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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 42.00 | ACUITE BBB | Stable | Assigned | - |
| Bank Loan Ratings | 121.00 | ACUITE BBB | Stable | Reaffirmed | - |
| Bank Loan Ratings | 90.00 | - | ACUITE A3+ | Assigned |
| Bank Loan Ratings | 247.00 | - | ACUITE A3+ | Reaffirmed |
| Total Outstanding | 500.00 | - | - |
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Rating Rationale |
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Acuité has reaffirmed and assigned its long-term rating to ‘ACUITE BBB’ (read as ACUITE triple B) and its short term rating to ‘ACUITE A3+’ (read as ACUITE A three plus) to the Rs.500.00 Cr bank facilities of BTL EPC Limited (BTL). The outlook is ‘Stable’.
Rationale for the rating The rating takes into account the stable operating and financial performance of the company marked by stable operating income and improved profitability margins. The operating income improved and stood at Rs.521.33 Cr in FY2023 as against Rs.328.58 Cr in FY2022 backed by the increased execution of orders. The operating margin improved to 9.09 percent in FY2023 from 8.65 percent in FY2022. The PAT margin moderately improved to 3.27 percent in FY2023 as against 2.04 percent in FY2022.
Further, the rating considers company’s established track record of more than three decades in the industry, which has in turn supported BTL in establishing strong relationships with reputed clients in the domestic market, leading to repeat orders, coupled with government thrust in the infrastructure segment. BTL’s healthy order book position at ~Rs.1308.63 Cr as on October 31, 2023 translating into an order book/operating income of 2.51x provides medium-term revenue visibility. Going forward, backed by the high margin accretive material handling segment and overall increase in scale, the operating profit margin is also expected to improve. Additionally, the financial risk profile has remained healthy, with gearing below unity and improvement in the debt coverage indicators, because of the consistent increase in the net worth, and adequate cash accruals over the years. These strengths are however, partly offset by the working capital intensity in the operations, high customer concentration, cyclicality in the domestic capex cycle and any economic slowdown. |
| About the Company |
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Incorporated in 1966, BTL EPC Limited is a Kolkata based company engaged in manufacturing of engineering items. BTL has forayed into EPC/turnkey projects implementation space in 2006 and executes turnkey contracts of material handling plants, process plants and various equipment and technological steel structures for infrastructure projects. BTL is also involved in assembling of power tillers (agricultural equipment). From 2014 onwards, the company has also ventured in power transmission tower and water purification business.
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| Unsupported Rating |
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Not Applicable
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| Analytical Approach |
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Acuité has considered the standalone business and financial risk profiles of BTL to arrive at the rating.
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| Key Rating Drivers |
| Strengths |
| Diversified and reputed customer base supported by long experience of promoters
Acuité believes that the vast experience of the promoter and the long track record has enabled the company to build strong relationship with customers as well as suppliers, resulting in continued order flow from customers. BTL deals with diversified and reputed clients catering to various industries like steel, power, oil & gas, defence, fertilisers, etc. in both public and private sectors. Furthermore, BTL provides turnkey solutions for bulk materials for major clients like NTPC Limited, Bharat Heavy Electricals Limited, Steel Authority of India Limited, Indian Oil Corporation Limited, Coal India Limited etc. The company also diversified to water purification division. Steady improvement in the business risk profile The company reported healthy growth in revenues to Rs. 521.33 Cr in FY2023 as against Rs 328.38 Cr in FY2022, backed by increased execution of orders, thereby registering a y-o-y growth of 58.66 per cent in FY2023. This was further followed by a sharp improvement in both operating profit and PAT margins owing to the execution of high-margin orders and economies of scale, as BTL maintained healthy EBITDA at Rs. 47.39 crore in FY2023 vis-àvis Rs. 28.44 crore in FY2022. Acuité expects the company to report a steady revenue growth in FY2024, backed by a healthy order book. The company has a healthy order book of about Rs 1308.63 Cr. consisting of Rs 1205.60 Cr. from material handling division and Rs 103.09 Cr. from other segments, translating into an order book to operating income (OB/OI) ratio of ~2.51 times as on 31st October 2023. Acuité expects a further strong pipeline of orders from FY2024 onwards as a result of further up-thrust in the infrastructure segment. Notwithstanding the healthy order book, the timely execution of such orders would remain critical to achieve revenue growth and profitability on the expected lines. Further, both the operating margin and PAT margin improved to 9.09 per cent and 3.27 per cent respectively in FY2023, as compared to 8.65 per cent and 2.04 per cent in FY2022, since majority of the order book is from the margin accretive material handling division and defence segment. High profitability has translated into strong RoCE levels of around 14.30 per cent in FY2023 as against 9.14 per cent in FY22. Acuite believes that scale of operations may continue to improve in near to medium term backed by healthy order book position. Healthy financial risk profile The financial risk profile of the company is healthy marked by healthy net worth, low gearing and moderate debt protection metrics. The tangible net worth of the company improved to Rs.231.75 Cr as on March 31, 2023 from Rs. 214.88 Cr as on March 31, 2022, aided by sizeable accretion to reserves. The gearing of