| Ecolife Green One Mobility Private Limited | ||||||
| 'CRISIL A(CE)/Stable/CRISIL A1(CE)' converted from provisional ratings to final ratings | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has converted its provisional ratings on the bank facilities of Ecolife Green One Mobility Private Limited (Ecolife) to a final rating of 'CRISIL A(CE)/Stable/CRISIL A1(CE)' The term loan facility of Rs 20 crore, has been withdrawn at company's request. The rating action is in line with CRISIL Ratings' policy on withdrawal of bank loan ratings.
CRISIL Ratings has now received the final executed corporate guarantee document for this transaction. These executed document are in line with terms of the transaction when provisional rating was assigned. The corporate guarantee in line with revised RBI guidelines for the CE ratings. Hence, CRISIL Ratings has converted the provisional rating to a final rating.
The ratings are based on the strength of unconditional and irrevocable corporate guarantee by the company’s parent, JBM Auto Ltd (JAL; rated ‘CRISIL A/Stable/CRISIL A1’). The Stable outlook on this rating reflects CRISIL’s outlook on the rating of the guarantor, JBM. The ratings continue to reflect the successful implementation of buses in phase wise manner since April 2022, healthy growth prospects for e-buses in India and also factors in the healthy DSCR over the tenor of the loan. These strengths are partially offset by delay in realisation of collection receipts, evolving understanding on battery replacement and limited track record of e-buses.
The ratings reflect the successful implementation and commencement of operations from April 2022 in a phase wise manner with operations of all 200 buses commencing on January 2023 on intercity routes for Delhi Transport Corporation (DTC; Authority; on gross cost contract basis under the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles [FAME] II scheme), and its strong financial flexibility through support from the parent. Fixed payment for a minimum assured distance for the project indicates high revenue visibility, while subsidies for bus procurement increase the viability of the project. The counterparty risks in the project are mitigated by the escrow arrangement, wherein the escrow account is to be funded with two months of estimated revenue payable upfront and maintained throughout. Also the authority is obligated to deposit the revenue from ticket collections in escrow account along with maintaining two months of revenue payable.
CRISIL Ratings also notes that the company has high cashflow visibility as the concession agreement signed between Ecolife and DTC, the company will receive an assured fee per km basis (Rs 68.6/km), subject to fulfilling of the operational parameters for a period of 10 years from its commencement of operations (COD). The company has received two tranches of capital subsidy of Rs 66 crore post the successful delivery of the bus fleets under the FAME II scheme of the Government of India (GoI). The rating further takes into account the support provided by the parent company -JAL as a 99.52% shareholder, thereby increasing the financial flexibility for Ecolife. Furthermore, Ecolife has entered into an AMC agreement with JAL for maintenance of the buses, thereby mitigating operational risks to a certain extent.
JAL has a heathy credit risk profile driven by its established market position in the auto component industry with longstanding client relationships, diverse business segments and a comfortable financial risk profile. JAL has reported revenue of Rs. 3884 crores in fiscal 2023 with operating margin at 10.9% compared to 11.3% in the preceding year. JAL also has prior experience in supplying and operating 150 e-buses for Navi Mumbai Municipal Transport for more than a year, 90 for Ahemadabad Jalmarg Limited, 15 under NMMT and 30 in outright sale to NMMT. |
Analytical Approach The ratings are based on CRISIL Ratings criteria for rating instruments backed by guarantees. The (CE) suffix in the rating reflects the payment structure that is designed to ensure full and time-bound payment to lenders owing to corporate guarantee by JAL.
To arrive at its unsupported rating, CRISIL Ratings has applied its parent notch-up framework to factor in the support from the parent. |
Key Rating Drivers & Detailed Description Strengths:
The ratings are based on an unconditional, continuing and irrevocable guarantee from JAL, and an unconditional undertaking by the latter for securing principal and interest obligations on the entire debt of Ecolife. This guarantee covers the entire principal and interest payment obligations on the guaranteed bank facility. The CE rating is based on Reserve Bank of India’s 12-point framework and is adequate to ensure timely payment. The executed guarantee deed contains clauses related to invocation mechanism and Payment mechanism. In case of any default the bank shall invoke the guarantee within 10 business days and the guarantor shall pay the dues within 5 working days from invocation of such CG.
