CRISIL has upgraded its rating on the long-term bank facilities of Brothers Engineering and Erectors Ltd (BEEL) to 'CRISIL BB+/Stable' from 'CRISIL BB/Stable', and has reaffirmed its rating on the company's short-term bank facility at 'CRISIL A4+'.
 
The rating upgrade reflects improvement in BEEL's business risk profile driven by a substantial and sustained increase in the company's scale of operations, along with steady profitability. The upgrade also reflects sizeable increase in the company's net worth, which has enhanced its financial flexibility and led to improvement in its capital structure. CRISIL believes that BEEL will sustain the improvement in its capital structure over the medium term backed by consistent increase in its net worth and absence of any large debt-funded capital expenditure (capex) programme.
 
BEEL's revenue registered year-on-year growth of around 20 per cent to Rs.956.5 million and its operating profit margin was largely stable, at 7.5 per cent, in 2014-15 (refers to financial year, April 1 to March 31). CRISIL believes that BEEL will register annual revenue growth of 10 to 15 per cent over the medium term, supported by its order book of Rs.900 million (0.9 times its 2014-15 revenue) as on March 31, 2015. BEEL's profit margins are expected to remain stable over the medium term as the company will continue to bid prudently for orders.
 
BEEL's net worth increased to Rs.220 million as on March 31, 2015, from Rs.173 million as on March 31, 2014, backed by moderate accretion to reserves. Consequently, its total outside liabilities to tangible net worth (TOLTNW) ratio declined to 1.2 times as on March 31, 2015, from 1.7 times as on March 31, 2014. The TOLTNW ratio is expected remain stable over the medium term with consistent growth in net worth and absence of any large debt-funded capex plan.
 
The ratings reflect the extensive experience of BEEL's promoters in the engineering-procurement-construction industry and its established relationships with customers. The ratings also factor in BEEL's above-average financial risk profile marked by moderate net worth, low gearing, and robust debt protection metrics. These rating strengths are partially offset by BEEL's large working capital requirements, high degree of customer concentration in its order book, and its exposure to intense competition resulting in modest profitability margins.

CRISIL believes that BEEL will continue to benefit over the medium term from its promoters' extensive industry experience and its established relationships with clients. The outlook may be revised to 'Positive' in case of substantial increase in the company's scale of operations along with steady profitability margins, or sustained improvement in its working capital cycle. Conversely, the outlook may be revised to 'Negative' in case of a steep decline in BEEL's profitability margins or significant weakening of its capital structure on account of a stretch in its working capital cycle.

BEEL was set up in 1977 as a partnership concern by Mr. P Vasu and his family members. It was reconstituted as a private limited company in 2005. The company erects, tests, and commissions turbines, boilers, and piping for power plants. It is based in Vijayawada (Andhra Pradesh).