the company stood below unity at 0.51 times as on March 31, 2023 as against 0.51 times as on March 31, 2022 due to limited reliance on external debt; also the promoters have extended significant financial support to the company via unsecured loans to cover the debt obligations. However, Acuité notes that the TOL/TNW stood high at 1.70 times as on March 31, 2023 as against 1.34 times as on March 31, 2022, owing to an increase in sub-contracting payables, which is the amount retained for the subcontracted projects as security and higher creditors payables to suppliers and subcontractors. The surge in earnings in FY2023 supported by minimal debt and high accruals led to further improvement in the credit metrics, as Interest Coverage Ratio stood at 2.36 times and Debt Service coverage ratio at 1.47 times as on 31st March, 2023 as against 1.69 times and 1.13 times respectively as on 31st March, 2022. Net Cash Accruals/Total Debt (NCA/TD) stood at 0.16 times as on 31st March, 2023. Acuité believes that going forward the financial risk profile of the company is likely to remain healthy backed by steady accruals and no major debt funded capex plans. |
| Weaknesses |
| Working Capital Intensive nature of operations
The working capital management of the company has improved in FY2023, although marked by high Gross Current Assets (GCA) of 232 days in 31st March 2023 as compared to 280 days on 31st March 2022 with increased efficiencies in inventory and debtor management. Besides, the project billing and delivery schedule for the material handling business is usually concentrated towards the end of every fiscal, with more than 40 per cent of the sales in Q4, resulting in elevated working capital indicators as on year ending dates. Milestone-based billing along with extensive trials and testing carried out for technically critical products before the final acceptance also results in elongated receivables. Even though the debtor days have improved from 169 days as on 31st March 2022, it is still high at 157 days as on 31st March 2023 given the preponderance of the government clients. However, the inventory days stood efficient at 45 days in FY2023 compared to 65 days in FY2022. The company focuses on easy mobilisation of its resources, thereby improving the turnaround time and reducing the idleness of machinery and equipment. Acuité believes that the working capital operations of the company will remain almost at the same levels as evident from the stretched collection mechanism and efficient inventory levels over the medium term. Nonetheless, the company has substantial dependence on its suppliers and creditors to support the working capital; creditors stood high at 202 days as on March 31, 2023. Sustained improvement in creditors will remain a key monitorable. High customer concentration; low bargaining power The customer concentration of the company remains high; BHEL alone contributes to more than ~30 per cent of the revenues in FY2023. Further, due to tender-based order procurement with government entities, the company has low bargaining power with reputed clients, leading to limited pricing flexibility and an elongated receivable cycle. |
| Rating Sensitivities |
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| Liquidity Position: Adequate |
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The company’s liquidity is adequate marked by steady net cash accruals of Rs.18.58 Cr as on March 31, 2023 as against long term debt repayment of only Rs.3.69 Cr over the same period. Further, the company is expected to generate sufficient cash accruals over the medium term to repay its debt obligation. The current ratio stood moderate at 1.05 times as on March 31, 2023. The company has sizeable retention money with the authorities and timely receipt of these payments is crucial to support the liquidity position. However, the large portion of its security deposits are being met through deposit from subcontractor (in proportionate to given work), which partly funds the working capital requirements of the company and therefore lower requirement of funds in business. As a result, the non-fund based limit remained moderately utilized at ~81.75 per cent over the six months ended October, 2023. However, the fund based limit remained moderately high utilized at ~84.34 per cent over the six months ended October, 2023. Moreover, the working capital intensive management of the company is marked by Gross Current Assets (GCA) of 232 days in 31st March 2023 as compared to 280 days in 31st March 2021.
Acuité believes that going forward absence of any committed capital expenditure and term liabilities would further strengthen the liquidity profile of the company. |
| Outlook: Stable |
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Acuité believes that the outlook on BTL will remain 'Stable' over the medium term on account of its experienced management, strong relationship with reputed customers, long execution track record and healthy order book position. The outlook may be revised to ‘Positive’ in case the company registers any significant improvement in its scale of operations or working capital cycle. Conversely, the outlook may be revised to ‘Negative’ in case of deterioration in the liquidity position or delay in completion of its projects or further deterioration in its working capital cycle
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| Other Factors affecting Rating |
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None
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| Particulars | Unit | FY 23 (Actual) | FY 22 (Actual) |
| Operating Income | Rs. Cr. | 521.33 | 328.58 |
| PAT | Rs. Cr. | 17.06 | 6.71 |
| PAT Margin | (%) | 3.27 | 2.04 |
| Total Debt/Tangible Net Worth | Times | 0.51 | 0.51 |
| PBDIT/Interest | Times | 2.36 | 1.69 |
| Status of non-cooperation with previous CRA (if applicable) |
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Not Applicable
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| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Infrastructure Sector: https://www.acuite.in/view-rating-criteria-51.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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