Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank loan facilities of Jupiter Wagons Limited (JWL). CRISIL Ratings has also withdrawn its rating on the commercial paper of Rs 50 crore at the company’s request and upon receipt of the required documentation. This is in line with CRISIL Ratings’ policy on withdrawal of ratings.

 

The ratings continue to reflect the established market position supported by technology tie-ups and partnerships, improving scale of operations and healthy order book providing revenue visibility, and robust financial risk profile. These strengths are partially offset by exposure to risks relating to fluctuation in raw material prices, intense competition, working capital intensive operations and risks associated with ongoing capex.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of JWL, with its joint ventures JWL Dako Cz India Private Limited, JWL Kovis (India) Private Limited, JWL Talegria (India) Private Limited, its step-down subsidiary Jupiter Tsaw Onedrone India Private Limited and its subsidiaries Stone India Limited, Jupiter Tatravagonka Rail Wheel Factory Private Limited (rated, CRISIL A+/Stable/CRISIL A1), Habitation Realestate LLP & Jupiter Electric Mobility Private Limited.

 

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 market position supported by technology tie-ups and partnerships: JWL is one of India’s largest wagon manufacturers, with a capacity of 10,800 wagons per annum and plans to enhance the capacity to 12,000 wagons per annum by fiscal 2026. Over the years, it has gained significant experience and has established strong relationships with government and private customers in iron and steel, power, logistics, mining, cement sectors, and with other reputed original equipment manufacturers (OEMs), resulting in steady order inflow. Technology tie-ups and partnerships with global entities have strengthened JWL’s technical know-how and capabilities. This has resulted in a wide product portfolio and diversification from core wagon manufacturing business.
   

The forged rail wheelsets manufacturing project through JTRFPL is aimed at improving backward integration, reducing dependence on imported wheelsets, making it strategically important for JWL. JWL also benefits from its strong Slovakia-based technology partner, Tatravagonka, which brings with it extensive experience of the European market, thus mitigates completion and technology risks for JTRFPL. In fiscal 2024, JWL derived over ~85% revenue from wagon segment, ~10% from commercial vehicle (CV) load bodies and remaining ~5% from sale of containers and other items which includes brake disc, brake systems for rolling stock and weldable CMS Crossing.
 

Product diversity equips JWL to capitalize on robust spendings for developing high speed train infrastructure, and to fortify its market position in this segment. Benefits of robust spendings, onboard of technology partners, healthy order inflow and investments in capacity expansion and strategic backward integration is expected to drive growth in JWLs scale of operations over the medium term.

 

• Improving scale of operations and healthy order book providing revenue visibility: Revenue in fiscal 2024 grew by 77% on year on account of robust order inflow from wagon segment. As such, revenue of over Rs 1889 crore in the first half of fiscal 2025 was ~16% higher than revenue in first half of fiscal 2024. Despite robust revenue bookings per quarter, work on hand has sustained in range of Rs 7,028 crore to Rs 7,076 crore in 4 quarters through September 30, 2024. Moreover, JWLs work on hand of Rs 6,644 crore on September 30, 2024, from IR and private counterparty provides revenue visibility over the medium term and yield order book to operating income ratio of over around 1.8 times.

 

JTRFPL, under the managerial support of JWL, in the first half of fiscal 2025, registered revenue from operations and operating margin of Rs 155 crore and 12.6%, respectively. JTRFPLs brownfield capex is expected to increase the installed capacity by 13,000 wheelsets from 12,000 wheelsets currently and is expected to conclude by the end of fiscal 2025. Furthermore, its greenfield capex for setting up forged wheelset manufacturing plant in Odisha is expected to conclude by the end of 2027. Successful tender bids, steady & healthy inflow of orders, and timely completion of the ongoing capex and ramp-up of the capacity utilization should drive the revenue growth over the medium term and is key monitorable.

 

• Robust financial risk profile: Strong networth of Rs 1452 crore as on March 31, 2024 (estimated around ~Rs 2556 crore on September 30, 2024) support capital structure yielding comfortable gearing and total outside liabilities to total networth ratios of 0.2 time and 0.9 times, respectively for fiscal 2024. Healthy operating performance in six months of fiscal 2025 coupled with equity infusion through qualified institutional placement (QIP) and preferential issue of convertible warrants has curtailed reliance on external debt. The funds raised are earmarked for capital expenditure (capex), backward integration and working capital requirement. Debt protection metrices are also comfortable, as reflected in interest coverage and net cash accruals to adjusted debt ratios improving to 12.1 times and 1.0 time, respectively on March 31, 2024 from 9.1 times and 0.5 time, respectively a year earlier.

 

Going forward, despite the planned capex for greenfield rail wheel factory of ~Rs 2,500 crore between fiscals 2025 and 2028, proposed to be funded in debt-to-equity ratio of 65:35, capital structure is expected to remain comfortable on back of healthy operating performance and steady accretion to reserves sufficient to fund incremental working capital requirement arising from growth in scale of operations.

