Rating Rationale
May 27, 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 rating reaffirmation takes into account expected decline of 20-25% in the auto components division (78% of revenues in fiscal 2020) revenues of JAL, on account of weak demand from auto industry in fiscal 2021 induced by the Covid-19 pandemic. However, this will be offset partially by expected significant improvement in revenues from its original equipment manufacturing (OEM) bus division (12% of revenue of FY20) given healthy order book at present and expected further inflow of orders.
 
Due to decline in business volumes in fiscal 2021, operating profitability is expected to moderate by 100-150 bps this fiscal.
 
However, JAL has adequate liquidity in the form of unutilised drawing power of Rs 45 crore, undisbursed term loan of Rs 9 crore and new proposed term loan of Rs 25 crore. JAL's bank limit utilisation increased to 86% in April, 2020 due to shutdown of its plants. Adequate liquidity cushion along with realisation of debtors will support to sustain the impact of pandemic in near term.
 
Despite lowering of capex in fiscal 2021, debt protection metrics to remain moderate in fiscal 2021 due to lower profitability and expectation of total debt to remain at around Rs 600 crore in fiscal 2021. Debt metrics such as interest coverage ratio is estimated to moderate to 4 times in fiscal 2020, compared to 4.9 times in the previous fiscal.
 
Gearing is expected to remain just below 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.
 
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 and pricing pressures from original equipment manufacturers (OEMs).

Analytical Approach

CRISIL has combined the business and financial risk profiles of all its subsidiaries and other joint ventures proportionately. That's because all these entities, collectively referred to as JAL, have significant business and financial linkages.

Please refer Annexure - Details of Consolidation, 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 Maruti Suzuki India Limited (MSIL; rated CRISIL AAA/Stable/CRISIL A1+), Ford India private ltd, Mahindra & Mahindra (rated CRISIL AAA/Stable/CRISIL A1+) as well as commercial vehicle (CV) players like Daimler and Eicher Motors, JAL has a solid base of repeat business from these customers. Top 5 customer contribute about 60% to overall revenues. Tooling business also contributes about 10% to overall revenue from customers and is a higher margin business. JAL 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.
 
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 and OEM bus segment, driven by orders are both likely to support operating performance in the current fiscal. As a result due to this revenue diversity decline in revenue is estimated to be lower at 9-10% in fiscal 2020 as compared to 20% decline for the auto components industry
 
* 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 11,000 crore in fiscal 2020 (fully consolidating L+W) lends strong market presence and bargaining power
 
* Improving bus division with healthy order book
JAL's bus revenues is estimated to increase to Rs 236 crore in fiscal 2020 from Rs 18 crore in fiscal 2018. Due to scale up of operations, operating profitability of the division also improved with earnings before interest and tax (EBIT) margin moving from -65% to 3.5% during the period. Current order book of 320 buses, with estimated revenue of 360-400 crore and expected new orders will drive strong revenue growth of this segment in the medium term. Timely execution and new order inflow will remain monitorable.
 
* Comfortable financial risk profile
Healthy financial risk profile of JAL with expected net worth (consolidated) of around Rs 630 crore and gearing of 0.97 time as on March 31, 2020. Interest coverage and NCATD are estimated to moderate to 4 times and 0.26 times respectively in fiscal 2020, from 4.9 and 0.22 times respectively in the previous fiscal
 
JAL's liquidity has moderated on account of shutdown of operations in April 2020 reflected in increased bank limit utilisation levels averaging 75% over 4 months ended April 2020. While liquidity in the short term is adequate to cover any fixed expenses, any prolonged shutdown of operations may impact liquidity further, and remains a key monitorable
 
Lowering of capex, progressive reduction in long term debt, and cash accrual of Rs 140-150 crore will support to maintain gearing below one time in fiscal 2021.
 
