| Balkrishna Industries Limited | ||||||
| Rating outlook revised to 'Positive'; 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 revised its outlook on the long-term bank facilities of Balkrishna Industries Limited (BIL) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘CRISIL AA’, The short term rating has been reaffirmed at ‘CRISIL A1+’.
The outlook revision reflects strong revenue growth of 43% to Rs 8,295 crore in fiscal 2022, driven by a healthy 27% volume growth, primarily in the Eurozone and North America markets, and price hikes during the year in light of rising crude-linked raw material and freight costs. CRISIL Ratings expects the revenue growth to remain healthy at about 15% over the medium term, backed by steady volume growth from the agriculture and mining sectors globally and full-year benefit of price hikes.
BIL’s operating profitability moderated to 24% in fiscal 2022 from the peak 31% in fiscal 2021, mainly due to lag in passing on rising crude-linked raw material and freight costs to customers, which was an industry-wide trend. With full year benefit of multiple price hikes taken last fiscal, operating profitability is expected to improve above 25% this fiscal and would remain the key monitorable. Moreover, operating profitability is likely to improve further over the medium term, with completion of construction of the carbon black plant and the 20-MW power plant for captive power consumption.
The company is undertaking capital expenditure (capex) of Rs 1,900 crore over fiscals 2022 and 2023 for capacity expansion of its tyre and carbon black plants and for automation and upgradation. The capex has been funded prudently through both internal accruals and debt of Rs. 500 crores, thereby sustaining its robust financial risk profile and strong liquidity position. While short-term debt increased to meet higher working capital requirement in fiscal 2022, the company continued to maintain low net debt of about Rs 580 crore against strong networth of around Rs 6,932 crore and liquid surplus, including cash and investments, of Rs 1,948 crore as on March 31, 2022.
The ratings continue to reflect BIL’s robust financial risk profile, established market position in the off-highway tyres (OHT) segment and healthy operating efficiency. These strengths are partially offset by vulnerability to fluctuations in raw material prices and foreign exchange (forex) rates, and regulatory changes in importing countries. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of BIL and its subsidiaries. This is because all the entities, collectively referred to as BIL, are in the same business and have operational synergies.
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: Established market position: BIL’s market share in the international OHT segment has increased steadily to about 6% backed by association with major global original equipment manufacturers, wide distribution network in 160+ countries and diverse product portfolio. BIL registered strong revenue growth of 43% to Rs 8,295 crore in fiscal 2022, backed by healthy volume growth alongwith price hikes benefit during the fiscal. Amid improving market position in the overseas markets and healthy demand for agricultural and off-the-road tyres, BIL’s revenue growth is expected to sustain at about 15% over the medium term. The completion of capacity expansion this fiscal should help support revenue growth and derive benefits from the economies of scale and low-cost manufacturing.
Healthy operating efficiency: Manufacturing OHT is labour intensive and BIL benefits from its presence in low-cost locations. As employee cost is lower than most global peers, BIL’s products are competitively priced. Thus, the operating profitability has remained above 27% over the past five fiscals. While operating profitability moderated to 24% in fiscal 2022 due to time lag in price hikes as compared to crude-linked raw material and sharp increase in ocean freight, operating profitability is expected to improve and remains the key monitorable.
Robust financial risk profile: BIL’s financial risk profile continues to remain strong, with total outside liabilities to tangible networth ratio remaining below 0.6 times as on March 31, 2022, despite higher short term debt to meet high working capital requirement and part debt-funded capex. Annual net cash accrual is expected to remain healthy above Rs 1,500 crore, while maintaining healthy capital structure and debt protection metrics. The continued healthy operating performance and low interest cost will likely keep the debt protection metrics healthy with interest coverage above 50 times over the medium term.
