| Bajel Projects Limited | ||||||
| 'CRISIL A/CRISIL A1' assigned to Bank Debt; Ratings placed on 'Watch Developing’ | ||||||
| Rating Action | ||||||
| ||||||
| 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 A/CRISIL A1' ratings on \bank facilities of Bajel Projects Limited (BPL) and placed it on 'Rating Watch with Developing Implications'.
The rating is placed on watch because of impending demerger process as announced by Bajaj Electricals Limited (BEL) (‘CRISIL A+/Watch Positive/CRISIL A1+’). The engineering, procurement and construction (EPC) business of BEL is proposed to be demerged and transferred to Bajel Projects Limited. Post demerger, the shareholding of BEL shall be mirrored in Bajel Projects. While the demerger has been approved by majority of the stakeholders and regulatory bodies including NCLT, the signed copy of the NCLT order is awaited.
The rating reflects the improving business risk profile of the EPC business and an adequate financial risk profile. The business risk profile is expected to improve in the medium term with focus of the company in increasing the scale of operations through prudent order selection. The order book has doubled to above Rs. 1,600 crores as of March 2023 from around Rs 800 crores, the last fiscal, indicating adequate revenue visibility for the next 1.5-2 years. Diversified order book and presence of strong counterparties also lend strength to the order book position.
The operating profits have turned positive in fiscal 2023 after losses for the last 2-3 years, due to descaling of operations and some cost inefficiencies. The operating margins are expected to improve further, with steady revenue growth and cost efficiency measures. The improvement in revenue and operating margin shall remain a key monitorable.
The EPC business faced working capital challenges in the past due to pending receivables from past orders. The management has focused on recovery of receivables over the past two years and the same is reflected in steady improvement in working capital position. Efficient working capital management remains critical going forward.
The financial risk profile is supported by comfortable net worth and low debt. The profile is further expected to improve with improving profitability.
The rating also factors in the benefit of the company being a part of Bajaj Group and expected financial support, as may be required, from one of the group holding companies, Jamnalal Sons Private Limited (JSPL). JSPL has robust financial flexibility, as reflected in its holding in various companies of Bajaj Group and low debt obligations or contingent liabilities.
The strengths are partially offset by muted profitability, exposure to competition and working capital intensive nature of operations. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has analysed business risk and financial risk of the EPC business of Bajaj Electricals Ltd proposed to be transferred to Bajel Projects Ltd.
CRISIL Ratings has also applied its criteria for notching up of ratings for financial support provided by Jamnalal Sons Private Limited (JSPL) which is one of holding companies of the Bajaj Group. |
Key Rating Drivers & Detailed Description Strengths:
The EPC business has been in existence for more than 15 years and due to the track record, it is qualified to execute complex projects.
The company has been able to increase the order book to ~Rs 1600 crore as on March 31, 2023 from reputed customers like Power Grid Corporation of India Ltd ensuring revenue visibility for the next 1.5 to 2 years. Wide range of qualification in execution of projects comprising of turnkey projects execution of transmission line towers (TLT) carrying extra high voltage (EHV), power distribution lines carrying high voltage (HV), sub-stations, feeder separators etc enable the company to bid and tap various applications in the T&D segment.
The company is also backward integrated through its manufacturing of towers and poles, which can help the company improving cost efficiencies going forward.
The company is expected to remain debt free in the near term and healthy liquidity is expected to support the financial risk profile.
The Bajaj group is among the largest business groups in India and ranks top 5 in terms of market capitalization in India. The company is expected to get financial support from the strong profile of the Bajaj group and expected financial support, as may be required from one of the group holding companies, Jamnalal Sons Private Limited (JSPL). JSPL has a healthy financial flexibility as reflected in its holding in various companies of Bajaj Group and low debt obligations or contingent liabilities.
Weaknesses:
Power T&D business is exposed to intense competition due to low entry barriers. Additionally, cost overruns in the past and some inefficiencies impacted profitability of the company. The company has taken several corrective actions which is expected to improve the performance going forward. Cost efficiency improvements, prudent selection of counter parties and robust pre-bid assessment of contracts are expected to support the margins going forward. While the EPC business has achieved breakeven in fiscal 2023, material expansion in profitability remains a key monitorable.
Furthermore, any large-scale project deferrals or slow project execution could lead to cost overruns impacting profitability. However, these risks are mitigated by the execution capabilities of the company in the power T&D EPC segment.
Operations of BPL are working capital intensive owing to the inherent nature of the business and the long project execution cycle of 18-24 months. Receivables are typically high in the business due to the sizeable retention money blocked in completed projects till the defect liability period is over. Receivable recovery risk is partially mitigated as majority of projects are backed by central public sector undertakings. Efficient working capital management, especially with growing scale of operations will remain a key monitorable. |
Liquidity: Adequate Liquidity is estimated to remain adequate pursuant to estimated collection of receivables in line with the track record in the recent past. Unutilised Bank limit, sufficient unencumbered cash coupled with no long term debt will result in adequate liquidity position. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company BPL, incorporated in January 2022 is presently a wholly owned subsidiary of Bajaj Electricals Ltd (BEL). The EPC business currently operated under BEL is proposed to be transferred to BPL as a part of a scheme of demerger announced by BEL. Post demerger, BPL will be listed on stock exchanges and the shareholding of BEL will be mirrored in it. |
About the Group Bajaj Group, is a globally renowned & trusted group, founded by Late Jamnalal Bajaj and presently managed by the third generation of promoters and is among top 5 business group in terms of market capitalisation in India. |
Key Financial Indicators
* The EPC business segment of Bajaj Electricals Ltd is proposed to be demerged and transferred to Bajel Projects Ltd. Pending demerger, the operations are not there in Bajel Projects Ltd and the existing financials of Bajel Projects Ltd are not meaningful.
Key financial indicator for the EPC division of Bajaj Electricals Ltd
|
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
|
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
|
Criteria Details
|