Rating Rationale
June 09, 2020 | Mumbai
Jay Ushin Limited
Ratings placed on 'Watch Developing'
 
Rating Action
Total Bank Loan Facilities Rated Rs.125 Crore
Long Term Rating CRISIL BB (Placed on 'Rating Watch with Developing Implications')
Short Term Rating CRISIL A4+ (Placed on 'Rating Watch with Developing Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its ratings on the bank facilities of Jay Ushin Limited (JUL) on 'Rating Watch with Developing Implications'
 
The rating action follows announcement on May 29, 2020 of an open offer for acquisition of up to 26% of voting share capital from public shareholders of JUL, over and above 26% held by JUL's JV partner, U-shin Limited (U-shin). This open offer is being tendered as per mandatory obligations under SEBI (SAST) Regulations, 2011 by Minebia Mitsumi Inc. (Minebia) and U-Shin.
 
Minebia is a Japan based company which currently owns 100% of common stock of U-Shin. Minebia acquired the 100% stock in several tranches beginning November 2018 and ending in August, 2019. U-Shin became wholly owned subsidiary of Minebia effective August 7, 2019. Minebia, thus, indirectly holds 26% of JUL.
 
The open offer, if fully accepted, will provide Minebia with additional 26% of voting share capital of JUL, i.e. 52% shareholding in total. Such an event can materially impact composition of Board and control of the current management over the day to day operations of JUL.
 
CRISIL has thus placed JUL's rating on Watch with Developing implications and will continue to monitor developments pertaining to the open offer. CRISIL will resolve the watch post the execution of open offer with clarity on any changes in shareholding and management and its impact on credit profile of JUL.
 
The ratings continues to reflect JUL's established market position in the automotive components industry and reputed clientele. These strengths are partially offset by low profitability and a modest financial risk profile.

Key Rating Drivers & Detailed Description
Strengths: 
* Established market position in the automotive components industry: Benefits from the promoters' experience of over three decades, healthy relationships with customers and suppliers, and a diversified product profile should continue to support the business. Revenue has grown steadily year-on-year on account of JUL's presence in the two-wheeler, four-wheeler, and commercial vehicle segments.
 
* Reputed clientele: Customers comprise some of India's largest original equipment manufacturers (OEMs) such as Maruti Suzuki India Ltd (MSIL), Honda Cars India Pvt Ltd, Honda Motorcycle and Scooters Pvt Ltd, and Suzuki Motorcycle India Pvt Ltd. Nearly half the revenue is derived from the largest customer, MSIL.
 
Weaknesses:
* Low profitability: Operating margin has remained 2.3-4.0% in the three fiscals through 2019. However, profitability should remain stable over the medium term despite volatility in the prices of key raw materials (zinc and copper). Furthermore, there is no replacement market for these inputs. Although JUL revises its prices with key customers every quarter, it remains exposed to fluctuations in input prices. Better utilisation and cost absorption have improved margin over the last fiscal. Susceptible to cyclicality in the automobile industry persists too.
 
* Modest financial risk profile: Although networth was estimated to be comfortable at Rs 73 crore as on March 31, 2020, total outside liabilities to tangible networth (TOLTNW) ratio was likely to be high at around 3.7 times. Also, interest coverage ratio was estimated to be modest at 1.9 times for fiscal 2020.
Liquidity Stretched

Liquidity continues to remain under pressure. Net cash accrual is barely expected to cover debt obligation over the medium term. Current ratio is estimated to remain low at around 0.9 time, largely in line with previous fiscals.

To support liquidity during the lockdown period, JUL has requested its bankers to convert outstanding amounts in sales bill discounting facility to a working capital demand loan with a maturity period of 60 or 90 days. This will be paid off once receivables from customers are realised.

Furthermore, CRISIL continues to take comfort from rights approval from U-Shin Ltd, JUL's joint venture (JV) partner. The rights issue of Rs 50 crore was approved by U-Shin Ltd in 2013 and the company can avail of the amount if the need arises, depending on other approvals.

Rating Sensitivity factors
Upward factors
* Change in parentage with a stronger credit profile
* Improvement in net cash accrual generation, with accrual to debt repayment ratio keeping over 1.3 times for an entire year
* Improvement in debt protection metrics
 
Downward factors
* Material changes in business agreements with customers leading to significant erosion of business
* Deterioration in capital structure with TOLTNW ratio deteriorating to more than 4.5 times
* Significant decline in revenue or profitability impacting cash accrual generation
About the Company

Incorporated in 1986, JUL is a JV between the JPM group (owned by Mr J P Minda and his sons, Mr Ashwani Minda and Mr Anil Minda) and U-Shin Ltd, Japan. It manufactures automotive components such as lock and key sets, combination switches, heater control panels, and door latches for leading automotive OEMs. It is headquartered in Gurugram and has manufacturing units in Gujarat, Chennai, Bengaluru, Manesar (Haryana), and Bhiwadi (Rajasthan). The company is listed on the Bombay Stock Exchange.

Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Operating income Rs.Crore 855.24 860.38
Reported profit after tax (PAT) Rs.Crore 11.5 10.6
PAT margin % 1.3 1.2
Adjusted debt/adjusted networth Times 2.5 2.72
Interest coverage Times 2.2 1.85

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.Crore)		 Rating assigned with outlook
NA Term Loan NA NA Apr-2022 54.75 CRISIL BB/Watch Developing
NA Foreign Currency Term Loan NA NA Mar-2022 14.25 CRISIL BB/Watch Developing
NA Sales Bill Discounting NA NA NA 31 CRISIL A4+/Watch Developing
NA Purchase Bill Discounting NA NA NA 25.0 CRISIL A4+/Watch Developing
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  125.00  CRISIL BB/(Watch) Developing/ CRISIL A4+/(Watch) Developing  30-04-20  CRISIL BB/Stable/ CRISIL A4+  30-08-19  CRISIL BB+/Stable/ CRISIL A4+  26-09-18  CRISIL BBB-/Stable/ CRISIL A3  26-12-17  CRISIL BBB/Negative/ CRISIL A3+  CRISIL BBB/Stable/ CRISIL A3+ 
                    01-11-17  CRISIL BBB/Negative/ CRISIL A3+   
Non Fund-based Bank Facilities  LT/ST    --    --    --    --  01-11-17  CRISIL A3+  CRISIL A3+ 
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
Foreign Currency Term Loan 14.25 CRISIL BB/Watch Developing Foreign Currency Term Loan 14.25 CRISIL BB/Stable
Purchase Bill Discounting 25 CRISIL A4+/Watch Developing Purchase Bill Discounting 25 CRISIL A4+
Sales Bill Discounting 31 CRISIL A4+/Watch Developing Sales Bill Discounting 31 CRISIL A4+
Term Loan 54.75 CRISIL BB/Watch Developing Term Loan 54.75 CRISIL BB/Stable
Total 125 -- Total 125 --
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
Rating Criteria for Auto Component Suppliers
CRISILs Bank Loan Ratings
The Rating Process
Understanding CRISILs Ratings and Rating Scales

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