| MH Ecolife Emobility Private Limited | ||||||
| Ratings continues on 'Watch Developing' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings’ ratings on the bank facilities of MH Ecolife Emobility Private Limited (MH Ecolife) continues on ‘Rating Watch with Developing Implication’. The rating is based on the strength of unconditional and irrevocable corporate guarantee by, JBM Auto Ltd (JAL; rated ‘CRISIL A/Stable/CRISIL A1’).
The rating were placed on ‘Rating watch with developing implication’ driven by revision in CRISIL Ratings’ approach towards credit enhancement provided by the guarantee. The revised approach is based on the guidance from the Reserve Bank of India (RBI) on factoring credit enhancement in the ratings of bank loan facilities. CRISIL Ratings had assessed the guarantee as legally enforceable, irrevocable, unconditional, covering the entire amount and tenure of the rated facility and given it due consideration while assigning the rating with a ‘CE’ suffix. Based on the new regulatory guidance, the existing guarantee cannot be considered as a valid credit enhancing support structure for assigning rating with ‘CE’ suffix because it does not have a defined payment mechanism. However, the management has articulated its intention to amend the corporate guarantee deed to incorporate the requisite clauses including payment mechanism.
CRISIL Ratings will resolve the Rating Watch, once it receives the final amended corporate guarantee deed. The rating may be migrated to MH Ecolife’s unsupported ratings, in case the guarantee deed is not amended to comply with the principles for evaluating the strength of the guarantee as per CRISIL Ratings criteria. The amended executed corporate guarantee deed is expected to be received in the next 10-15 days.
For more details on the revised approach, kindly refer to the CRISIL Ratings criteria document, ‘Criteria for rating instruments backed by guarantees’.
The ratings reflect the status of MH Ecolife as a successful concessionaire for procurement, operations and maintenance of 105 12-metre-long, and 45 9-metre long fully built air-conditioned electric buses (e-buses) on intercity routes for Navi Mumbai Municipal Transport (NMMT; Authority. The ratings also take into account the successful implementation of the project with all 150 buses operational from July 2022. The project is on gross cost contract basis under the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles [FAME] II scheme), and its strong financial flexibility through support from the parent.
JAL has a strong credit risk profile driven by its healthy market position in the auto component industry with longstanding client relationships, diverse clientele and a comfortable financial risk profile. The parent has reported revenue of Rs. 3214 crores in fiscal 2022 with improvement in operating margins to 11.3% from 10.7% in the preceding year. JAL also has prior experience in supplying and operating 30 e-buses to NMMT for more than a year.
Fixed payment for a minimum assured distance for the project indicates high revenue visibility, while subsidies for electricity and bus procurement increase the viability of the project. The counterparty risks are mitigated to an extent by an escrow mechanism, wherein the Authority would be obligated to deposit the revenue from ticket collections while also maintaining two months of revenue payable as a payment reserve. |
Analytical Approach The ratings are based on CRISIL Ratings criteria for rating instruments backed by guarantees. The (CE) suffix in the rating reflects the payment structure that is designed to ensure full and time-bound payment to lenders owing to corporate guarantee by JAL. To arrive at its unsupported rating, CRISIL Ratings has applied its parent notch-up framework to factor in the support from the parent. |
Key Rating Drivers & Detailed Description Strengths: Unconditional and irrevocable corporate guarantee by JAL The ratings are based on an unconditional, continuing and irrevocable guarantee from JAL, and an unconditional undertaking by the latter for securing principal and interest obligations on the entire debt of MH Ecolife. The capital structure of JAL is comfortable, with gearing of 1.42 times as on March 31, 2022, which is expected to improve to below 1 time over the medium term owing to healthy accrual.
The payment structure is designed to ensure full and timely payment to the lender. The payment structure incorporated in amended guarantee document is designed to ensure full and timely payment to the lender. The guarantee covers the principal, interest, and other monies payable under the guaranteed bank loan. The guarantor, JAL, will pay any amount due and payable by MH Ecolife in relation to these instruments no later than 5 calendar days from the date of invocation of guarantee in line with the proposed amended corporate guarantee document. Also, the central treasury team of JAL will closely monitor the repayments and provide timely support. The guarantee cover the principal, interest, and other monies payable under the guaranteed bank loan.
High revenue visibility with assured offtake As per the terms of the concession agreement, the Authority would pay MH Ecolife fixed rate (Rs 69.9 per kilometre [km] for 12-metre bus and Rs 52.2 per km for 9-metre bus) for a minimum assured distance of 200-224 km/bus/day, subject to bus availability; along with electricity cost reimbursement (up to Rs 1-1.4 per kilowatt-hour). Accordingly, MH Ecolife does not bear the traffic risk on the routes and only needs to ensure availability of buses as per the Authority’s deployment plan. Given this arrangement, the company’s business model essentially translates into an annuity model with high cash flow visibility over the concession period. Company is expected to generate revenue of Rs 70-75 crores along with EBITDA margin of 40-45% per annum over the medium term. Further, counterparty NMMT has a strong credit profile and timely receipts of payments provide comfort. Company has earned Rs 28 crore in first half of fiscal 2023 with EBITDA margins of 40%.
Strong experience of the JBM group The parent, JAL, which along with being a Tier-I component supplier to auto OEMs, is also an OEM (original equipment manufacturer) bus supplier itself, and has been manufacturing buses since fiscal 2017 with current capacity of 1,500 buses per year. The group plans to increase the same to 6,500 buses per year over the next three years. Additionally, JAL supplied 30 e-buses in August 2019, which are running successfully in Mumbai from the Turbhe Depot under NMMT. It has dedicated manpower for depot management under its sales team operating at various locations in the country. The parent has the required expertise and capability to manufacture, supply and operate e-buses.
