Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities of Jaya Hind Industries Private Limited (JHI).

 

The company has a healthy investment book over the years with market valuation of ~Rs 15,500 crore as on March 31, 2023. This offers strong financial comfort, it being the holding company for all the operating companies held by the company and the promoters.

 

JHI’s operating performance during fiscal 2023 has improved substantially with its operating revenues estimated to have crossed Rs. 1,000 crore as against Rs. 699 crore in fiscal 2022. The Indian operations is estimated to have grown by ~37% year on year to Rs. 960 crore on account of strong revival in demand across auto segments with pick-up in economic activity and pent-up demand in CV and PV segments.

 

The Company is a major die-caster in India in Pressure Die Casting (PDC) & Gravity Die Casting (GDC) segments and a major Auto Component supplier. It supplies a wide range of components to almost all Original Equipment Manufacturers (OEMs) in India, namely Mahindra & Mahindra (28% of sales), Renault Nissan (6% of sales),Force Motors (9%of sales), Linamar (4% of sales) , Tata Motors, Diamler, Deasung, VECV, AVTEC, Ashok Leyland, Turbo Energy amongst others. 

 

The Company currently also exports to Cummins USA (Power Generation components, Heavy Truck engine parts & Industrial engine parts), EATON USA (Commercial Vehicle segment Gearbox parts) and Magna France (Passenger Vehicle segment Gearbox parts). The Company has received confirmed orders from new customers like Citreon, Vokswagen, Skoda, Stellantis, Volvo, Generac which has already commenced and will gain more traction in the coming year.

 

The company has now ventured into European markets also, with the acquisition of a German entity, LMG Manufacturing GmbH (LMG), during fiscal 2023 which further added to its growth. With steady growth expected in the domestic market and full year benefit of the German acquisition accruing from next fiscal, the company is poised for a strong double-digit growth in fiscal 2024.

 

Operating margins for JHI is expected to be at ~8.7% in fiscal 2023 as against 7.4% in fiscal 2022; yet remains lower compared to pre-pandemic level of 11-13%. The operating margins are expected to improve over the medium term due to increase in scale of operations.

 

JHI continues to have a strong financial risk profile driven by strong networth of ~Rs. 17,000 crore. The company has healthy financial flexibility, driven by equity stakes in Bajaj Auto Ltd (BAL, rated CRISIL AAA/Stable/CRISIL A1+), Bajaj Finserv, Bajaj Holdings and Force Motors Ltd (FML; rated CRISIL AA/Stable/CRISIL A1+).

 

With the increase in market valuation of the investment book over time, the investment cover has remained healthy. The consolidated group debt has decreased from Rs 1,330 crore as of March 31, 2022 to Rs. 950 crore as of March 31, 2023. Furthermore, the company has a cash surplus of over Rs. 500 Crores as at 31st March, 2023.

 

The ratings continue to reflect strong credit profile of JHI supported by steady dividend inflows from the group and its investments, strong reputation and stable cash flow from the automobile (auto) component business. These strengths are partially offset by exposure of the investment portfolio to stock market related volatility, average but improving revenue diversity and inherent cyclicality in auto demand.

Analytical Approach

CRISIL Rating has followed the holding company approach to analyse the credit risk profile of JHI.

 

Furthermore, for the purpose of its analysis, CRISIL has included the standalone debt of JHI and FML. Furthermore, CRISIL Ratings has considered debt at operating entities and value of marketable securities for debt coverage analysis.

 

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:

• Leading market position in die casting segment and established relationships with key customers

JHI is among the oldest and largest manufacturers of cylinder heads and blocks for commercial and passenger vehicles in India. Over the years, it has maintained healthy relationships with all key OEMs having operations in India and is a major supplier to leading vehicle models of Mahindra & Mahindra, Renault, Skoda, Tata Motors, Force Motors Ltd and others. . JHI caters to almost all auto segments across PV, CV and Tractor. Business risk profile continues to be aided by increasing contribution from new customers and products, and strong tie-ups with leading OEMs.

 

• Significant increase in scale of operations with healthy growth prospects:

Operating performance of JHI has improved sharply in fiscal 2023 with company’s revenue estimated to have crossed ~ Rs.1000 crore during the fiscal reporting a year on year growth of ~43%.

 

Revenue for India operations are expected to increase by ~ 12-14% in fiscal 2024 driven by higher share of wallet from existing customers and increasing traction in export market. JHI acquired a German auto-comp entity in Nov’2022. With full impact of LMG being visible from fiscal 2024, the company is expected to record a robust revenue growth over the medium term. The German acquisition is also expected to bring in additional business for the company in the export markets.

 

• Strong financial risk profile

Financial risk profile continues to remain strong with networth estimated at over Rs.17,000 Crores as on March 31, 2023 as against outstanding debt of ~Rs. 150 crore. The debt protection metrics such as interest coverage and net cash accruals to total debt are also estimated to be at strong levels. The company has strong liquidity with investments in marquee companies at over ~Rs. 15,500 Crores as on March 31, 2023. In the absence of any major debt funded expansion plans, total adjusted debt of the group is expected to keep reducing from current levels of Rs. 950 crore (as of March 31, 2023). With JHI expected to maintain its existing investments, the debt cover and financial risk profile is expected to remain healthy over the medium term.

