Rating Rationale

Rating Rationale

January 05, 2024 | Mumbai

BGR Mining & Infra Limited

Rating reaffirmed at 'CRISIL A-/Stable'; 'CRISIL A2+' assigned to Short term Bank Debt; rated amount enhanced for Bank Debt

Rating Action

Total Bank Loan Facilities Rated	Rs.1100 Crore (Enhanced from Rs.100 Crore)
Long Term Rating	CRISIL A-/Stable (Reaffirmed)
Short Term Rating	CRISIL A2+ (Assigned)

Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.

1 crore = 10 million

Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL A2+’ rating to the short-term bank facilities of BGR Mining & Infra Limited (BGR; part of the BGR group) and has reaffirmed its ‘CRISIL A-/Stable’ rating on the long-term bank facilities.

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

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of BGR Mining & Infra Limited, BGR Deco Consortium Private Limited (BDCPL) and BI Mining Private Limited (BMPL). This is because all these entities, together referred to as the BGR group, operate in the same industry 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: The first-generation promoters, Mr B Girijapathi Reddy, Mr B Umapathi Reddy and Mr I Sudhakar Reddy, have been engaged in the coal business for around four decades. Over the years, BGR has gained significant experience and established a strong track record with both public and private sector entities. Healthy relationships with reputed customers enable the group to achieve a continuous flow of repeat 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.

Healthy order book providing revenue visibility: As of April 2023, BGR had orders worth Rs 48,191 crore to be executed over next 25 years, thus providing significant revenue visibility over the medium term. The company has entered four 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 Ltd (OCPL), NTPC Limited (rated CRISIL AAA/Stable) and Vedanta Limited (rated CRISIL AA-/Watch Developing/CRISIL A1+). 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.

Healthy financial risk profile: Capital structure remains comfortable, aided by lower reliance on external debt, and marked by strong networth of Rs 1,516 crore, and low gearing of 0.34 time and total outside liabilities to adjusted networth ratio of 0.68 time as on March 31, 2023. Debt protection metrics of the group have also been healthy due to lower leverage and healthy profitability. Interest coverage and net cash accrual to total debt ratios stood at 10.18 times and 1.84 times, respectively, for fiscal 2023, and are likely to remain steady over the medium term.

Weaknesses:

Exposure to risks inherent in the tender-based business: The 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 order inflow and revenue growth. 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 five key customers forming nearly 74% of total sales in fiscal 2023. High customer concentration makes the revenue growth and profitability dependent on growth plans of these customers.

Moderate working capital cycle: Gross current assets of the BGR group stood at 173 days as on March 31, 2023, driven by higher unbilled revenue. The business model entails extraction and excavation of coal with longer execution periods. Billing is done on a milestone 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 marked by sufficient cash accrual and low bank limit utilisation. Expected cash accrual of Rs 998-1,332 crore should suffice to cover the term debt obligation of Rs 100-150 crore over the medium term. Bank limit utilisation averaged around 44% for the 12 months ended October 31, 2023. BGR also held free fixed deposits of around Rs 72 crore as of September 2023. The management intends to maintain fixed deposits worth more than Rs 75 crore consistently to overcome any contingency. The current ratio was healthy at 2.27 times as on March 31, 2023.

Outlook: Stable

CRISIL Ratings believe the group will continue to benefit from the extensive experience of its promoters in the coal business and their established relationships with clients.

Rating Sensitivity factors

Upward factors

Significant ramp up at the ongoing Kerandari coal mining project along with efficient execution of orders resulting in sustained healthy operating performance.
Sustenance of healthy operating margin of 25-30% along with timely collection of debtors resulting in robust cash accruals.
Further strengthening of financial risk profile and liquidity with substantial increase in free cash and bank balances.

Downward factors

Fall in operating performance and operating margins resulting in cash accruals of less than Rs. 600 Crore.
Any large debt-funded capital expenditure, weakening the capital structure
Substantial increase in 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/ soil/ earth, unloading/ dumping, spreading, dozing, water sprinkling and grading etc. Operations are managed by Mr B Umapathi Reddy, Mr B Girijapathy Reddy and Mr I Sudhakar Reddy.

BDCPL was established as a joint venture between BMIL 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.

BMPL was incorporated in 2016, at 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 BGR DECO Consortium Pvt Ltd (BDCPL).

