Detailed Rationale

Crisil Ratings has upgraded its ratings on the bank facilities of BGR Mining & Infra Limited (BGR: part of the BGR group) to ‘Crisil A/Stable/Crisil A1’ from ‘Crisil A-/Stable/Crisil A2+’.

 

The rating upgrade reflects the healthy improvement in the business risk profile of the BGR group, with robust revenue growth and improvement in the operating margin. The scale of operations is expected to grow more than 30% in fiscal 2025 to Rs 4,500-4,700 crore from Rs 3,474 crore in fiscal 2024, driven by the ramp-up of the Kerendari (Jharkhand) project along with steady performance of other projects as well. The group has reported a revenue of Rs 3,484 crore till December 2024. The group has unexecuted orders of Rs 79,138 crore as of September 2024 to be executed over the next 25 years, which provides healthy revenue visibility. The operating margin also improved in fiscal 2024 to 29.21% and is further projected to be over 30% in the medium term. The return on capital employed (RoCE) is also expected to be robust at over 38% in fiscal 2025, supported by the strong profitability of the business.

 

The financial risk profile and liquidity are expected to further strengthen over the medium term amid debt-funded capital expenditure (capex), with estimated networth of around Rs 2,500 crore resulting in an estimated gearing and total outside liabilities to tangible networth (TOLTNW) ratio of 0.20-0.30 time and 0.40-0.50 time, respectively, as on March 31, 2025. The liquidity of the group is supported by unencumbered fixed deposits and cash and bank balance of around Rs 349 crore as on December 31, 2024 (compared with Rs 78 crore as on March 31, 2023). Furthermore, the cash and bank balance will build up, driven by the strong cash generation from the business and management intent to maintain the liquidity cushion going forward as well.

 

The ratings reflect the long track record of the group in executing orders, its healthy order book providing revenue visibility, and strong financial risk profile. These strengths are partially offset by the moderate working capital cycle, exposure to risks inherent in the tender-based business, susceptibility to regulatory changes and susceptibility to customer concentration in revenue profile.

Analytical Approach

For arriving at the ratings, Crisil Ratings has combined the business and financial risk profiles of BGR, BGR Deco Consortium Private Limited (BDCPL), BI Mining Private Limited (BMPL), Shar Projects Private Limited (SPPL), SKADE Minerals LLP (SML) and Bain Global Resources LLP (BGRL). This is because all these entities, together referred to as the BGR group, operate in the same industry, owned by the same promoters and have operational and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Long track record in executing orders, driven by extensive experience of the promoters in the coal industry: The first-generation promoters, Mr B Girijapathi Reddy, Mr B Umapathi Reddy and Mr I Sudhakar Reddy, have been engaged in the coal mining sector for around four decades. Over the years, BGR group has gained significant experience and established a strong track record with both public and private sector entities. Healthy relationships with reputable customers enable the BGR group to achieve a continuous flow of repeated orders, given its ability to provide services as per specifications, standards and timelines. With the second generation of promoters joining the business, the management gains additional strength which enhances the business risk profile of the group.

 

• Healthy order book providing revenue visibility: As of September 2024, BGR had orders worth Rs 79,138 crore to be executed over the next 25 years, thus providing significant revenue visibility over the medium term. The company has entered six long-term contracts, spanning 10-25 years, as a mine developer-cum-operator (MDO) for supply of coal to West Bengal Power Development Corporation Limited (WBPDCL), Odisha Coal & Power Limited (OCPL), NTPC Limited (rated 'Crisil AAA/Stable/Crisil A1+'), Vedanta Limited (rated 'Crisil AA/Watch Developing/Crisil A1+'), and Central Coalfields Limited. Also, offtake risks associated with the MDO business are likely to be low, as the group enters into firm agreements with annual target supply. Cash flows from MDO projects are stable in nature and spread over a much longer tenure. The mine owner ensures monthly bills are cleared on time, considering the criticality of uninterrupted coal supply to their operations. The agreement also protects BGR from price volatility as the pricing formula to cover any cost escalation has been agreed upon. Two new MDO orders received in Sanghamitra and Badam (Jharkhand) will entail large capex to operationalize the mines and hence the progress of the projects will remain monitorable.

 

• Strong financial risk profile: The capital structure remains strong, aided by low reliance on external debt and supported by strong expected networth of Rs 2,400-2,500 crore low gearing of 0.20-0.30 time and TOLTNW ratio of 0.40-0.50 time, as on March 31, 2025. The debt protection metrics of the group have also been healthy due to low leverage and healthy operating profitability. The interest coverage and net cash accrual to total debt ratios are expected to be over 13 times and 1.70 times, respectively, for fiscal 2025, and are likely to remain steady over the medium term.