Healthy growth prospects for e-buses in India The Government of India is focusing significantly on promoting electric vehicles (EVs) as a cleaner and sustainable form of transportation, with special focus on the commercial segment. To support faster adoption of EVs in India, the government has introduced various schemes such as FAME, offering upfront subsidies (to reduce capital costs), exemptions or reductions on road tax, registration tax, subsidised electricity tariffs, among others. The tender to operate e-buses for NMMT is part of the FAME II scheme, with MH Ecolife eligible for a subsidy of Rs 55 lakh per bus for 12-metre bus and Rs 45 lakh per bus. Company has successfully received all the three tranches of subsidy amounting to Rs 78 crore.
Financial risk profile to improve as operations have fully commenced With all 150 buses now operational financial risk profile is expected to improve. Current debt outstanding of the company as on Dec 31, 2022 is Rs 126 crore. However, healthy operating margins of 55% and the estimated cash flows of Rs 20-25 crores per annum will be adequate to service the debt obligations of Rs 15-20 crores per annum. The debt service reserve account (DSRA) of Rs 18.68 crore (equivalent to two quarter of debt obligation) maintained in the form of fixed deposits supports the debt protection metrics. Overall financial performance is expected to improve now gradually with commencement of operations, though track record of smooth operations will remain a key monitorable. Company has successfully received all the three tranches of subsidy amounting to Rs 78 crore.
Weakness: Limited track record of e-bus operations The electric bus sector in the country has limited track record of operations and performance of these buses despite the interest that has been generated over the electric vehicle segment has to be established. Any underperformance in operation vis-à-vis agreed specifications, especially that which impacts the availability and reliability of buses, has potential to impact the project viability, and hence, would be a key monitorable. |
Liquidity: Strong Liquidity derives comfort from credit enhancement available in the form of an unconditional and irrevocable corporate guarantee by the parent. JAL is likely to provide financial support in the event of an exigency. Capital expenditure of around Rs 264 crore has been funded through term loan of Rs 157.91 crore, subsidy of Rs 78 crores and the rest with equity from JAL. The parent also has access to fund-based limit of Rs 886 crore, utilized by 64% on average (on fund based sanctioned Limits) |
Rating Sensitivity factors Upward factors: * Improvement in the overall credit risk profile of the guarantor by 1 notch * Stabilization of operations, track record of timely revenue receipts and healthy DSCR.
Downward factors: * Deterioration in the overall credit risk profile of the guarantor by 1 notch or more * Non-adherence to the terms of transaction structure/payment mechanism |
Adequacy of credit enhancement structure The rating is based upon the strength of an unconditional, continuing and irrevocable guarantee extended by JAL, along with an unconditional undertaking to ensure full and timely payment of all amounts due to the lender.
According to the payment mechanism, the guarantor, JAL, will pay not later than 3 calendar days from the due date any amount due and payable by MH Ecolife in relation to these instruments in case of any default on, or shortfall in, payment. The guarantee and the undertaking together cover the entire principal, interest, and other monies payable under the guaranteed loan. |
Unsupported ratings CRISIL BBB+ CRISIL Ratings has introduced 'CE' suffix for instruments having an explicit Credit Enhancement feature in compliance with SEBI's circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported rating, CRISIL Ratings has considered the standalone business and financial risk profiles of MH Ecolife and has applied its parent notch-up framework to factor in the extent of support available to the company from JAL. The rating factors in the strong revenue visibility for the project with fixed charges over a minimum assured distance, support in the form of subsidy for bus procurement, presence of escrow mechanism and the strategic importance of MH Ecolife to its parent, given the synergies to its operations and criticality of the project for the strategy of JAL to focus on its bus manufacturing and operating segment. These are partially offset by low track record of smooth running of operations and timely receipt of revenue receipts. |
About the Company MH Ecolife was incorporated as a private limited company under the Companies Act, 2013, in 2020. It was established to run 150 EV buses in Navi Mumbai through a concession agreement with NMMT under the FAME-II scheme. The company is a wholly owned subsidiary of JAL, which is a part of the JBM group. |
About the Group Incorporated in 1996, JAL manufactures sheet metal components, assemblies and sub-assemblies, tools, dyes and moulds. JAL is primarily a Tier-1 supplier of key systems and assemblies to the automotive OEM industry and caters to esteemed clients such as Ashok Leyland, Bajaj, Daimler, Fiat Chrysler, Ford, Honda, Hero, JCB, Mahindra, Maruti Suzuki, Renault, Nissan, TATA, Toyota, TVS, Volvo Eicher, and Volkswagen. The group has alliances with more than 15 renowned companies globally, including Arcelor Mittal, Cornaglia, Dassault Systemes, JFE Steel, Ogihara, Solaris Bus & Coach, and Sumitomo. The structure of JAL enables each business unit to chart its own future and simultaneously leverage synergies across its competencies. The company has 16 manufacturing facilities: 14 for sheet metal components and tooling and 2 for buses and 1 Skill Development Centre (SDC).
Company has earned revenues of Rs 28 crore in first half of fiscal 2023 with EBITDA margins of 40%. |
Key Financial Indicators
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List of covenants
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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This Annexure has been updated on 25-Apr-23 in line with the lender-wise facility details as on 02-Sep-21 received from the rated entity.
Criteria Details
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