Rating Rationale
April 26, 2023 | Mumbai
Bhagwati Autocast Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'; rated amount enhanced for Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.26.5 Crore (Enhanced from Rs.16.66 Crore)
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BBB-/Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A3')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank loan facilities of Bhagwati Autocast Ltd (BAL) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BBB-/Stable/CRISIL A3’.

 

The rating upgrade reflects improvement in the company’s operating efficiency following cost rationalization measures undertaken as witnessed in improving operating margins and sustenance of its adequate financial risk profile. Revenue from operations increased by 32.8% to Rs.118 crore during nine months of fiscal 2023 (nine months of fiscal 2022: Rs.88.87 crore) on account of higher capacity utilization which increased to 84% in nine months of fiscal 2023 from 72%. The sharp increase in capacity utilization was   owing to healthy demand in tractor industry which resulted in increase in orders from their existing clients such as Escort Kubota Ltd (CRISIL AA+/stable/A1+), Swaraj Engines Ltd, Mahindra & Mahindra Ltd and Mita India Pvt Ltd. The healthy demand in tractor industry was driven by favourable agricultural conditions and good prices for farmers.

 

Operating margin improved to 8.96% during nine months of fiscal 2023 (fiscal 2022: 1.39%; fiscal 2021: 5.0%) on account of higher operating leverage, various cost rationalization measures which were implemented during pandemic and reduction in power costs which reduced by 209 basis points as a percentage of sales. With the commissioning of solar power plant setup by BAL, company is expected to save ~Rs.3 crore in power costs annually.

 

Financial risk profile continues to be adequate with healthy capital structure reflected in gearing of 0.40x as on September 30, 2022 (March 31, 2021: 0.68x). Same is expected to gradually improve with accretion to reserves and progressive repayment of debt.  TOL/TNW was also comfortable at 1.37x as on March 31, 2022 (March 31, 2021: 0.99x) and same is also expected to improve over medium term. With sharp improvement in operating profits and limited debt, interest coverage and NCATD is expected to sustain at 7-8x (fiscal 2022: 2.71x) over the near to medium term and above 0.45x to 0.5x respectively over the same period

 

The ratings continue to reflect the established track record of BAL in the castings segment and its adequate financial risk profile. These strengths are partially offset by the modest scale of operations and exposure to risk arising from high customer concentration, volatility in raw material cost and cyclicality in the tractor industry.

Key Rating Drivers & Detailed Description

Strengths:

  • Established track record in the auto casting industry: Nearly four decade-long presence of BAL in the castings business and its established clientele, comprising Escorts Ltd, Swaraj Engines Ltd, Mahindra & Mahindra Limited and Mita India Pvt Ltd, will continue to support the business risk profile.

 

  • Adequate financial risk profile: Financial risk profile is marked by an adequate capital structure and healthy debt protection metrics. Gearing stood at 0.40 time as on September 30, 2022. It is expected to sustain at similar healthy levels over the medium term. With sharp improvement in operating profits and limited debt, interest coverage and NCATD is expected to sustain at 7-8x (fiscal 2022: 2.71x)  over the near to medium term and above 0.45x to 0.5x respectively over the same period.

 

Weaknesses:

  • Exposure to risk arising from high customer concentration and cyclicality in the tractor industry: BAL derives bulk of revenue from three key clients. Therefore, loss of a single customer or weak performance of either of them could lead to significant decline in revenue and suboptimal capacity utilisation. Also, as the company mainly caters to the tractor industry, revenue is also dependent on its performance, any adverse agricultural impact such as weak monsoon affecting crop yield and farm income, could have an impact on performance of BAL.

 

  • Modest scale of operations and susceptibility to volatility in raw material cost: Scale of operations remains modest, amidst intense competition in the metal castings industry and fluctuations in prices of key raw material (scrap and pig iron). However, BAL passes on any rise in input costs to its customers with a lag of 30-60 days.

Liquidity: Adequate

Cash accruals is expected to remain in the range of Rs 9 crore to Rs.11 crore per annum which will be adequate to meet repayment obligations of Rs.2.4 crore per annum and capex of Rs.1.5 – Rs.2 crore per annum. Further, with prudent working capital management with timely collection of receivables has also supported liquidity. Also, company has a comfortable cushion in bank lines of Rs.12 crore which are moderately utilized at about 30% so far in fiscal 2023.

Outlook: Stable

CRISIL Ratings believes the credit risk profile of BAL will benefit from pick-up in demand for castings from the tractor industry.

Rating Sensitivity factors

Upward factors:

  • Sustained growth in revenues while maintaining operating margins at over 8-9% resulting in cash accruals of over Rs. 20-22 crore. Improvement in the financial risk profile
  • Sustenance of healthy financial risk profile

 

Downward factors:

  • Decline in scale of operations with margins falling below 5-6% on sustained basis impacting cash generation
  • Weakening of financial risk profile, due to large, debt-funded capex or stretch in the working capital cycle
  • Substantial pay out of dividend impacting accretion to reserves

About the Company

BAL was set up by members of the Ahmedabad-based Bhagwati family. Commercial operations began in 1984. The company manufactures casting components, mainly for tractors. These include several large cast products, such as gear box housings, axle housings and exhaust castings. The manufacturing unit in Bavla (Ahmedabad district) has capacity of 18,000 tonne per annum.

 

For the nine months through December 2022, the company reported net profit of Rs 5.5 crore and net sales of Rs 118 crore, against net loss of Rs 1.19 crore and net sales of Rs 88.8 crore, respectively, in the corresponding period of the previous fiscal.

Key Financial Indicators

As on / for the period ended March31

Unit

2022

2021

Revenue

Rs crore

112

104

PAT

Rs crore

-0.96

5.2

PAT margin

%

-0.9

1.6

Adjusted debt / adjusted net worth

Times

0.68

0.17

Interest coverage

Times

2.71

11.53

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash Credit NA NA NA 12 NA CRISIL BBB/Stable
NA Term Loan NA NA Sep-27 12 NA CRISIL BBB/Stable
NA Letter of credit & Bank Guarantee NA NA NA 2.5 NA CRISIL A3+
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 24.0 CRISIL BBB/Stable   -- 21-02-22 CRISIL BBB-/Stable   -- 16-12-20 CRISIL BBB-/Stable CRISIL BBB-/Stable
      --   --   --   -- 02-04-20 CRISIL BBB-/Negative --
Non-Fund Based Facilities ST 2.5 CRISIL A3+   -- 21-02-22 CRISIL A3   -- 16-12-20 CRISIL A3 CRISIL A3
      --   --   --   -- 02-04-20 CRISIL A3 --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 12 Kotak Mahindra Bank Limited CRISIL BBB/Stable
Letter of credit & Bank Guarantee 2.5 Kotak Mahindra Bank Limited CRISIL A3+
Term Loan 9.84 Kotak Mahindra Bank Limited CRISIL BBB/Stable
Term Loan 2.16 Kotak Mahindra Bank Limited CRISIL BBB/Stable

This Annexure has been updated on 26-Apr-2023 in line with the lender-wise facility details as on 17-Mar-2023 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Auto Component Suppliers

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