicators
Particulars Units 2019 2018
Revenue Rs crore 2171 2045
Profit after tax (PAT) Rs crore 110 107
EBITDA margins % 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 Jun-2019 6.25 CRISIL A/Stable
NA Term Loan NA NA Mar-2019 4.7 CRISIL A/Stable
NA Term Loan NA NA Jan-2023 25 CRISIL A/Stable
NA Term Loan NA NA Sep-2019 7.46 CRISIL A/Stable
NA Term Loan NA NA Jun-2019 5.73 CRISIL A/Stable
NA Cash Credit*! NA NA NA 30 CRISIL A/Stable
NA Cash Credit**! NA NA NA 14.25 CRISIL A/Stable
NA Cash Credit@! NA NA NA 10 CRISIL A/Stable
NA Cash Credit@@! NA NA NA 95 CRISIL A/Stable
NA Cash Credit**! NA NA NA 35 CRISIL A/Stable
NA Cash Credit**! NA NA NA 10 CRISIL A/Stable
NA Cash Credit! NA NA NA 26 CRISIL A/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 589.05 CRISIL A/Stable
NA Letter of credit & Bank Guarantee^ NA NA NA 80 CRISIL A/Stable
NA Letter of credit & Bank Guarantee^^ NA NA NA 25 CRISIL A/Stable
NA Letter of credit & Bank Guarantee% NA NA NA 25 CRISIL A/Stable
NA Letter of credit & Bank Guarantee NA NA NA 42.5 CRISIL A1
*Interchangeable with Rs 5 cr of non-fund based
**Interchangeable with  non-fund based
@Interchangeable with Rs 5 cr of non-fund based
@@Interchangeable with Rs 18 cr of non-fund based
^Interchangeable with  Rs 65 crore fund based
^^Interchangeable with  Rs 20 crore fund based
%Interchangeable with  Rs 20 crore fund based
!Interchangeable with Working Capital Demand Loan

Annexure - List of entities consolidated
Sr. No Subsidiary Companies: Subsidiary/ Joint Venture Extent of consolidation
1 JBM Auto Systems private Limited Subsidiary 100%
2 JBM MA Automotive - 100%
3 JBM Ogihara Joint Venture 100%
4 Indo Toolings Private limited - 100%
5 JBM Ogihara Die tech private limited Subsidiary 100%
6 JBM Solaris Electric vehicles private limited Subsidiary 100%
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  858.44  CRISIL A/Stable      03-10-18  CRISIL A/Stable    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  172.50  CRISIL A/Stable/ CRISIL A1      03-10-18  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 49.14 CRISIL A/Stable Term Loan 49.14 CRISIL A/Stable
Proposed Long Term Bank Loan Facility 589.05 CRISIL A/Stable Proposed Long Term Bank Loan Facility 589.05 CRISIL A/Stable
Letter of credit & Bank Guarantee 42.5 CRISIL A1 Letter of credit & Bank Guarantee 42.5 CRISIL A1
Cash Credit*! 30 CRISIL A/Stable Cash Credit*! 30 CRISIL A/Stable
Letter of credit & Bank Guarantee^ 80 CRISIL A/Stable Letter of credit & Bank Guarantee^ 80 CRISIL A/Stable
Cash Credit**! 14.25 CRISIL A/Stable Cash Credit**! 14.25 CRISIL A/Stable
Cash Credit@! 10 CRISIL A/Stable Cash Credit@! 10 CRISIL A/Stable
Cash Credit@@! 95 CRISIL A/Stable Cash Credit@@! 95 CRISIL A/Stable
Cash Credit**! 35 CRISIL A/Stable Cash Credit**! 35 CRISIL A/Stable
Cash Credit**! 10 CRISIL A/Stable Cash Credit**! 10 CRISIL A/Stable
Cash Credit! 26 CRISIL A/Stable Cash Credit! 26 CRISIL A/Stable
Letter of credit & Bank Guarantee^^ 25 CRISIL A/Stable Letter of credit & Bank Guarantee^^ 25 CRISIL A/Stable
Letter of credit & Bank Guarantee% 25 CRISIL A/Stable Letter of credit & Bank Guarantee% 25 CRISIL A/Stable
Total 1030.94 -- Total 1030.94 --
*Interchangeable with Rs 5 cr of non-fund based
**Interchangeable with  non-fund based
@Interchangeable with Rs 5 cr of non-fund based
@@Interchangeable with Rs 18 cr of non-fund based
^Interchangeable with  Rs 65 crore fund based
^^Interchangeable with  Rs 20 crore fund based
%Interchangeable with  Rs 20 crore fund based
!Interchangeable with Working Capital Demand Loan
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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