| Bhagwati Autocast Limited | ||||||
| Ratings reaffirmed at 'CRISIL BBB- / Stable / CRISIL A3 ' | ||||||
| Rating Action | ||||||
| ||||||
| 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 |
CRISIL Ratings has reaffirmed its ‘CRISIL BBB-/Stable/CRISIL A3’ ratings on bank facilities of Bhagwati Autocast Ltd (BAL).
The ratings reflect recovery in demand for tractors and castings in the domestic market in fiscal 2022. Revenue grew by 4% to Rs 104 crore in fiscal 2021, despite the closure of plants and subdued demand in the first quarter. Demand for tractors in turn depends on the rural economy, mainly picked up from the second quarter of fiscal 2021, led by timely and widespread rainfall and record production of the rabi crop. Despite moderation in demand in the last few months, the company should showcase healthy growth in revenue this fiscal.
For the nine months through December 2021, operating income increased by 25% over the corresponding period of the previous fiscal, although the margin moderated to 0.73%. Rise in iron and steel prices led to lower profitability in the first six months of fiscal 2022. Further, disruptions in raw material supply from China during the third quarter of the fiscal impacted production and led to operating losses. With supply constraints easing, operating margin is likely to stage a moderate recovery to 1-2% in fiscal 2022, yet it remains a key monitorable. The company is undertaking a partially debt-funded capital expenditure (capex) worth Rs 16 crore to install a 4.5 megawatt (MW) solar power plant for captive consumption. This should ensure substantial saving on power cost going forward.
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: The three-decade-long presence of BAL in the castings business and its established clientele, comprising Escorts Ltd, Swaraj Engines Ltd 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 0.35 time as on September 30, 2021. It is expected to remain below 0.65 time over the medium term, despite the debt-funded capex, backed by steady cash accrual. Interest coverage and net cash accrual to adjusted debt ratios were comfortable at 11.5 times and 0.77 time, respectively, in fiscal 2021.
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, which has moderated in the third quarter of fiscal 2022, after staging a healthy growth from the second quarter of fiscal 2021.
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). The operating margin moderated to 5.0% in fiscal 2021, from 6.3% in fiscal 2020, as effect of decline in input cost was passed on to customers with a lag. |
Liquidity: Adequate Expected net cash accrual of above Rs 4 crore in fiscal 2023, should comfortably cover debt of Rs 1.8 crore. BAL maintains cash balances of about Rs 50 lakh on an ongoing basis, with further support to liquidity from a comfortable cushion in bank lines which are moderately utilized at about 50% so far in fiscal 2022. |
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
Downward factors
|
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 district has capacity of 18,000 tonne per annum.
For the nine months through December 2021, the company reported net loss of Rs 1.2 crore and net sales of Rs 89 crore, against net profit of Rs 0.57 crore and net sales of Rs 71 crore, respectively, in the corresponding period of the previous fiscal. |
Key Financial Indicators
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 2.5 | Kotak Mahindra Bank Limited | CRISIL A3 |
| Cash Credit | 12 | Kotak Mahindra Bank Limited | CRISIL BBB-/Stable |
| Proposed Long Term Bank Loan Facility | 0.98 | Not Applicable | CRISIL BBB-/Stable |
| Term Loan | 1.18 | Kotak Mahindra Bank Limited | CRISIL BBB-/Stable |
This Annexure has been updated on 28-Mar-2023 in line with the lender-wise facility details as on 17-Mar-2023 received from the rated entity.
Criteria Details
|