 

Weaknesses:

• Exposure to risks inherent in the tender-based business and susceptibility to regulatory changes: The BGR group bids for tenders floated by public sector entities, while contracts from private sector entities are mostly by invitation. Delay in awarding contracts, insufficient number of bidders, or lack of private sector contracts can adversely affect the order inflow and revenue growth. operational and regulatory risks in the domestic mining industry have increased significantly in recent years. Although there have been positive regulatory developments in the form of the Mines and Minerals Development and Regulation (MMDR) Act, 2015, the mining industry in India continues to face regulatory hurdles such as the requirement of numerous approvals. One such regulatory requirement impacted the operations of BGR group in fiscal 2019-2021. However, BGR group has taken steps to ensure that it only bids for projects where all clearances are in place thereby considerably reducing the risk of such situations getting repeated.

 

However, these risks are mitigated by the sizeable order book of the group and its long-term MDO contract.

 

• Susceptibility to customer concentration in revenue profile: The group faces significant customer concentration risk, with three key customers contributing nearly 70% of the total sales in fiscal 2024. High customer concentration makes the revenue growth and profitability dependent on the growth plans of these customers.

 

• Moderate working capital cycle: Gross current assets of the BGR group stood at 165 days as on March 31, 2024, driven by high unbilled revenue and moderate receivables. The business model entails extraction and excavation of coal with longer execution periods. Billing is done on a monthly basis, once the respective authorities inspect the quantity and quality of coal excavated and grant the required approvals. Additionally, the shift in focus towards MDO projects, from the mining and irrigation segments, will enhance the overall working capital cycle of the group.

Liquidity: Strong

Liquidity is supported by sufficient cash accrual and low bank limit utilisation. Expected annual cash accrual of Rs 1,000-1,200 crore should suffice to cover the yearly term debt obligation of Rs 100-200 crore over the medium term. Bank limit utilisation was 40.88% on average in the 12 months through October 2024. The BGR group also held free unencumbered fixed deposits and cash and bank balance of around Rs 349 crore as of December 2024. The management intends to maintain fixed deposits worth more than Rs 300 crore consistently to overcome any contingency. The current ratio was healthy at 3.19 times as on March 31, 2024. Furthermore, the promoters are willing to extend equity or unsecured loan in case of any requirement.

Outlook: Stable

Crisil Ratings believes the group will continue to benefit from the extensive experience of its promoters in the coal mining segment and their established relationships with clients.

Rating sensitivity factors

Upward factors

• Development of Sanghamitra and Badam mines within the scheduled timelines along with sustenance of strong business performance and healthy operating margins resulting in net cash accruals of more than Rs. 1000 Crore.
• Further strengthening of the financial risk profile and liquidity

 

Downward factors

• Fall in operating performance and operating margin resulting in cash accrual of less than Rs 500 crore
• Any large, debt-funded capex weakening the capital structure
• Substantial increase in the working capital requirement constraining the financial risk profile and liquidity

About the Group

BGR, earlier known as B Girijapathi Reddy & Co, was formed as a partnership between Mr B Umapathi Reddy, Mr B Girijapathy Reddy and Mr I Sudhakar Reddy in 1988. The firm was subsequently reconstituted as a private limited company in 2011. The Hyderabad (Telangana)-based company undertakes execution of contracts for excavation of overburden (OB) and extraction of coal and lignite and also operates as an MDO. It executes composite work consisting of blast hole drilling, excavation, loading, transportation of broken rocks or soil or earth, unloading or dumping, spreading, dozing, water sprinkling and grading. The operations are managed by Mr B Umapathi Reddy and Mr. I Sudhakar Reddy.

 

BDCPL was established as a joint venture between BMPL and Dhansar Engineering Company Private Limited (DECO) in 2020 and reconstituted as a private limited company in March 2022 with the same shareholding pattern. It is engaged in sub-contracting and contracting of mine development and operations and Overburden removal.

 

BMPL was incorporated in 2016 in Hyderabad (Telangana). The company is engaged in overburden removal and mine development and operations. It recently got a project at Bina Open Cast Project (OCP) of Northern Coalfields Ltd (NCL), subcontracted by BDCPL.

 

SPPL was incorporated on May 16, 2023, and executes sub-contracts in mining projects. The company’s main business is to carry on the business of contract extraction of minerals, metal ores, chemicals and stones including that of limestone, both chemical grade and other; to dig quarries using sophisticated machinery; to acquire, develop, maintain mines and mining rights, whether own or lease. Currently SPPL undertakes the Pachhwara MDO project of the group.

 

SML was incorporated on May 26, 2023, and is in Hyderabad. SML’s main business is execution of contracts for excavation of overburden and extraction of coal and lignite by using heavy machinery. The orders are mainly subcontracted from BGR. Part of Kerendari MDO project is being executed by SML.

 

BGRL was incorporated on May 26, 2023, and is in Hyderabad. The LLP’s main business is execution of contracts for excavation of overburden and extraction of coal and lignite by using heavy machinery. The orders are mainly subcontracted from BGR. Currently, BGRL executes part of Manoharpur and Jamkhani MDO projects.

Any other information: Not Applicable