 

Weaknesses:

• Exposure to risks relating to fluctuation in raw material prices and intense competition: The key inputs include steel and related products. While the IR projects generally have a long execution period and are covered by a price-variation clause to a large extent, private sector orders are generally fixed in nature. Hence, to an extent, the operating profitability of JWL is susceptible to fluctuations in steel prices during the project execution period. On the other hand, pricing power is restricted as the orders are spread across suppliers and are decided based on bids submitted by wagon manufacturers. However, bid premium covers volatility risk, prudent inventory management and superior integration protect margins. As such, cost passthrough is critical for sustenance of healthy operating margins.

 

• Working capital intensive operations: Gross Current Asset (GCA) days were in range of 162-183 days during 3 fiscals through March 31, 2024, driven by sizeable inventory and moderate debtors (115 days and 49 days, respectively as on March 31, 2024) as ~50% work on hand comprises of orders from private players. Working capital requirement was also supported by creditors in range of 46-71 days in 3 fiscals through fiscal 2024. Going forward, GCAs are likely to remain around 200 days supported by cushion in working capital limits, back-to-back contracts with suppliers, and healthy accrual sufficient to meet the incremental working capital requirement.

 

• Risks associated with ongoing capex: JTRFPLs planned capex of ~Rs 2,500 crore between fiscals 2025 and 2028, is proposed to be funded in debt-to-equity ratio of 65:35. Though the commissioning is planned in phases, timely receipt of statutory clearances and financial closure have bearing on completion and funding risk. Almost ~80% of the output is expected to be consumed by JWL and Tatravagonka and mitigates the demand risk. However, the offtake is linked with fortunes of the freight wagon industry and any time or cost overrun may have an impact on the financial position and flexibility and will be closely monitored. Furthermore, long gestation capex results in low return on capital employed (RoCE), thus necessitating a close watch on the improvement in operating efficiency driven by rise in the scale of operations.

Liquidity: Strong

Net cash accruals of around Rs 425-600 crore per fiscal is expected to be sufficient against repayment obligations of Rs 15-51 crore over the medium term. 12-month average fund-based bank utilization was around 58% through September 2024. In addition, it will act as a cushion to the liquidity of the company. The current ratio is healthy at 1.6 times on March 31, 2024. Free cash and bank balance was estimated around Rs 167 crore on March 31, 2024, against Rs 660 crores (including proceeds of QIP and preferential issue) as on September 30, 2024. Low gearing and strong networth support financial flexibility and provide the necessary financial cushion in case of any adverse conditions or downturn in the business.

Outlook: Stable

CRISIL Ratings believes JWL will continue to benefit from extensive experience of its promoters, its established market position, technology tie-ups and partnerships and continuous backward integration.

Rating sensitivity factors

Upward factors:

• Sizeable improvement in market position & revenues, driven by substantially improved execution capabilities, stronger order inflow, along with the ability to maintain operating margins over 14% resulting in higher net cash accruals.
• Lower project risk and prudent working capital management resulting in sustenance of financial position and flexibility.

 

Downward factors:

• Delay in offtake of orders due to raw material supply constraints or delays in various regulatory clearances or capacity expansion resulting in interest coverage below 4 times.
• Time or cost overrun in the ongoing capex or increase in share of loss in JV or rise in working capital requirement or sizeable dividend payout exerting pressure on the financial risk profile.

About the Company

JWL (formerly Commercial Engineers and Body Builders Co Ltd [CEBBCO]) was incorporated in 1979. The present management of the company, through the erstwhile JWL, had invested in CEBBCO in 2019 under a debt resolution plan. JWL amalgamated with CEBBCO through a reverse merger and the combined entity has been listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The company’s name (formerly known as CEBBCO) was changed to JWL with effect from May 25, 2022.

 

Mr Murari Lal Lohia is the Chairman Emeritus, Mr Vivek Lohia is the Managing Director and Mr Vikash Lohia is the Whole Time Director.

 

JWL manufactures railway wagons, wagon components, weldable CMS crossings, load bodies for commercial vehicles and containers. JWL has its manufacturing units located in Kolkata (West Bengal), Jabalpur (Madhya Pradesh), Jamshedpur (Jharkhand), Indore (Madhya Pradesh). It has capacity to manufacture ~10,800 wagons annually and is backward integrated with a foundry shop to manufacture various components of a typical wagon like couplers, bogies, draft gears and CRF section.

 

JWL has partnerships with leading global companies via joint ventures (JVs) for manufacturing brake disc, brake systems for rolling stock and weldable CMS crossings through JWL Dako Cz India Pvt Ltd, JWL Kovis (India) Pvt Ltd and JWL Talegria (India) Pvt Ltd.

 

It has also entered the electric mobility sector through a subsidiary, Jupiter Electric Mobility Pvt Ltd, concentrating on e-LCV (electric light commercial vehicles) for last mile delivery. Its subsidiary, Habitation Realestate LLP holds property, has no business operations.

 

JTRFPL (earlier known as Bonatrans India Pvt Ltd) was incorporated in June 2013 and is a subsidiary of JWL. On March 20, 2024, JWL acquired Bonatrans India Pvt Ltd and its name was revised to its present name on September 17, 2024. JTRFPL manufactures wheels, axles and wheelsets primarily used in railway rolling stock, locomotives and metro applications, with an annual production capacity of 24,000 wheels and 12,000 axles. Its manufacturing facility is in Chhatrapati Sambhajinagar (Aurangabad), Maharashtra.

Any other information: Not Applicable