Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL AA/Stable' rating to the bank facilities of Banco Products India Limited (BPIL; part of Banco group).

 

The ratings reflect the extensive experience of its promoters, established market position, diversified product portfolio along with its various key end used industry application, low customer concentration risk, robust financial risk profile, and healthy unencumbered cash and bank balances. These strengths are partially offset by working capital intensive operations, volatility in operating margin due to fluctuation in profitability in its subsidiary, Nederlandse Radiateuren Fabriek B.V. (NRF) and exposure to cyclicality in demand in domestic automobile industry.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has consolidated business and financial risk profiles of BPIL with its 100% wholly owned subsidiaries, Banco Gaskets India Limited (BGIL) and Nederlandsw Radiateuren Fabriek B. V. (NRF).

 

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:

Extensive experience of the promoters and established market position

Presence of over six decades in the industry, their technical expertise, management skills have enabled the promoters to understand market dynamics and establish healthy relationships with suppliers and customers. Aside this, group has a Department of Scientific & Industrial Research (DSIR) approved R&D facility wherein new products are developed in consultation with various OEMs. The technical capability enables group to work with OEMs to develop a customized product in accordance with the design and technical requirements before the product is launched. The aforesaid arrangements give a competitive edge to BPIL over many other auto ancillary manufacturers. Banco group is largest manufacturer of radiators in India and have been dealing directly with various OEM’s (55-60% of revenue), aftermarkets (~15%), and export (~30%).

 

Diversified product portfolio, key end user industry application and low customer concentration risk

Group manufactures engine cooling systems through BPIL, engine sealing systems through BGIL and NRF BV manufactures various cooling products including marine industry and also does trading of various automobile air conditioning and cooling products. Group’s product portfolio is diversified as BPIL has manufactures over 1,000 products, BGIL over 5,000 products, and NRF over 8,000 products. Aside this, revenue profile of BPIL finds application in various industries such as automobiles, agricultural equipment including farm equipment, industrial and earth moving equipment and remaining from rail locomotives, etc which helped BPIL to protect its market position in case of any adverse downfall in particular sectors. As a result, revenue of group was range bound at Rs 1300-1600 crore during past three years ended FY21 due to subdue automobile segment. Group reported revenue of Rs 1533 crore during FY21 and Rs 1459 crore during 9MFY22.

 

The key customers of group are reputed and include, Cummins India Limited, Mahindra and Mahindra Limited, J.C. Bamford Excavators Limited (JCB), Ashok Leyland Limited, TVS Motor Company Limited, Maruti Suzuki India Limited, Hero Motocorp Limited, WABCO India Limited, TATA Motors Limited, etc. The revenue of BPIL is well diversified with top 5 customers contributes less than 30% of revenue which indicates lower customer concentration risk.

 

Robust financial risk profile

The group had a healthy networth of over Rs 815 crore with negligible gearing of 0.02 times and total outside liabilities to adjusted networth ratio (TOL/ANW) was at 0.44 times as on March 31, 2021. Its debt protection metrics were also robust, with interest coverage and net cash accrual to adjusted debt ratios of 50.30 times and 10.36 time, respectively, in fiscal 2021. Over the medium term, financial risk profile expected to remain robust backed by healthy accretion of profit into networth and lower reliance on external bank borrowings. The financial risk profile further strengthened by unencumbered cash and bank balance of over Rs 125 crore as on March 31, 2021.

 

Weakness:

Working-capital intensive operations

Operations of group were working capital intensive with gross current assets of 233 days in FY21 and are largely dominated by inventory of 152 days and moderate debtors of 65 days. The inventory level of group is higher as group imports large portion of its Aluminum requirements. However, comfort derive from fact that group have running order of 2 months from OEM’s which protects its profitability against fluctuation in prices of raw materials. Over the medium term, GCA days expected to remain in range of 210-240 days.

 

Profitability is exposed to volatile raw material and performance in subsidiary, NRF

The operating margin of group were range bound at 9-15% during past 10 years ended FY21 due to fluctuation in prices of raw materials in range of 50-60% of sales value, and volatility in operating margin in subsidiary, NRF and BGIL. Operating margin of NRF significantly declined in past due to fluctuation in prices of raw materials, increase in employee cost, increase in other expenses driven by R&D costs and exchange rate difference. Furthermore, operating margin remain low for NRF as over 50% of revenue is being derived from trading division. Due to volatility in subsidiaries, operating margin of BPIL at consolidated level gets impacted and maintenance of operating margin over 15% would be key monitorable.

 

Exposure to cyclicality in demand in domestic automobile industry

The product profile of group finds application in various industries such as automobiles, industrial and earth moving equipment, agricultural equipment including farm equipment, rail locomotives, marine, etc. Although key end user industries are diversified, are correlated to economic cycles. In the past, because of subdue performance of automobiles, the industry faced a slowdown which in turn restrained the performance of the radiator industry and range bound turnover for Banco Group. As a result, the revenue is expected to remain exposed to any sustained downturn in demand in the domestic automobile industry as over 40% of revenue of BPIL derived from automobile segment.

Liquidity: Strong

Banco group has strong liquidity driven by expected healthy cash accruals over Rs 81-120 crore against meagre term debt repayment over the medium term. Aside this, group has unencumbered cash and bank balance of over Rs 125 crore as on March 31, 2021. Due to higher unencumbered funds in business, the reliance on bank lines is low as it utilised at less than 5% during past 12 months ended December 2021. Current ratio was healthy at 3.21 times as on March 31, 2021. Group has healthy financial flexibility as reflected in networth of over Rs 815 crore and gearing of 0.02 times as on March 31, 2021.

Outlook: Stable

CRISIL Ratings believes Banco group will continue to benefit from its promoters' extensive experience, established market position and robust financial risk profile.

Rating Sensitivity Factors

Upward factors

• Sharp rise in turnover with maintenance of operating margin over 15% and improvement in working capital cycle, especially inventory level
• Maintenance of robust financial risk profile

 

Downward factors

• Deterioration in GCA days over 300 days
• Substantial increase in total outside liabilities to tangible networth.

About the Group

Incorporated in 1961 and promoted by Mr Mehul K Patel and family members, BPIL manufactures engine cooling systems including Radiators, change air coolers, oil coolers – transmission & hydraulic, fuel coolers with large backward integration in Aluminium and coper/brass configurations. BPIL is listed on BSE and NSE.

 

BGIL was hived off from BPIL in FY12 for better operational efficiencies. BGIL manufactures various types of gaskets comprising of metal as well as rubber gaskets, which have application as a sealing material in automobile and industrial sectors.

 

Nederlandsw Radiateuren Fabriek B. V. (NRF) was 100% acquired by Banco group in FY10 and is a leading European manufacturer and trader of automotive, industrial, railway and marine heat transfer and AC products. Operations and distribution of NRF are located in western and eastern European countries.

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned and outlook
NA	Cash Credit&	NA	NA	NA	5	NA	CRISIL AA/Stable
NA	Cash Credit^	NA	NA	NA	5	NA	CRISIL AA/Stable
NA	Cash Credit%	NA	NA	NA	10	NA	CRISIL AA/Stable

&Includes sublimit of LC/BG

^Includes sublimit of LC/BG/EPC/PCFC

%Includes sublimit of LC/BG/EPC/PCFC/WCDL