Rating Rationale
October 03, 2018 | Mumbai
JBM Auto Limited
'CRISIL A/Stable/CRISIL A1' assigned to bank debt
Rating Action
Total Bank Loan Facilities Rated Rs.1030.94 Crore
Long Term Rating CRISIL A/Stable (Assigned)
Short Term Rating CRISIL A1 (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL A/Stable/CRISIL A1' ratings  on the bank facilities of JBM Auto Limited (JAL).

The ratings reflects 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.

Combined business profile of JAL post completion of amalgamation with its subsidiary JBM Auto Systems Pvt Ltd (JASPL; rated 'CRISIL A-/Positive/CRISIL A2+') and its associate company JBM MA Automotive Pvt Ltd (JBMAPL) will benefit due to business synergies, higher scale and improvement in customer diversity. Consolidated turnover is estimated to increase to over Rs 2000 crore in fiscal 2018 at a healthy compound annual rate of 13% over the five fiscals, supported by healthy increase in share of business with Honda cars India Ltd (HCIL), Ford India Private Limited (FIPL), Mahindra Vehicles Manufacturers Ltd (MVML) and addition of new customers with proposed amalgamation like Fiat India Automobiles Private Limited (FIAPL; rated 'CRISIL AA-/Stable/CRISIL A1+'), Volkswagen India Pvt Ltd, Piaggio Vehicles India Ltd (PVIL; rated 'CRISIL A/Positive/CRISIL A1'), and Royal Enfield etc. This will benefit customer diversity resulting in top five customers contributing around 45% of revenue reduced from around 58% earlier. The company has received orders of Rs 170 crore for its bus division to be executed over the medium term. Healthy order pipeline for tooling business and bus segment provide comfortable revenue visibility.

The company's financial risk profile has strengthened over time with reducing dependence on external debt, and is likely to sustain the improvement over the medium term. Going forward, capital spending will be moderate and largely funded through expected annual cash accrual of Rs 180-200 crore. This, coupled with efficient working capital management, should strengthen key credit metrics and unencumbered liquidity.

The company is part of JBM group, and its extensive experience, focus on product diversity, and relationship with customer has helped the company achieve healthy operating performance.

Analytical Approach

CRISIL has combined the business and financial risk profiles of its all 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.

Key Rating Drivers & Detailed Description
* Established presence in sheet metal components and diversified customer profile

JAL (consolidated) has an established market position in the sheet metal component sector, driven by healthy relationships with clients. The products cater to the passenger vehicles, commercial vehicles, two-wheeler and three-wheeler OEM. Customers includes large OEMs such as FIAPL, Mahindra & Mahindra Ltd (M&M; rated 'CRISIL AAA/Stable/CRISIL A1+'), Tata Motors Ltd (TML; rated 'CRISIL AA/Stable/CRISIL A1+'), HCIL, Renault Nissan Automotive India Pvt Ltd. Increase in business from existing customers and new customers such as FIAPL, Royal Enfield and VE Commercial Vehicles Ltd through other JBM group companies will enhance customer diversity and scale of operations in the medium term. A diverse clientele provides revenue stability reflected in contribution of the two-wheeler, passenger car, commercial vehicle, two wheeler and three wheeler segments in revenues at 65%, 10%, and 10% respectively.

Furthermore, ramp up in revenue from tooling segment driven by orders for new models of OEMs also reflected in the first three months of fiscal 2019 (tooling revenue of Rs 35 crore from Rs 12 crore in corresponding period of fiscal 2018) and increase in revenue in bus division with execution of recently won new order in fiscal 2019 for Pune based travel operator awarded by Gurugram Metropolitan City Bus Ltd likely to support operating performance.

Operating performance is expected to sustain over the medium term, supported by buoyant demand, backed by established relations with OEMs, and presence across segments.

* Longstanding market presence of the group in the auto components industry
The two decade-long presence of the JBM group in the auto component manufacturing industry, 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 steel components and also supplies steel components (steel blanks and tubes) to JAL and JBML as input to sheet metal components. The group's combined turnover of about Rs 9700 crore lends strong market presence and bargaining power.

CRISIL believes JAL will leverage the group's overall brand equity to win fresh orders and customers in the auto segment.

* Comfortable financial risk profile
Healthy financial risk profile of JAL with networth (consolidated) of around Rs 606 crore and gearing of 1.1 times as on March 31, 2018. Interest coverage and NCATD also remained comfortable at 5.4 times and 0.27 times respectively, with healthy cash accruals of Rs 170 crore in fiscal 2018.

