| Beekay Engineering Corporation | ||||||
| Ratings downgraded to 'CRISIL BB-/CRISIL A4+'; Placed on 'Watch Negative' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has downgraded the ratings on the bank facilities of Beekay Engineering Corporation (BEC) to 'CRISIL BB-/CRISIL A4+' from 'CRISIL BBB-/Negative/CRISIL A3'. The ratings have been placed on 'Rating Watch with Negative Implications'. |
| Analytical Approach |
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For arriving at the ratings, unsecured loans of Rs 20.22 crore (as on March 31, 2020) from the promoters and their family members have been treated as neither debt nor equity, as these loans are expected to remain in the business over the medium term. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Extensive industry experience of the partners: Over the past 50 years, the firm has established a strong relationship with large customers such as Steel Authority of India Ltd, Tata Projects Ltd, and Danielli India Ltd. It is one of the prominent players in providing sponge iron and other steel projects to large customers. The firm also benefits from continuous fund support from the partners. * Moderate order book: The Firm has outstanding orders of over Rs 150 crore, about 1.4 times of its FY20 revenue, which is to be executed in next 12-18 months period provides revenue visibility over the medium term. Weaknesses: * Working capital-intensive operations and exposure to end-user concentration in revenue: Working capital requirement is large due to sizeable inventory and stretched receivables. GCA were high estimated at 400 days as on March 31, 2020, driven by inventory of over 260 days and receivables of around 120 days, which remain at similar levels in H1| fiscal 2021. The risk is partially mitigated as majority of the inventory is work in progress which is order backed, and by the long standing relationship with its customers who have good repute. However, with the recent high reliance on a single end-user (steel industry) partly constrains the business risk profile. * Susceptibility to risks related to volatility in raw material prices: Raw material cost accounts for 65 - 70% of the total cost of sales. Moreover, as the price of the key input, steel plates, is volatile, any increase cannot be immediately passed on to customers. Hence, profitability remains susceptible to adverse fluctuations in raw material cost. * Below average debt protection metrics: Debt protection metrics are subdued, with interest coverage and net cash accrual to total debt ratios estimated at 1.55 times and 0.11 time, respectively, in fiscal 2020, due to decline in revenues amidst high dependency on working capital debt. However networth remains healthy estimated at Rs 77.8 crore leading to a comfortable capital structure with gearing and total outside liabilities to tangible networth ratios estimated at 0.55 time and 0.77 as on March 31, 2020. |
| Liquidity Stretched |
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Liquidity is weak. In last six months, due to Covid-19 and subsequent lockdown, there were delays in inspection of completed work by the counter parties due to which the firm was unable to raise the bills leading to increase in working capital requirements. Due to this, the bank limits have been fully utilized. Post invocation of bank guarantee, the bank limits are overdrawn, weakening firm's liquidity further. Cash accruals are also expected to be modest at about Rs 4-5 crore in fiscal 2021, however would be adequate for maturing debt of Rs 1.3 crore. Liquidity is partially supported by fund support from promoters through unsecured loans. The firm had availed moratorium on its bank loans between the period April to August 2020 and has applied its lenders for one-time restructuring |
| Rating Sensitivity factors |
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Upward factor: * Sustained operating profitability, along with higher than expected revenue. * Sustained improvement in liquidity backed by reduction in gross current assets to less than 150 days. Downward factor: * Rejection of loan restructuring proposal by the lenders adversely impacting the liquidity * Higher than expected inventory levels of over 250'270 days leading to further stretch in working capital requirements. * Weakening of the financial risk profile and liquidity position |
| About the Firm |
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BEC was set up in 1967 by the late Mr Balkrishnan Gupta and his family members as a partnership firm. It executes turnkey projects on engineering, procurement, and construction basis, and also manufactures equipment, spares, and components for steel plants, the Indian Railways, and other clients. Besides fully integrated steel plants, the firm specialises in manufacturing complete kiln and cooler assemblies for sponge-iron plants. Operations are currently managed by Mr Vijay Kumar Gupta and his son, Mr Nitin Gupta. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| For further information contact: | ||||||
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