Rating Rationale
December 14, 2018 | Mumbai
Jaya Hind Industries Limited
Ratings placed on 'Watch positive'
 
Rating Action
Total Bank Loan Facilities Rated Rs.230 Crore
Long Term Rating CRISIL A+ (Placed on 'Rating Watch with Positive Implications')
Short Term Rating CRISIL A1 (Placed on 'Rating Watch with Positive Implications')
 
Rs.50 Crore Fixed Deposits FAA- (Placed on 'Rating Watch with Positive Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed the ratings on the bank facilities and fixed deposits of Jaya Hind Industries Limited (JHI) on 'Rating Watch with Positive Implications'.

The rating action follows the announcement dated December 6 ,2018 regarding the amalgamation of JHI with the group held entities Jaya Hind investment Private Ltd (JHIPL; holding company of the group), Ahmednagar Engineering Private Limited, Prasanna Holdings Private Limited and Dhanna Engineering Private Limited. The shareholding for Force Motors Ltd (FML; rated CRISIL AA/Stable/CRISIL A1+) will also shift to JHI with amalgamation.The amalgamation process is expected to be completed in next 1-3 months.

Following the proposed change, CRISIL believes that combined JHI's credit risk profile will benefit from to the strong credit profile of Jaya Hind Investments due to large liquid investments, healthy business profile of subsidiary - Force Motors Ltd. CRISIL is in discussion with JHI's management to obtain clarity on the impact of the amalgamation and business and financial profile of combined entity. CRISIL will remove the ratings from watch and take a final rating action once it has clarity on the consequences of the amalgamation.

The ratings continue to reflect improving business profile supported by a healthy market position in aluminium die-casting components (ADCC) for the commercial vehicle (CV) and passenger car (PC) segments, and established relationship with key customers and a healthy financial risk profile because of low debt. It also factors strong financial flexibility of the group through significant liquid investment holdings and support from the promoters. These rating strengths are partially offset by a modest scale of operations with limited revenue diversity, and susceptibility to cyclicality in demand in the automobile (auto) industry.

Analytical Approach
For arriving at the rating, CRISIL has applied its notch up criteria based on strong financial and managerial support from Jaya Hind Investments Pvt Ltd (JHIPL; the Abhay Firodia group's holding company) till the time of completion of the proposed transaction basis JHI’s strategic importance and the past track record of support. With amalgamation of JHI with JHIPL, the credit profile of JHI will improve commensurate with JHIPL. Preference capital and loans from promoters have been treated as debt.

Key Rating Drivers & Detailed Description
Strengths
* Leading market position in ADCC and established relationships with its key customers
The company is among the oldest and largest manufacturers of cylinder heads and blocks for CVs and PCs in India. Over the years, it has established a healthy relationship with key OEMs, and is a major supplier to leading vehicle models of M&M, Ford India Pvt Ltd, and FML. Over the medium term, the business risk profile is expected to benefit from an established market position in ADCC, increasing contribution from new customers and products and strong tie-ups with leading OEMs.
 
* Healthy financial risk profile
Over the five years through fiscal 2018, the financial risk profile has improved steadily, supported by stable operational cash flow and modest capital expenditure. In fiscal 2017 and fiscal 2018, the company has invested about Rs 100 crore for setting up new plant in Chennai and capacity expansion at existing plants funded through cash surplus, loans from promoters and long term debt. As a result, its gearing based on external debt is estimated at 0.3 times (overall gearing of 0.84 times) as on March 31, 2018 from minimal gearing as on March 31, 2016.  Further, the company's interest coverage ratio is estimated comfortable at about 6 times for fiscal 2018.

JHI is undertaking a part debt-funded capital expenditure (capex) of about Rs 100.00 crore to be executed during fiscal 2018 and 2019 to enhance production lines to support new customer additions and higher demand for new products. Thus, the debt/EBITDA ratio, which remained high at 3.0 times as on March 31, 2018, is expected to remain at a similar level over the near term. However, with expected improvement in cash generation, prudent working capital management, and scheduled debt repayment, the debt/EBITDA is likely to improve from fiscal 2020.
 
* Strong financial flexibility of promoters
The Abhay Firodia group, to which JHI belongs, has an established presence in the auto and auto components industries in India, and healthy liquidity and financial flexibility. JHIPL and JHI has cross holdings and holds 49% in each other. JHIPL is holding company of the group with significant liquid investment holdings, which enhance its financial flexibility. With the completion of proposed amalgamation, JHI will operate as a holding company for the group with considerable investment portfolio .The strong liquidity of the group will continue to benefit the financial flexibility of combined JHI post amalgamation.