Weaknesses
* Working capital intensive operations
Consolidated gross current assets (GCAs) are estimated around 144 days as on March 31, 2020, 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. Due to the apparent slowdown, fresh orders are expected to be slower than earlier anticipated. Capacity utilizations are expected to come down in the near future putting downward pressure on overall 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

JAL has adequate liquidity driven by expected cash accruals about Rs.155-170 crore in fiscal 2020 and Rs 140-150 crore in fiscal 2021. JAL also has access to fund based limits of Rs.670 crore, utilized to the tune of 75% on average (on drawing power) over the last 4 months ended April 2020. No major planned capex lends comfort with repayments in fiscal 2021 of Rs 80 crore Vis a Vis net cash accruals of 140-150 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 factors
* Sustained improvement in scale of operations supported by improving customer/product diversity and improvement in operating profitability
* Improvement in financial risk profile and liquidity for instance debt/EBITDA below 1-1.5 times on sustained basis 
 
Downward factors
* Higher than expected debt funded capital expenditure adversely impacting credit metrics with Debt/EBITDA more than 3-3.5 times
* Sustained increase in working capital requirement leading to gross current assets days of more than 200 or bank limit utilisation above 90% on sustained basis
* Operating profitability is significantly weaker-than-expected leading to lower cash accruals

About the Company

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.

For the 9 months ended December 2019, JAL reported PAT of Rs 51 crore on overall revenue of Rs 1180 crore as against PAT of Rs 66 crore on revenue of Rs 1320 crore for the corresponding period in the last fiscal.

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)
SIN 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$$ NA NA NA 47 CRISIL A/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 123.15 CRISIL A/Stable
NA Long Term Loan NA NA Feb-2022 2.81 CRISIL A/Stable
NA Long Term Loan NA NA Mar-2020 15.81 CRISIL A/Stable
NA Letter of credit &
Bank Guarantee##
NA NA NA 130 CRISIL A/Stable
NA Letter of credit & Bank Guarantee NA NA NA 81 CRISIL A1
NA Letter of credit &
Bank Guarantee@
NA NA NA 25 CRISIL A/Stable
NA Letter of credit & Bank Guarantee$ NA NA NA 31 CRISIL A/Stable
NA Letter of Credit NA NA NA 45 CRISIL A1
*Interchangable with Rs. 5 Cr. of Non fund based
**Interchangable with Non fund based
#Interchangable with Rs. 12 Cr. of Non fund based
$Interchangable with Working Capital Demand Loan
##Interchangable with Rs. 100 Cr. of fund Based
@Interchangable with Rs. 20 Cr. of fund Based
@@Interchangeable with letter of credit & bank guarantees
$$Interchangeable with letter of credit & bank guarantees upto Rs 15 crore
 
Annexure - List of entities consolidated
Subsidiary Companies: Subsidiary/ Joint Venture Extent of consolidation
JBM Ogihara Joint Venture 100%
Indo Toolings Pvt Ltd - 100%
JBM Ogihara Die tech Pvt Ltd Subsidiary 100%
JBM Solaris Electric vehicles Pvt Ltd Subsidiary 100%
CRISIL consolidates 100% of the above entities
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  24-01-20  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  24-01-20  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 66 CRISIL A/Stable Cash Credit 66 CRISIL A/Stable
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# 95 CRISIL A/Stable Cash Credit# 95 CRISIL A/Stable
Cash Credit@@ 192.5 CRISIL A/Stable Cash Credit@@ 192.5 CRISIL A/Stable
Cash Credit$$ 47 CRISIL A/Stable Cash Credit$$ 47 CRISIL A/Stable
Letter of Credit 45 CRISIL A1 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@ 25 CRISIL A/Stable Letter of credit & Bank Guarantee@ 25 CRISIL A/Stable
Letter of credit & Bank Guarantee$ 31 CRISIL A/Stable Letter of credit & Bank Guarantee$ 31 CRISIL A/Stable
Letter of credit & Bank Guarantee 81 CRISIL A1 Letter of credit & Bank Guarantee 81 CRISIL A1
Long Term Loan 18.62 CRISIL A/Stable Long Term Loan 18.62 CRISIL A/Stable
Proposed Long Term Bank Loan Facility 123.15 CRISIL A/Stable Proposed Long Term Bank Loan Facility 123.15 CRISIL A/Stable
Term Loan 73.42 CRISIL A/Stable Term Loan 73.42 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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