Key Rating Drivers & Detailed Description

Strengths:

Established position in the Indian wagon and related component segment with significant backward integration: Promoters’ association with the wagon industry for more than three decades has helped establish a significant market presence, and develop backward integration. Product portfolio comprising rail products approved by Research Design and Standards Organisation (RDSO) and Association of American Railroads (AAR) has been expanded over the years.

Furthermore, track record of timely order execution has ensured better allocation of orders as reflected from the fact that JWL has been able to bag more than 20% of orders floated by Indian Railways over the last few years including current year also. Though, the Indian wagon industry had been plagued by inconsistency in orders placed by Indian Railways in the past 2-3 years, the company has diversified its customer base by including private players like Steel Authority of India Limited (SAIL), Gatex India Limited (Gatex) and Adani Ports & SEZ Ltd (Adani), etc. Backed by its strong execution capabilities, the company has also bagged orders from Ministry of Defense in the current year. Also, the company has been able to tide over this challenge on account of its cost-efficient and integrated nature of operations.

Currently the group has healthy outstanding order book of around Rs 1105 crores as on October 31, 2020 and expects to bag sizeable orders over the medium term. Timely receipt of new orders and execution of orders in hand will be key monitorable.

Strong financial risk profile: Jupiter group’s networth was healthy at around Rs 274 crores and gearing was 0.64 time as on March 31, 2020. Both networth level and capital structure has improved significantly post infusion of PE funds in the current fiscal. With healthy profitability and controlled debt levels, debt protection metrics are also expected to remain above-average over the medium term. Financial profile is expected to remain strong over medium term.

Weakness:

Dependence on IR for wagon orders: Revenue is primarily derived from IR, and from supply of wagon components to manufacturers that also execute orders for IR. Lack of steady orders from IR has constrained top line and operating performance of wagon manufacturers historically. The revenues has increased in last few fiscals through fiscal 2020 owing to healthy order flow from private parties as well and change in Indian Railways’ policy of procurement of steel component by wagon manufacturers.

Exposure to risks relating to fluctuation in raw material prices, and low pricing power in soft industry conditions: The key inputs include steel and related products. The projects have a long execution period, extending to over a year, and not all orders are covered by a price-variation clause. Hence, the company is exposed to fluctuations in steel prices throughout the project execution period. On the other hand, pricing power is restricted because of bid-based orders by IR (main client). IR’s orders are spread across suppliers and are decided based on the bids submitted by wagon manufacturers. Although the quantity is allocated as per the supplier’s past performance, the company has to match the prices of the lowest bidder to receive the final order.

Moderate working capital requirement: The Jupiter group’s operations are working capital intensive, as reflected in its high gross current assets (GCAs). The GCA days primarily result from the high inventory requirement. GCA was 137 days and inventory was 80 days as on March 31, 2020. Working capital requirement is likely to increase further, driven by a change in IR’s policy. Efficiency in working capital management amid increase in scale shall continue to be key rating driver over the medium term.

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