Weakness
* Limited but improving diversity in its revenue profile, in terms of customer segments and product portfolio
Scale of operations is constrained by limited diversity in revenue, in terms of customer segments and product portfolio. The company caters primarily to the OEM segment in the auto industry, with limited presence in the aftermarket and export segments. Within the OEM space too, it does not cater to the high-volume two-wheeler segment. In order to diversify its client and product base, the company is setting-up additional lines to cater to orders from its existing and new customers. Benefits from the proposed expansion are, however, expected to gradually kick in.
 
* Exposure to cyclicality in demand in the automobile industry
JHI primarily supplies to passenger vehicles (PV) and commercial vehicles (CV) segment and the reliance on OEMs in the PV and CV segments, revenue and profitability will remain susceptible to the inherent cyclicality in demand in these segments.

Liquidity: Adequate
JHI has adequate liquidity driven by expected healthy cash accruals of Rs 65 -75 crore and adequate liquidity. The firm also has access to fund based limits of Rs.  66.00 crore, utilized at average of  25% over 8 months ended November 2018 and fixed deposits from promoters. 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.Post completion of the amalgamation, JHI will hold strong liquidity (JHIPL has over Rs 9000crore of liquid investments).
About the Company

JHI is a part of the Pune, Maharashtra-based Abhay Firodia group promoted by Mr Abhaykumar Firodia and Mr Prasan Firodia. The promoters, directly and indirectly, hold 100% equity stake in the company. Established in 1947, JHI is among the first aluminium die casting foundries in India. It has manufacturing facilities at Akurdi and Urse in Maharashtra, and Pithampur in Madhya Pradesh. Primary products are aluminium cylinder heads, blocks, and other aluminium components; it has total capacity of 21,000 tonne per annum. The company also undertakes value-added machining and assembles components for ready-to-use assemblies on engine and power train aggregates.

In fiscal 2016, it sold its gravity die-casting plant at Urse to a group company, Jaya Hind Montupet Pvt Ltd (JML). The consideration is expected to be paid by JML equally over the next five years.

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

For seven months ended October 2018, JHI has reported net sales of Rs 357 crore.

Key Financial Indicators
Particulars for period ended March 31, Unit 2017 2016
Net Sales Rs. Cr. 341 343
Profit After Tax Rs. Cr. 11 46
PAT Margin % 3.2 13.4
Adjusted Debt/Adjusted Net worth Times 0.71 0.52
Interest coverage Times 4.91 8.79

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 Fixed Deposit NA NA NA 50 FAA-/Watch Positive
NA Cash Credit NA NA NA 66 CRISIL A+/Watch Positive
NA Bank Guarantee NA NA NA 8 CRISIL A1/Watch Positive
NA Letter of Credit NA NA NA 41 CRISIL A1/Watch Positive
NA Proposed cash credit NA NA NA 4 CRISIL A+/Watch Positive
NA Proposed Bank Guarantee NA NA NA 4 CRISIL A1/Watch Positive
NA Proposed Letter of Credit NA NA NA 7 CRISIL A1/Watch Positive
NA Term loan NA NA Jul-23 100 CRISIL A+/Watch Positive
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
Fixed Deposits  FD  50.00  FAA-/Watch Positive  06-04-18  FAA-/Stable  19-09-17  FAA-/Stable  23-09-16  FA+/Stable  24-09-15  FA+/Stable  -- 
                22-01-16  FA+/Stable  06-01-15  FA+/Stable   
Fund-based Bank Facilities  LT/ST  170.00  CRISIL A+/Watch Positive  06-04-18  CRISIL A+/Stable  19-09-17  CRISIL A+/Stable  23-09-16  CRISIL A/Stable    --  -- 
                22-01-16  CRISIL A/Stable       
Non Fund-based Bank Facilities  LT/ST  60.00  CRISIL A1/Watch Positive  06-04-18  CRISIL A1  19-09-17  CRISIL A1  23-09-16  CRISIL A1    --  -- 
                22-01-16  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
Bank Guarantee 8 CRISIL A1/Watch Positive Bank Guarantee 8 CRISIL A1
Cash Credit 66 CRISIL A+/Watch Positive Cash Credit 66 CRISIL A+/Stable
Letter of Credit 41 CRISIL A1/Watch Positive Letter of Credit 41 CRISIL A1
Proposed Bank Guarantee 4 CRISIL A1/Watch Positive Proposed Bank Guarantee 4 CRISIL A1
Proposed Cash Credit Limit 4 CRISIL A+/Watch Positive Proposed Cash Credit Limit 4 CRISIL A+/Stable
Proposed Letter of Credit 7 CRISIL A1/Watch Positive Proposed Letter of Credit 7 CRISIL A1
Term Loan 100 CRISIL A+/Watch Positive Term Loan 100 CRISIL A+/Stable
Total 230 -- Total 230 --
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Auto Component Suppliers

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