Rationale

 ICRA has reaffirmed the ratings on the bank facilities of Jai Suspensions Limited (JSL) and subsequently withdrawn the ratings at the request of the company and based on the No Objection Certificate received from the banker, and in accordance with ICRA’s policy on withdrawal of credit ratings. ICRA has taken a consolidated view of Jamna Auto Industries Limited (JAI) and its two subsidiaries (Jai Suspension Systems Private Limited and Jai Suspensions Limited) (collectively referred to as the JAI Group) while assigning the credit ratings, given the common management and significant operational as well as financial linkages between the entities. The rating reaffirmation continues to favourably factor in the Group’s leadership position in the domestic leaf spring market, aided by scale, competitive pricing and strategic location of its manufacturing facilities in India. This has helped the Group maintain a dominant share of business (SOB) with most commercial vehicle (CV) Original Equipment Manufacturers (OEMs) with its domestic market share ranging within 62-65%. The volumes of medium and heavy commercial vehicles (M&HCVs/ trucks), the key end-user segment for the JAI Group, grew by nearly 40% in FY2023 and 4% in FY2024, which supported the company’s revenue growth of 35% and 6% (on a high base) YoY in FY2023 and 9M FY2024, respectively. Going forward, ICRA notes that the CV industry’s demand outlook is likely to remain subdued in the near term due to last year’s high base and the impact of the General Elections. This might impact the company’s operating performance to some extent in FY2025; however, despite the same, the company’s scale of operations is expected to remain at healthy levels. The margins had moderated in FY2023 to 11.4% (13.3% in FY2022) owing to an increase in raw material prices along with power and fuel costs, however the same subsequently improved to 13.4% in 9M FY2024 with an easing in steel prices. Even as the margins continue to remain linked to volatility in raw material prices, they are expected to remain supported by better operating leverage and gradual shift towards value accretive products. The company incurred a capex of ~Rs. 160 crore in FY2024 towards the construction of its new plant at Adityapur, Jharkhand (~Rs. 54 crore) and remaining at its existing plants (mainly in Chennai). It is likely to incur capex of ~Rs. 150-180 crore in FY2025, of which ~Rs. 140 crore will be spent for completing the Adityapur plant. The capex will be funded largely through internal accruals and JAI plans to continue to remain low leveraged. The company had nil working capital and term debt as of December 31, 2023, and is expected to continue to report robust credit metrics in FY2024 (Total Debt/OPBITDA of 0.4x and interest coverage of 77x in FY2023). The aforementioned strengths are partially offset by the JAI Group’s significant dependence on the M&HCV segment, which exposes it to the cyclicality associated with the industry. In this regard, the company’s efforts towards shifting its product mix towards value-added products, such as parabolic springs and lift axles, among others, and strengthening its distribution network for aftermarket sales provide comfort. The aftermarket revenues provide diversification from OEM sales and offer higher margins. These initiatives are likely to help the company lower its exposure to the cyclicality associated with CV OEMs to an extent, going forward.