Rating Rationale
March 21, 2018 | Mumbai
Bharat Dynamics Limited
Rating Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.410 Crore
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the short-term bank facilities of Bharat Dynamics Limited (BDL).
The rating continues to reflect BDL's strategic importance to the Government of India (GoI), being the prime guided missile production agency. CRISIL has noted BDL's initial public offer concluded on March 16, 2018, with sale of GoI's stake of 12.2% to the public. GoI continues to hold the balance stake. The stake sale will not make any material impact on the credit risk profile of the company as major control will remain with the government, the company being strategically important in the defence sector. The amounts raised shall be used by GoI. The rating also factors in BDL's established market position in the guided weapon systems segment, and its robust financial risk profile. The rating also factors in the benefits that the company derives from GoI's thrust on indigenous guided weapon systems production, leading to a healthy order flow, and the strong financial support from GoI to BDL in the form of healthy advances for all its orders.

Analytical Approach

CRISIL has considered criteria for notching up standalone ratings of entities based on government support.

Key Rating Drivers & Detailed Description
* High strategic importance to government: BDL is strategically important to GoI, considering it is the primary agency for the production of guided missiles for the armed forces. BDL is the exclusive service provider for indigenously developed guided missiles such as Akash surface-to-air missiles and Konkur anti-tank guided missiles.
* Established position as prime production agency for guided weapon systems to Indian armed forces: BDL has a well-developed vendor network and provides continuous assistance to its vendors in tool development, fixture building, and related technologies. Consequently, it has indigenised 90% of major missiles. BDL's established market position and ability to achieve high indigenisation have resulted in consistent order flow, resulting in strong revenue growth in the recent past.
* Robust financial risk profile: The financial risk profile is supported by comfortable capital structure, healthy debt protection metrics, and adequate liquidity. The company's liquidity is aided by healthy advances for orders from GoI.
* Working capital-intensive operations: Gross current assets were at 576 days as on March 31, 2017, due to sizeable inventory and large cash and cash equivalent. Working capital requirement will remain large over the medium term.
* Susceptibility to time and cost overruns in order execution, and to volatility in foreign exchange (forex) rates: The ministry of defence is BDL's sole customer, and the company bids for defence projects floated by the ministry on a fixed-contract basis with minimal profitability, considering national interest. As a result, it had operating losses in the three fiscals ended March 31, 2013. BDL depends on Defence Research and Development Organisation (DRDO) for technical modifications for orders. Any delay in finalisation of technical modifications renders BDL liable for damages, adversely impacting its operating profitability. BDL imports components for orders executed under the transfer of technology arrangement, and does not hedge the resultant forex exposure. Consequently, its profitability is susceptible to volatility in forex rates.
About the Company

BDL was set up in Hyderabad in 1970 as a central public sector enterprise. The company is the prime production agency for guided weapon systems for the Indian defence forces. BDL also manufactures underwater weapon systems, surface-to-air missiles, and associated equipment. Furthermore, it is into refurbishment of vintage defence equipment for the Indian army. BDL has three manufacturing facilities, one in Visakhapatnam (Andhra Pradesh) and two in Hyderabad1. The company is setting up two facilities, in Amravati (Maharashtra) and Ibrahimpatnam (Telangana).

1Facilities in Hyderabad, Rangareddy District and at Bhanur, Medak District

Key Financial Indicators *
Particulars Unit 2017 2016
Revenue Rs Cr. 4,887 4,159
Profit After Tax Rs Cr. 524 563
PAT Margin % 10.7 13.5
Adjusted Debt/Adjusted Networth Times 0.03 0.04
Interest coverage Times 190.76 166.58
*For the half year ended September 30, 2017, revenue was Rs 1805 crore and profit after tax was Rs 172 crore.

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 Cr) Rating Assigned with Outlook
NA Bank Guarantee NA NA NA 10 CRISIL A1+
NA Foreign Letter of Credit NA NA NA 300 CRISIL A1+
NA Proposed Letter of Credit NA NA NA 100 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Fund-based Bank Facilities  LT/ST  410  CRISIL A1+    No Rating Change    No Rating Change    No Rating Change    No Rating Change  CRISIL A1+ 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 10 CRISIL A1+ Bank Guarantee 10 CRISIL A1+
Foreign Letter of Credit 300 CRISIL A1+ Foreign Letter of Credit 300 CRISIL A1+
Proposed Letter of Credit 100 CRISIL A1+ Proposed Letter of Credit 100 CRISIL A1+
Total 410 -- Total 410 --
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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