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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 178.81 | ACUITE B | Stable | Downgraded | - |
| Bank Loan Ratings | 361.82 | - | ACUITE A4 | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 540.63 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has downgraded the long term rating to ‘ACUITE B’ (read as ACUITE B) from ‘ACUITE B+’ (read as ACUITE B plus) and reaffirmed the short term rating of ‘ACUITE A4’ (read as ACUITE A four) on the Rs. 540.63 Cr bank facilities of Bhilai Engineering Corporation Limited (BECL). The outlook remains ‘Stable’.
Rationale for the rating The rating downgrade is on account of consistent losses incurred by the company due to high operating expenses pertaining to rise in raw material costs and delays in the completion of projects. The rating also factors the stretched liquidity profile of the company marked by the working capital intensive nature of operations and the high utilisation of the fund based bank limits. However, Acuité considers the long standing operations of the company marked by the experienced management and the established clientele base. |
| About the Company |
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Incorporated in 1960, Bhilai Engineering Corporation Limited (BECL) is based in Bhilai (Chhattisgarh) and is headed by Mr. Veenu Jain, Mr. Arvind Kumar Jain, Mr. Ashish Jain, Mr. Surendra Kumar Jain, Mrs. Krishna Jain and Ms. Geetika Jain. The company has a diversified business and is engaged in engineering, procurement & construction (EPC), industrial equipment supplies, manufacturing fertilizers & agro-inputs and manufacturing of processed foods.
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profile of BECL to arrive at the rating.
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Key Rating Drivers
| Strengths |
BECL has been operational for more than six decades. Since 1976, the promoters, Mr. A.K. Jain and Mr. Veenu Jain have been in the business of manufacturing specialized equipment’s for the heavy engineering goods, fertilizers and food products. The extensive experience of the promoters and the long track record of operations has aided in establishing comfortable relationships with key suppliers and reputed customers across the country including large PSU’s. Acuité believes the long experience of the management will continue to benefit the company going forward, resulting in further growth in the scale of operations.
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| Weaknesses |
The company has achieved revenues of Rs.429.00 Cr till November, 2022 (provisional). The subdued scale of operations is primarily on account of ceasing of exports by the company. However, the revenues of BECL increased to Rs.727.48 Cr in FY2022 as compared to Rs.648.54 Cr in FY2021 due to sustaining the continuous order flow from the reputed clientele over the same period. Acuité believes that, going forward, the capacity of the company to sustain their order pipeline and improve the scale of operations will be key monitorable.
The company has consistently incurred losses since the past three years due to disruptions in the operations. The primary reason for losses in FY2022 is the increase in the freight charges along with discounts & LD due to delay in the completion of project. Moreover, the rise in expenditure deteriorated the operating margin to 1.16 per cent in FY2022 as compared to 5.07 per cent in FY2021. Acuité believes that, going forward, the ability of the company to break the cycle of losses and achieve profits will be a key sensitivity factor.
The working capital intensive nature of operations of the company is marked by Gross Current Assets (GCA) of 253 days as on March 31, 2022 as against 272 days as on March 31, 2021. The GCA days remained high on account of high debtor period which stood at 130 days as on March 31, 2022 as compared to 138 days as on 31st March 2021. The debtors are primarily high due to inherent nature of the business. Further, the inventory period stood high at 81 days as on 31st March, 2022 against 83 days in the previous year. In engineering division, the gestation period is fairly long starting from the manufacturing of the goods to commissioning of the project. The fertilizer subsidies are cleared only after audit and other formalities are completed by the Government authorities. Going forward, Acuité believes that the working capital management of the company will remain at similar levels as evident from the extended debtor and inventory level.
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| Rating Sensitivities |
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| Material covenants |
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None
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| Liquidity position: Stretched |
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The company’s liquidity is stretched marked by accumulated losses. The working capital management is intensive in nature marked by Gross Current Assets (GCA) of 253 days as on March 31, 2022 as against 272 days as on March 31, 2021. The fund based limit remained fully utilised over the six months ended September, 2022. However, the cash and bank balances of the company stood at Rs.7.70 Cr as on March 31, 2022. The current ratio stood moderate at 1.46 times as on March 31, 2022. Acuité believes that going forward the liquidity position of the company will remain stretched on account of working capital intensive nature of operations and high utilisation of its fund based bank limits.
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| Outlook: Stable |
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Acuité believes that the outlook on BECL will remain 'Stable' over the medium term on account of the experience of the promoters and established clientele base. The outlook may be revised to 'Positive' in case the company witnesses a material improvement in its profitability and financial risk profile thereby, reducing the stress on liquidity. Conversely, the outlook may be revised to 'Negative’ in case of deterioration in the company’s financial risk profile or further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 727.48 | 648.54 |
| PAT | Rs. Cr. | (26.23) | (9.66) |
| PAT Margin | (%) | (3.61) | (1.49) |
| Total Debt/Tangible Net Worth | Times | 0.60 | 0.55 |
| PBDIT/Interest | Times | 0.31 | 1.05 |
| Status of non-cooperation with previous CRA (if applicable) |
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None
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| Any other information |
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None
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| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Manufacturing Entities: https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm |
| Note on complexity levels of the rated instrument |
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In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in
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