| BNC Power Projects Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has reaffirmed its ‘CRISIL BBB/Positive/CRISIL A3+’ ratings on the bank facilities of BNC Power Projects Limited (BNC).
The ratings continue to reflect the extensive experience of the promoter in the civil construction and electrical-transmission and substations segments, the company’s healthy order book and comfortable financial risk profile. These strengths are partially offset by susceptibility to risks inherent in tender-based operations, geographical concentration in revenue, large working capital requirement and susceptibility to risks associated with hybrid annuity model (HAM) projects.
The revenue dipped in fiscal 2022 amidst completion of HAM projects and slow commencement of new orders in the electrification segment. Nonetheless, BNC reported steady operating margin of around 13% leading to healthy cash accrual. The company has a confirmed order book of around Rs 694 crore which provides strong revenue visibility for the medium term. It plans to bid for engineering, procurement and construction (EPC) projects in both, the electrification and roads segments, in the near term to boost order flow.
The financial risk profile also improved, driven by healthy accretion to reserve in fiscal 2022. Equity commitments for the HAM projects have already been fulfilled and liquidity should therefore remain adequate. BNC does not plan to take up any new HAM project over the medium term. |
Analytical approach CRISIL Ratings has moderately combined the business and financial risk profiles of BNC and its four special purpose vehicles (SPVs)—BNC Palsiddha Infra Pvt Ltd, Jijamata Road Nirmiti Pvt Ltd, Matrutirth Sindkhedraja Infra Pvt Ltd and Rajmata Jijau Road Nimiti Pvt Ltd—floated for executing projects under HAM in Maharashtra. BNC will likely support the SPVs to the extent of equity investment, cost overrun and debt servicing in the initial stage of operations.
Unsecured loan (Rs 4 crore as on March 31, 2022) from the promoter has been treated as debt as it may be withdrawn over the medium term.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key rating drivers and detailed description Strengths:
The three-decade-long experience of the promoter in the civil construction and electrical-transmission and substations segments, his strong grasp of market dynamics and healthy relationships with key customers, such as Maharashtra State Electricity Transmission Company Ltd (MSETCL), Power Grid Corporation of India Ltd (PGCIL) and the Maharashtra Public Works Department (PWD), will continue to support the business.
Orders worth more than Rs 694 crore offer revenue visibility over the medium term. The order book is skewed towards the electrical-transmission and substations segment. BNC is likely to register revenue of around Rs 250 crore in fiscal 2023 and will sustain moderate revenue growth over the medium term, backed by its healthy order book.
The financial risk profile will remain supported by moderate working capital requirement, steady accretion and the absence of any large capital expenditure (capex). Networth and total outside liabilities to tangible networth ratio were healthy over Rs 127 crore and below 0.67 times, respectively, as on March 31, 2022. Debt protection metrics were adequate, as indicated by interest coverage and net cash accrual to total debt ratios of 4.95 times and 0.34 time, respectively, for fiscal 2022. With moderate incremental working capital requirement, no large capex and healthy accretion, the financial metrics should remain stable this fiscal as well.
Also, as three of the four HAM projects are completed and commissioned, and the fourth has achieved provisional commercial operations date (PCOD), BNC is not required to extend fresh equity towards them. Two of these have started receiving annuity payments and one is expected to receive the first annuity shortly.
Weaknesses:
As sales are almost entirely tender-based, revenue depends on ability to bid successfully. Intense competition from large, established players and small, local entities will continue to constrain scalability, pricing power and profitability. Being a regional player, BNC executes projects largely in Maharashtra, and thus, remains susceptible to any slowdown in tenders floated in the region or changes in government policies.
The company had large gross current assets (GCAs) of 223 days as on March 31, 2022, driven by the large security deposits to be maintained with government authorities and sizeable receivables of 101 days. Though still large, the GCAs have improved due to faster operating cycle in HAM projects. Sustenance of the working capital cycle remains critical and any significant delay in receivables a key monitorable.
BNC has floated four SPVs to undertake road work projects worth Rs 420 crore under HAM for the Maharashtra PWD. With 60% stake in the projects, BNC is one of the main sponsors along with its partner, Shree Palsiddha Construction, and has undertaken EPC for the projects. Three projects have been completed, of which, two have been receiving annuity payments and the third has achieved commercial operation date with the first annuity expected soon. The fourth project achieved PCOD recently. Though the preconstruction risk is over for the four HAM projects, track record of timely annuity receipts and operations and maintenance, including major maintenance, are critical. |
Liquidity: Adequate Liquidity should remain adequate. Cash accrual is projected at Rs 20-21 crore per annum over the medium term against yearly debt obligation of Rs 4-5 crore. Bank lines were utilised moderately, at 60% on average over the 12 months through June 2022. The promoters have infused majority of the equity for the HAM projects and will likely extend timely, need-based unsecured loans to meet exigencies in the post construction phase. |
Outlook: Positive CRISIL Ratings believe BNC’s business and financial risk profiles will improve over the medium term supported by expected steady execution of its healthy order book. There is no further equity commitment for HAM projects awarded and the company is unlikely to bid for any new HAM project in the near term. |
Rating sensitivity factors Upward factors
Downward factors
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About the company BNC, incorporated in 1967, undertakes electrification contracts floated mainly by MSETCL and PGCIL. The company executes installation and commissioning of substations, transformers, extra-high voltage, high voltage and medium voltage power transmission lines, along with other electrification works. It has four HAM projects through its SPVs. Its registered office is in Pune and Mr B N Chaudhary is the promoter. |
Key financial indicators
*Provisional |
Status of non-cooperation with previous CRA: BNC has not cooperated with Credit Analysis & Research Ltd, which has classified the company as ‘issuer not cooperating’ on Mar 23, 2020, on account of non-furnishing of information for monitoring of ratings, |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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Annexure – List of entities consolidated
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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 06-Oct-22 in line with the lender-wise facility details as on 27-Sep-21 received from the rated entity.
Criteria Details
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