Weaknesses: Vulnerability to fluctuations in raw material prices: Prices of key raw materials, natural and synthetic rubber (raw materials account for around 65% of the production costs), are volatile as they depend on global demand, area under cultivation and crude oil prices. BIL’s operating profitability declined to 24% in fiscal 2022 from the peak of 32% in fiscal 2021, because of a lag in passing on rising input and ocean freight cost to customers. Thus, operating performance is highly correlated to crude oil prices and the company’s ability to pass on price increases to customers will remain the key monitorable.
Exposure to regulatory risks: In March 2017, the US Department of Commerce issued an order levying countervailing duty of 5.36% on BIL. Though the impact of this levy is limited, given that only 12% of revenue comes from North America, BIL’s exposure to regulatory risks persists and will remain a key monitorable.
Susceptibility to volatility in forex rates: Around 60% of the raw material is imported. Also, the borrowing is in foreign currency, exposing BIL to the risk of sharp fluctuations in forex rates. However, with bulk of revenue coming from export, the exposure to forex risk is naturally hedged. Moreover, receivables are covered by forward contracts. |
Liquidity: Strong BIL’s expected annual net cash accrual above Rs 1,500 crore over the medium term will comfortably cover annual term debt repayment obligation of Rs 175 crore from fiscal 2025. Furthermore, the company has a healthy reserve of cash and investments; amounting to Rs 1,948 crore as on March 31, 2022. Bank limit utilisation was moderate at 55% on average in fiscal 2022. |
Outlook: Positive CRISIL Ratings believes BIL's revenue growth will remain healthy over the medium term and operating margin will recover, supported by full year benefit of price hikes, diversity in product mix and geographic reach. The financial risk profile will remain strong driven by healthy cash accrual, prudently funded capex and low net debt. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Based in Mumbai, BIL manufactures OHTs which are used in vehicles meant for agricultural, industrial, construction and earth-moving purposes. The company has plants in Bhuj, Gujrat; Waluj, Maharashtra; Bhiwadi and Chopanki, Rajasthan; and combined achievable capacity of 360,000 tonne per annum (TPA) by end of fiscal 2023. It has a wide product profile and sells in more than 160 countries. It also has over 3,200 stock-keeping units to cater to the requirements of customers. In fiscal 2022, around 82% of revenue came from export, with Europe and America accounting for 54% and 12%, respectively. Its carbon black facility in Bhuj with capacity of 100,000 TPA has commenced operations and is running at optimal capacity. |
Key Financial Indicators
*Provisional |
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)
*Interchangeable with packing credit
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 | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Cash Credit | 20 | ICICI Bank Limited | CRISIL AA/Positive |
| Letter of credit & Bank Guarantee* | 25 | BNP Paribas Bank | CRISIL A1+ |
| Letter of credit & Bank Guarantee* | 25 | Citibank N. A. | CRISIL A1+ |
| Letter of credit & Bank Guarantee* | 80 | ICICI Bank Limited | CRISIL A1+ |
| Letter of credit & Bank Guarantee* | 60 | Standard Chartered Bank Limited | CRISIL A1+ |
| Letter of credit & Bank Guarantee* | 50 | State Bank of India | CRISIL A1+ |
| Letter of credit & Bank Guarantee* | 25 | The Hongkong and Shanghai Banking Corporation Limited | CRISIL A1+ |
| Packing Credit | 100 | BNP Paribas Bank | CRISIL A1+ |
| Packing Credit | 40 | Citibank N. A. | CRISIL A1+ |
| Packing Credit | 100 | Kotak Mahindra Bank Limited | CRISIL A1+ |
| Packing Credit | 80 | MUFG Bank Limited | CRISIL A1+ |
| Packing Credit | 140 | Standard Chartered Bank Limited | CRISIL A1+ |
| Packing Credit | 150 | State Bank of India | CRISIL A1+ |
| Packing Credit | 15 | The Hongkong and Shanghai Banking Corporation Limited | CRISIL A1+ |
| Proposed Long Term Bank Loan Facility | 90 | Not Applicable | CRISIL AA/Positive |
This Annexure has been updated on 19-Aug-22 in line with the lender-wise facility details as on 19-Jul-22 received from the rated entity.
Criteria Details
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