The capital structure of JAL is comfortable, with gearing of 2.07 times as on March 31, 2023, which is expected to improve to below 1 time over the medium term owing to healthy accrual. Also, the central treasury team of JAL will closely monitor the repayments and provide timely support. The guarantee and the undertaking together cover the principal, interest, and other monies payable under the guaranteed bank loan.
The parent, JAL, which along with being a Tier-I component supplier to auto OEMs, is also an OEM (original equipment manufacturer) bus supplier itself, and has been manufacturing buses since fiscal 2017 with current capacity of 1,500 buses per year. The group plans to increase the same to 6,500 buses per year. The group has incurred capex in a new company, JBM Electric Vehicles Private Limited, which has a capacity of 5000 buses, manufactured in double shifts. Additionally, JAL supplied 30 e-buses in August 2019, which are running successfully in Mumbai from the Turbhe Depot under NMMT. Company has also supplied 90 E-buses through VT E mobility Pvt Ltd and 150 buses through MH Ecolife under the GCC model. It has dedicated manpower for depot management under its sales team operating at various locations in the country. The parent has the required expertise and capability to manufacture, supply and operate e-buses.
As per the terms of the concession agreement, the Authority would pay Ecolife fixed rate (Rs 68.6 per kilometre [km] for 12-metre bus) for a minimum assured distance of 195 km/bus/day, subject to meeting the operational metrics. Company’s availability of the buses for the past 5 months stands at 99%, higher than the threshold of 95%. Accordingly, Ecolife does not bear the traffic risk on the routes and only needs to ensure availability of buses as per the Authority’s deployment plan. Given this arrangement, the company’s business model essentially translates into an annuity model with high cash flow visibility over the concession period. Company is expected to generate revenue of Rs 95-100 crores per annum along with EBITDA margin of 45-55% per annum over the medium term culminating to an average DSCR of over 1.1x till the tenure of the loan. The company has booked revenue of Rs 64 crore in during in fiscal 2023 with EBITDA margins of 50% annum.
Overall financial performance is expected to improve gradually with commencement of operations, though track record of smooth operations will remain a key monitorable.
Financial profile is healthy with average DSCR of more than 1.1 times which is including the estimated battery replacement cost of Rs 45- Rs 47 crore to be in incurred in the 6th year. Operational cash flows will be sufficient to fund this.
The Government of India is focusing significantly on promoting electric vehicles (EVs) as a cleaner and sustainable form of transportation, with special focus on the commercial segment. To support faster adoption of EVs in India, the government has introduced various schemes such as FAME, offering upfront subsidies (to reduce capital costs), exemptions or reductions on road tax, registration tax, subsidised electricity tariffs, among others. The tender to operate e-buses for DTC is part of the FAME II scheme, with Ecolife eligible for a subsidy of Rs 55 lakh per bus for 12-metre bus wherein the entire amount will be released in three tranches with last tranche being received after six months of commencement of operations. This would significantly reduce the capital cost associated with the project and thereby improve project viability. Company has received 66 crore (out of total Rs 110 cr) i.e.2 tranches of subsidy successfully.
Weaknesses
The project is currently operational with all 200 buses however, the timing of subsidy receipt remains a key monitorable, especially considering the involvement of multiple agencies. Any inordinate delays in receipt of the subsidy (about 30% of project cost) could increase the dependence on external borrowings and leveraging of the project.
However, that said company has received 66 crore (out of total Rs 110 cr) i.e.2 tranches of subsidy successfully.
There has been a delay in opening of the escrow account due to issues previously with erstwhile partner, however the same were resolved subsequently and the escrow account was opened and debt amount was disbursed as on June 15, 2023. Due to the delay in escrow opening, the payment from DTC is not realized as of date despite the operations getting started in April, 2022. As on March 31, 2023, Rs 63.9 crore was booked as revenue and the same is outstanding in the debtors. With no cash inflows from operations, JAL has funded the project through capex creditors and ICDs amounting to Rs 327 crore and Rs 27 crore respectively as on March-2023. The proceeds of loan amount and subsidy of Rs 187 crore and Rs 66 crore respectively were utilised towards repayment of capital creditors.