 

• Strong revival in performance of FML and healthy financial flexibility of promoters

FML continues to maintain its leadership position in the Tempo Traveler Segment and is strongly positioned in the LCV passenger segment with over 60% market share.  In the LCV school buses and ambulances segment, the company has a market share of over 70%. The 'Traveler’ and 'Trax” are well established brands in the segment. FML reported revenues of over Rs.5000 Crores in fiscal 2023 with year on year growth of ~55% while EBITDA margins for the period stood at 6.6%, a sharp improvement from ~3.4% previous fiscal. On absolute terms, EBITDA grew to ~Rs. 330 crore in fiscal 2023 from Rs. 111 crore previous fiscal.   Profit before Tax sharply recovered to Rs. 272 crore in fiscal 2023 as against losses of Rs. 130 crore in fiscal 2022 while Profit after Tax improved to Rs. 133 crore (fiscal 2023) as against reported loss of Rs. 91 crore previous fiscal.

 

Weaknesses:

• Exposure of investment portfolio to market related volatility

As on March 31, 2023, the market value of the company’s investment book stood at ~Rs. 15,500 crore. For a considerable period of time, JHIL has been holding investments in BAL, Bajaj Finserv, Bajaj Holdings and FML. While the investment book currently provides a healthy cover on the total group debt, these valuations remain moderately susceptible to fluctuations in market conditions.

 

• Averge but improving diversity in revenue profile, in terms of customer segments and product portfolio

The company primarily caters to automotive OEMs, with limited presence in aftermarket and export segments. However, within the OEM space the company has a diversified client base from among leading Indian OEMs in the commercial vehicle segment as well as leading international passenger vehicle manufacturers. Besides, the company is also increasing its share of business with existing OEMs over time, which will bring revenue stability. The recent acquisition of Germany based LMG, a key supplier to BMW, shall enable the company to enhance contribution of exports in the near to medium term. The company also intends to expand its product portfolio by getting into EV segment through LMG.

 

• Exposure to cyclicality in demand in auto industry

JHI primarily supplies to passenger and commercial vehicles and hence, growth in revenue and profitability remains susceptible to the inherent cyclicality in demand. While its top 5 customers ( Mahindra & Mahindra, Cummins, Renault, Linamar and  Force Motors) account for ~60% of revenues, the company has been adding customers gradually over time, therefore diversifying its customer base. This to an extent mitigates possibility of material revenue contractions in the event of a cyclical downturn. Pickup in revenues from LMG will also aid geographic diversification over the near to medium term.

Liquidity: Strong

JHI has strong liquidity with cash surplus of over Rs. 500 Crores along with investments of over Rs 15,500 crore as on March 31, 2023. Further, the cash accruals of the company are expected to be more than sufficient to meet its annual capex requirements ~Rs.60-70 crore (India operations) and annual debt repayment obligations of ~Rs. 70-75 crore.

Outlook: Stable

JHI will continue to benefit from its strong financial flexibility in the form of liquid investments and healthy scale up in tis operating performance esp. with the full benefits of the acquisition kicking in from fiscal 2024.

Rating Sensitivity factors

Upward factors

• Significant increase in scale of operations while maintaining operating margins in the range of 11-13%
• Increase in investment book and reduction in overall debt levels, leading to a substantial increase of cover from existing level

 

Downward factors

• Any deterioration in operating performance with operating margin below 8% on sustained basis
• Any deterioration in the performance of group subsidiaries requiring substantial support from JHI
• Any weakening of financial flexibility due to significant increase in group debt as a proportion of market value of investments on a sustained basis

About the Company

JHI is a part of the Pune-based based Abhay Firodia group, promoted by Mr Abhay Kumar Firodia and Mr Prasan Firodia. The promoters, directly and indirectly, hold 99.88% equity stake in the company. Established in 1947, JHI is one of India’s first ADC foundries. It has manufacturing facilities at Akurdi and Urse in Maharashtra, Pithampur in Madhya Pradesh and Chennai in Tamil Nadu. Primary products are aluminium cylinder heads, blocks, and other aluminium components. The company also undertakes value-added machining and assembles components for ready-to-use assemblies on engine and power train aggregates.

 

The flagship company of the Abhay Firodia group, FML, is a vertically integrated auto OEM that manufactures small and light commercial vehicles, multi-utility vehicles and agricultural tractors.

 

The group acquired Germany based Auto Comp LMG Manufacturing GmbH during the third quarter of fiscal 2023. The said company has a vast customer profile including customers like BMW. LMG is into manufacture of aluminium die-Castings and will have a fully automated plant. LMG is a debt free company and this acquisition is part of JHI’s aspiration to expand globally and also to enhance its product portfolio, by catering to high precision electro mobility components to European customers.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs. Cr)	Complexity Levels	Rating assigned with Outlook
NA	Cash Credit	NA	NA	NA	88	NA	CRISIL AA/Stable
NA	Letter of credit & Bank Guarantee	NA	NA	NA	142	NA	CRISIL A1+
NA	Foreign Currency Term Loan	NA	NA	Mar-24	53.24	NA	CRISIL AA/Stable
NA	Term Loan	NA	NA	Jul-25	59.36	NA	CRISIL AA/Stable