Rating Rationale
July 21, 2016 | Mumbai
Bhagyanagar India Limited
Rating outlook revised to 'Negative'; rating reaffirmed 
 
Total Bank Loan Facilities Rated Rs.1550 Million
Long Term Rating CRISIL BB+/Negative (Outlook revised from 'Stable' and rating reaffirmed)
Long Term Rating Withdrawal
Short Term Rating Withdrawal
(Refer to Annexure 1 for Facility-wise details)

CRISIL has revised its outlook on the term loan and proposed term loan facilities of Bhagyanagar India Limited (BIL) to 'Negative' from 'Stable' and reaffirmed the rating at 'CRISIL BB+'. The rating is based only on publicly available information as BIL has not cooperated with CRISIL in its surveillance process. CRISIL has withdrawn its ratings on BIL's cash credit facility and short-term bank facilities at the company's request. This is in line with CRISIL's policy on withdrawal of its ratings on bank loan facilities.
 
The outlook revision reflects CRISIL's belief that BIL's financial risk position will remain under pressure over the medium term because of subdued profitability. The company's copper business, which accounts for 95% of its revenue, remained sluggish in fiscal 2016, and its consolidated operating margin declined to 3.1% in fiscal 2016 from 4.1% in the previous fiscal. This resulted in stretched liquidity, with accrual barely sufficient to meet debt obligation.
 
The rating reflects BIL's reputed clientele and steady revenue growth. These strengths are partially offset by susceptibility of its profitability to volatility in raw material prices and foreign exchange rates, and its modest debt protection metrics.   
 
The rating also factors in the proposed demerger of BIL's solar and real estate businesses to Surana Telecom and Power Ltd ( rated CRISIL BB+/Stable/A4+) and Bhagyanagar Properties Pvt Ltd (BPPL), respectively, and its impact on the company's profitability, accrual, and financial flexibility. The scheme of demerger has been approved by the Andhra Pradesh and Telangana High Courts.
 
For arriving at the ratings, CRISIL has combined the financial and business risk profiles of BIL and its subsidiaries: BPPL, Scientia Infocom India Pvt Ltd (Scientia), Metropolitan Ventures India Ltd (MVIL), Solar Dynamics Pvt Ltd (SDPL), and Bhagyanagar Metals Ltd (BML). This is because all the entities are under a common management, and have significant inter-company loans and advances.

Outlook: Negative

CRISIL believes BIL's operating profitability will remain modest over the medium term. The rating may be downgraded if there is increased pressure on the company's profitability, leading to deterioration in its financial risk profile. The outlook may be revised to 'Stable' in case of sustained increase in revenue and profitability, and improvement in debt protection metrics and liquidity.

About the Company

BIL, set up in 1985, is the flagship company of the Surana group. The company's core business is manufacturing copper products and telecommunication cables. It commenced operations by acquiring a foundry for producing copper ingots and rods in 1985. It has capacity of 15,000 tonne per annum in the copper product division. In fiscal 2007, BIL entered the non-conventional energy sector by installing a 5-megawatt (MW) windmill at Kapatigudda in Karnataka. It has also installed a windmill at Theni in Tamil Nadu. It now has wind power capacity of 12.15 MW. It commissioned a 5-MW solar power plant at Munipally in Andhra Pradesh in fiscal 2014.
 
BIL, on a consolidated basis, had profit after tax (PAT) of Rs 25.4 million on net sales of Rs 2.86 billion for fiscal 2016, against a PAT Rs 21.8 million on net sales of Rs 2.69 billion for fiscal 2015.

Annexure 1 - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Million) Rating Facility Amount (Rs.Million) Rating
Bank Guarantee 100 Withdrawal Bank Guarantee 100 CRISIL A4+(Notice of Withdrawal)
Cash Credit 150 Withdrawal Cash Credit 150 CRISIL BB+/Stable(Notice of Withdrawal)
Letter of Credit 200 Withdrawal Letter of Credit 200 CRISIL A4+(Notice of Withdrawal)
Proposed Term Loan 190 CRISIL BB+/Negative Proposed Term Loan 190 CRISIL BB+/Stable
Term Loan 910 CRISIL BB+/Negative Term Loan 910 CRISIL BB+/Stable
Total 1550 -- Total 1550 --

Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Manufacturing Companies
CRISILs Criteria for Consolidation
Criteria for rating Short-Term Debt (including Commercial Paper)

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