Steady growth in revenue and moderate operating profitability should help generate annual net cash accrual of more than Rs 180-200 crore over the medium term. The company incurred capex of over Rs 250 crore in last four fiscals to expand capacity and set up new plants. Given expected annual capital expenditure of Rs 100-120 crore per annum, 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.

* 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.

* Working capital intensive business
Gross current assets (consolidated) were around 140 days as on March 31, 2018, driven by high receivables and moderate inventory. Working capital requirement is sensitive to the tooling business, and hence, tends to be cyclical. Further, with volatile nature of tooling business which has high rejection rates and requires development of new moulds for OEMs, leads to higher working capital.

* 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 be achieved due to delay in execution of the large orders and limited revenue visibility. This also led to continuing losses in the business. Execution of the new order of around Rs. 170 crore from Gurugram Metropolitan City Bus 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 report losses in the near term in absence of execution of any large order.

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.

Upside Scenario
* Substantial improvement in scale of operations and profitability supported by improving diversity and ramp up of bus division and
* Improvement in financial risk profile driven by lower dependence on external debt and higher cash accrual

Downside Scenario
* Weaker than expected operating performance due to pressure on profitability and
* Significant impact on debt metrics led by high debt funded capex or acquisition or elongation of working capital cycle.

About the Group

JAL, a public limited company, was incorporated in 1990 mainly to manufacture tools, dies and moulds for the automobile industry, from its Faridabad facility. Subsequently in 1993, the company entered the sheet metal components manufacturing business for OEMs other than MSIL to benefit from the growing demand from the automotive sector. Company supplies sheet metal components to various OEMs in the passenger car, two-wheeler and Heavy Commercial vehicle/Light Commercial Vehicle and construction and farm equipment segment. JAL commenced its operations at its bus manufacturing division during fiscal 2016. JAL has 8 manufacturing plants at Sanand, Nahsik, Pithampur, Alwar, Noida and Faridabad, Kosi, and Chennai.

The promoter holds 61.96% in JAL. JAL has also invested in two joint ventures (JVs) and subsidiaries, which are engaged in similar line of business, but catering to different OEMs in different geographies. The two JVs include JBMAPL and Indo Toolings Private Limited (ITPL). The two subsidiaries include JASPL and JBM Ogihara Automotive India Limited. JAL also incorporated JBM Solaris (JV between JAL and Solaris Bus & Coach) in fiscal 2017, for the purpose of design, development, manufacturing and marketing of electric buses in India. JAL announced to the stock exchange on March 1, 2018, that its Board of Directors have approved the proposal to amalgamate of its subsidiary and JV, JBM MA and JASPL respectively with itself. JAL has received approval from shareholders and creditors for the transaction and is presently awaiting approval from National Company Law Tribunal (NCLT) which is expected to be received over next 3-4 months. Post completion of the transaction, promoter stake in JAL is expected to increase to 67%.

JAL is part of the around Rs 9700 crore (US$ 1.35 billion) JBM Group of companies. Within the JBM Group, Jay Bharat Maruti Limited (JBML, JV between JBM Group and MSIL), Neel Metal Products Limited and JAL are key entities.

In the first three months of fiscal 2019, JAL, on consolidated basis reported a net profit of Rs 22.9 crore on operating income of Rs 424 crore as compared to net profit of Rs 19 crore on operating income of Rs 434 crore in the corresponding period of fiscal 2018.

Key Financial Indicators* (Consolidated)
Particulars Units 2018 2017
Revenue Rs cr 1697 1708
Profit After Tax (PAT) Rs cr 81 74
PAT Margin % 4.9 4.1
Adjusted debt/networth Times 1.02 1.09
Interest coverage Times 4.7 3.8

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 - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
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    --    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  172.50  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 -- 0 --
Proposed Long Term Bank Loan Facility 589.05 CRISIL A/Stable -- 0 --
Letter of credit & Bank Guarantee 42.5 CRISIL A1 -- 0 --
Cash Credit*! 30 CRISIL A/Stable -- 0 --
Letter of credit & Bank Guarantee^ 80 CRISIL A/Stable -- 0 --
Cash Credit**! 14.25 CRISIL A/Stable      
Cash Credit@! 10 CRISIL A/Stable      
Cash Credit@@! 95 CRISIL A/Stable      
Cash Credit**! 35 CRISIL A/Stable      
Cash Credit**! 10 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      
Total 1030.94 -- Total 0 --
*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

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