Key Rating Drivers & Detailed Description

Strengths:

Established market position

Presence of over six decades in the industry, their technical expertise, management skills have enabled the promoters and senior management team 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 10,000 products / SKUs. Aside this, revenue profile of BPIL finds application in various industries such as automobiles, agricultural equipment, power generation applications, off the road vehicles 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 1300-2000 crore during past five years ended FY22 and reported revenue of Rs 1959 crore during FY22. Group estimated revenue of Rs 1457 crore (against Rs 1261 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, Caterpillar etc. The revenue of BPIL is well diversified with top 5 customers contributes less than 35% of revenue which indicates lower customer concentration risk.

Robust financial risk profile

The group had a healthy networth of over Rs 971 crore with negligible gearing of 0.02 times and total outside liabilities to adjusted networth ratio (TOL/ANW) was at 0.54 times as on March 31, 2022. Its debt protection metrics were also robust, with interest coverage and net cash accrual to adjusted debt ratios of 51.84 times and 9.38 time, respectively, in fiscal 2022. 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 cash and bank balance of over Rs 99 crore as on March 31, 2022.

Weaknesses:

Working-capital intensive operations

Operations of group were working capital intensive with gross current assets of 216 days in FY22 and are largely dominated by inventory of 156 days and moderate debtors of 61 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 FY22 and 15.43% during 9MFY23 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 75% 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 power generation applications, off the road vehicles 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.

Key Financial Indicators (Consolidated)

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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