Key Financial Indicators

Consolidated
As on / for the period ended March 31		2023	2022
Operating income	Rs crore	3,514.00	2,813.85
Reported profit after tax	Rs crore	613.98	208.99
PAT margin	%	17.47	7.42
Adjusted debt/Adjusted networth	Times	0.34	0.55
Interest coverage	Times	10.18	5.74
BGR
As on / for the period ended March 31		2023	2022
Operating income	Rs crore	2,867.40	2,381.68
Reported profit after tax	Rs crore	509.98	126.69
PAT margin	%	17.79	5.32
Adjusted debt/Adjusted networth	Times	0.33	0.43
Interest coverage	Times	9.08	4.71
BDCPL
As on / for the period ended March 31		2023	2022
Operating income	Rs crore	653.52	531.48
Reported profit after tax	Rs crore	2.57	7.90
PAT margin	%	0.39	1.50
Adjusted debt/Adjusted networth	Times	6.64	52.88
Interest coverage	Times	4.54	6.28
BMPL
As on / for the period ended March 31		2023	2022
Operating income	Rs crore	620.76	484.18
Reported profit after tax	Rs crore	101.43	74.38
PAT margin	%	16.34	15.36
Adjusted debt/Adjusted networth	Times	0.11	0.69
Interest coverage	Times	11.58	6.06

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 crore)	Complexity levels	Rating assigned with Outlook
NA	Bank Guarantee	NA	NA	NA	183.5	NA	CRISIL A2+
NA	Bank Guarantee	NA	NA	NA	70	NA	CRISIL A2+
NA	Bank Guarantee	NA	NA	NA	310	NA	CRISIL A2+
NA	Cash Credit	NA	NA	NA	26.5	NA	CRISIL A-/Stable
NA	Cash Credit	NA	NA	NA	75	NA	CRISIL A-/Stable
NA	Proposed Bank Guarantee	NA	NA	NA	236.5	NA	CRISIL A2+
NA	Proposed Cash Credit Limit	NA	NA	NA	23.5	NA	CRISIL A-/Stable
NA	Proposed Letter of Credit	NA	NA	NA	25	NA	CRISIL A2+
NA	Proposed Rupee Term Loan	NA	NA	NA	50	NA	CRISIL A-/Stable
NA	Rupee Term Loan	NA	NA	Mar-29	50	NA	CRISIL A-/Stable
NA	Rupee Term Loan	NA	NA	Mar-29	50	NA	CRISIL A-/Stable

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
BGR Mining & Infra Limited	Full	Same line of business, common management, with significant operational and financial linkages.
BGR Deco Consortium Private Limited
BI Mining Private Limited

Annexure - Rating History for last 3 Years

Current

2024 (History)

2023

2022

2021

Start of 2021

Instrument

Type

Outstanding Amount

Rating

Date

Rating

Date

Rating

Date

Rating

Date

Rating

Fund Based Facilities

275.0

CRISIL A-/Stable

30-11-23

CRISIL A-/Stable

Suspended

Non-Fund Based Facilities

825.0

CRISIL A2+

Suspended

All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility	Amount (Rs.Crore)	Name of Lender	Rating
Bank Guarantee	310	Union Bank of India	CRISIL A2+
Bank Guarantee	70	Bank of Baroda	CRISIL A2+
Bank Guarantee	183.5	Canara Bank	CRISIL A2+
Cash Credit	75	Canara Bank	CRISIL A-/Stable
Cash Credit	26.5	Union Bank of India	CRISIL A-/Stable
Proposed Bank Guarantee	236.5	Not Applicable	CRISIL A2+
Proposed Cash Credit Limit	23.5	Not Applicable	CRISIL A-/Stable
Proposed Letter of Credit	25	Not Applicable	CRISIL A2+
Proposed Rupee Term Loan	50	Not Applicable	CRISIL A-/Stable
Rupee Term Loan	50	Canara Bank	CRISIL A-/Stable
Rupee Term Loan	50	Union Bank of India	CRISIL A-/Stable

Criteria Details

Links to related criteria

CRISILs Approach to Financial Ratios

Rating criteria for manufaturing and service sector companies

CRISILs Bank Loan Ratings - process, scale and default recognition

Criteria for rating entities belonging to homogenous groups

CRISILs Criteria for rating short term debt

Understanding CRISILs Ratings and Rating Scales

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