The company will incur a battery replacement cost of approximately ~ Rs.45-50 crore around 6-7th year of operations (i.e. FY2028) for electric buses. CRISIL notes that the operational cashflows should be sufficient to fund the replacement cost and in case of any shortfall, parent JAL, will infuse the funds. However, timely creation of reserves to fund the battery replacement and any adverse movement in prices of lithium-ion batteries along with political relations between India and China, given the dependence on China for battery and EV components will remain key monitorables. |
Liquidity: Adequate Liquidity derives comfort from credit enhancement available in the form of an unconditional and irrevocable corporate guarantee by the parent. JAL is likely to provide financial support in the event of an exigency.Company has DSRA of Rs 11.57 crore which is equivalent to 3 months of principal and interest, maintained in the form of fixed deposit which provide liquidity buffer. Company is expected to generate net cash accruals of Rs 35-40 crore per annum against the debt servicing obligations of Rs 20-30 crore per annum over the medium term which provides comfort. |
Outlook: Stable The outlook is based on the 'Stable' outlook on the guarantor's debt instruments. The ratings will remain sensitive to any change in CRISIL's rating on JAL. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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Adequacy of credit enhancement structure The rating on the guaranteed bank facility of Ecolife reflects the unconditional and irrevocable guarantee from JAL on the bank loan facilities amounting to Rs 310 crore, which is in-line with the revised CRISIL Ratings’ approach towards credit enhancement provided by the guarantee. The revised approach is based on guidance from the Reserve Bank of India (RBI) on factoring credit enhancement in the ratings of bank loan facilities. CRISIL Ratings understands that the corporate guarantee includes the invocation terms and is designed to ensure full and timely payment to the lender even in case of non-invocation.
Also, CRISIL Ratings understand that JAL will make payments not later than 5 calendar days of non-payment by Ecolife of bank guarantee on invocation; in case Ecolife fails to service its debt obligations, irrespective of the lender invoking the guarantee, without any set off. The suffix CE (credit enhancement) reflects the payment structure, which is designed to ensure full and time-bound payment to lenders.
Stress Scenario: CRISIL Ratings has fully consolidated the business and financial risk profiles of the borrower and JAL. The financials of the borrower, including the entire guaranteed debt, are loaded on the guarantor. CRISIL Ratings believes that guarantor will be able to fully service guaranteed debt obligation in timely manner even under a stress scenario, where the cash flows in the SPV may not be suffice to meet the debt obligation. |
Unsupported ratings: CRISIL BBB+ CRISIL Ratings has introduced 'CE' suffix for instruments having an explicit Credit Enhancement feature in compliance with SEBI's circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported rating, CRISIL Ratings has considered the standalone business and financial risk profiles of Ecolife and has applied its parent notch-up framework to factor in the extent of support available to the company from JAL. The rating factors in the strong revenue visibility for the project with fixed charges over a minimum assured distance, support in the form of subsidy for bus procurement, presence of escrow mechanism and the strategic importance of Ecolife to its parent, given the synergies to its operations and criticality of the project for the strategy of JAL to focus on its bus manufacturing and operating segment. These are partially offset low track record of smooth running of operations and timely receipt of subsidy. |
About the Company Ecolife was incorporated as a private limited company under the Companies Act, 2013, in 2020. It was established to supply, operate and maintain 200 EV buses in Delhi through a concession agreement with DTC under the FAME-II scheme. The company is a subsidiary of JAL, which is a part of the JBM group. As per concession agreement Ecolife would be operating the buses for a period of 10 years on a GCC basis and it has already received subsidy of Rs. 66 cr (of the total Rs 110 crore) (Rs 55 lakh per bus). The 200 buses have already been supplied and started operations from April 2022 in phase wise manner. |
About the Guarantor Incorporated in 1996, JAL manufactures sheet metal components, assemblies and sub-assemblies, tools, dyes and moulds. JAL is primarily a Tier-1 supplier of key systems and assemblies to the automotive OEM industry and caters to esteemed clients such as Ashok Leyland, Bajaj, Daimler, Fiat Chrysler, Ford, Honda, Hero, JCB, Mahindra, Maruti Suzuki, Renault, Nissan, TATA, Toyota, TVS, Volvo Eicher, and Volkswagen. The group has alliances with more than 15 renowned companies globally, including Arcelor Mittal, Cornaglia, Dassault Systemes, JFE Steel, Ogihara, and Solaris Bus & Coach. The structure of JAL enables each business unit to chart its own future and simultaneously leverage synergies across its competencies. The company has 16 manufacturing facilities: 14 for sheet metal components and tooling and 2 for buses and 1 Skill Development Centre (SDC). |
Key Financial Indicators
List of covenants
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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