Rating Rationale
July 31, 2018 | Mumbai
Bemco Hydraulics Limited
Ratings upgraded to 'CRISIL BB-/Stable/CRISIL A4+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.35 Crore
Long Term Rating CRISIL BB-/Stable (Upgraded from 'CRISIL B/Stable')
Short Term Rating CRISIL A4+ (Upgraded from 'CRISIL A4')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its ratings on the bank facilities of Bemco Hydraulics Limited (Bemco) to 'CRISIL BB-/Stable/CRISIL A4+' from 'CRISIL B/Stable/CRISIL A4'.

The upgrade reflects improvement in the business risk profile, driven by an increase in the operating margin to about 12.5% in fiscal 2018 from 1.8% in fiscal 2016, supported by better operating efficiency. The margin is expected to be maintained, driven by steady volume of orders and continued focus on efficiency. Although revenue remained flat at about Rs 40.4 crore in fiscal 2018, comfortable orders of over 1.2 times the revenue provide revenue visibility for fiscal 2019. Orders are expected to increase further during this fiscal supported by tenders floated by key clients. With expected accretions of over Rs 1.5 crore per fiscal to reserves over fiscals 2019 and 2020, the financial risk profile is likely to improve. The total outside liabilities to tangible net worth (TOLTNW) ratio improved to about 3.11 times as on March 31, 2018, from 12.7 times as on 31 March, 2016.

The ratings reflect an established market position in a niche product segment, extensive experience of the promoters in the engineering industry and a moderate financial risk profile. These rating strengths are partially offset by a modest scale and working capital-intensive nature of operations.

Analytical Approach

Unsecured loans of Rs 6.35 crore, as on March 31, 2018, are treated as neither debt nor equity as they are expected to remain in the business over the medium term and are subordinated to bank debt.

Key Rating Drivers & Detailed Description
Strengths:
* Established market position in a niche product segment and extensive industry experience of the promoters: The company was founded in the late 1930s as a proprietorship concern to meet the requirements of the British army. Since then, it has developed highly sophisticated machinery and equipment for Hindustan Aeronautics Ltd, Indian Railways, and automotive companies. The company remains the sole manufacturer of re-railing products for Indian Railways.

* Moderate financial risk profile: The TOLTNW was moderate and the debt protection metrics average. Liquidity is comfortable due to sufficient cushion between cash accrual and repayment obligation, along with moderate bank limit utilisation over the 12 months through April 2018.

Weakness
* Modest scale of operations: Despite being in the industry for several years, revenue was modest at about Rs 40.4 crore for fiscal 2018.

* Working capital-intensive operations: Gross current assets were high at 303 days as on March 31, 2018, due to large inventory for meeting orders in hand.
Outlook: Stable

CRISIL believes Bemco will continue to benefit over the medium term from a moderate order book and the extensive industry experience of its promoters. The outlook may be revised to 'Positive' if there is sustained improvement in cash accrual, leading to a better financial risk profile. The outlook may be revised to 'Negative' if profitability margins decline or liquidity weakens significantly because of an increase in working capital requirement or large, debt-funded capital expenditure.

About the Company

Bemco was incorporated as New Bemco Engineering Products Company Ltd in 1957; it got its current name in 1976. The company manufactures hydraulic presses and equipment used in the automotive, defence, railways, and other heavy engineering sectors.

The company is listed on the Bombay Stock Exchange.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs.Crore 40.4 40.8
Profit After Tax (PAT) Rs.Crore 1.05 3.63
PAT Margin % 2.6 8.7
Adjusted debt/adjusted networth Times 2.92 4.66
Interest coverage Times 1.73 1.57

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Rating Assigned with Outlook
NA Bank Guarantee NA NA NA 16 CRISIL A4+
NA Cash Credit NA NA NA 12.5 CRISIL BB-/Stable
NA Inland/Import Letter of Credit NA NA NA 2 CRISIL A4+
NA Letter of Credit NA NA NA 2 CRISIL A4+
NA Proposed Long Term Bank Loan Facility NA NA NA 1.5 CRISIL BB-/Stable
NA Term Loan NA NA Mar-2019 1 CRISIL BB-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  15.00  CRISIL BB-/Stable      10-07-17  CRISIL B/Stable  14-10-16  CRISIL B-/Stable  20-08-15  CRISIL B-/Stable  CRISIL B-/Stable 
Non Fund-based Bank Facilities  LT/ST  20.00  CRISIL A4+      10-07-17  CRISIL A4  14-10-16  CRISIL A4  20-08-15  CRISIL A4  CRISIL A4 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 16 CRISIL A4+ Bank Guarantee 10.5 CRISIL A4
Cash Credit 12.5 CRISIL BB-/Stable Cash Credit 10 CRISIL B/Stable
Inland/Import Letter of Credit 2 CRISIL A4+ Letter of Credit 4 CRISIL A4
Letter of Credit 2 CRISIL A4+ Proposed Long Term Bank Loan Facility 8.5 CRISIL B/Stable
Proposed Long Term Bank Loan Facility 1.5 CRISIL BB-/Stable Term Loan 2 CRISIL B/Stable
Term Loan 1 CRISIL BB-/Stable -- 0 --
Total 35 -- Total 35 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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