Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank loan facilities of Bajel Projects Ltd (BPL) at ‘CRISIL A/Stable/CRISIL A1’.

 

The ratings continue to reflect comfortable business and financial risk profiles. The business risk profile is expected to improve further over the medium term with focus on increasing scale of operations through prudent order selection. The order book has more than doubled to above Rs 3,600 crore as of March 2024 from around Rs 1,600 crore in fiscal 2023, indicating adequate revenue visibility for the next 1.5-2 years. Geographically diversified order book and presence of strong counterparties also lend strength to order book.

 

Revenue increased by over 70% to Rs 1,191 crore in fiscal 2024 and the strong growth momentum is expected to sustain over the medium term given the order book in hand and execution capabilities of the company. Operating margin improved to ~4% in fiscal 2024 and is expected to improve further with better absorption of fixed costs due to improvement in scale of operations and selection of orders with better margin. Sustenance of profitability will remain monitorable.

 

The financial risk profile is comfortable marked by networth of ~Rs 566 crore against debt of Rs 48 crore (bill discounting) as on March 31, 2024. The debt is expected to increase over the medium term due to increasing working capital requirement with ramp-up in operations. The debt protection metrics remain moderate, with interest coverage ratio of ~2 times for fiscal 2024. Total outside liabilities to adjusted networth ratio was ~1.35 times as on March 31, 2024. The company had unencumbered cash and equivalents of Rs 59 crore (out of total cash of Rs 159 crore) as on March 31, 2024.

 

The ratings also factor in the benefit of being a part of the Bajaj group and expected financial support, as may be required, from one of the group holding companies, Jamnalal Sons Pvt Ltd (JSPL). JSPL has robust financial flexibility, as reflected in its holdings in various companies of the group and small debt obligation or contingent liabilities.

 

These strengths are partially offset by muted profitability, exposure to intense competition and working capital-intensive operations.

Analytical Approach

CRISIL Ratings has analysed the standalone business and financial risk profiles of BPL.

 

CRISIL Ratings has also applied its criteria for notching up 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:

• Track record in the engineering, procurement & construction (EPC) business: The EPC business has been in existence for more than 20 years and due to long track record, it is qualified to execute complex projects.

 

Wide range of qualification in execution of projects comprising of turnkey projects for execution of transmission line towers carrying extra high voltage, power distribution lines carrying high voltage, sub-stations, and feeder separators. This enables the company to bid and tap various applications in the T&D (transmission and distribution) segment. The company is currently qualified to execute 400 kilovolt (KV) lines and is pushing for 765 KV lines.

 

The company is also backward integrated through its manufacturing of towers and poles, which can help improve cost efficiency over the medium term.

 

• Growing and healthy order book providing revenue visibility: The order book has more than doubled to above Rs 3,600 crore as of March 2024 from around Rs 1,600 crore in fiscal 2023, indicating adequate revenue visibility for the next 1.5-2 years. The company has bagged new orders of ~Rs 3,000 crore in fiscal 2024, of which ~75% are from the power transmission segment and ~24% from the power distribution segment. In power transmission, majority of the projects are from the Power Grid Corporation of India Ltd, which reduces the collection risk.

 

• Expected financial support from the parent: The Bajaj group is among the largest business groups in India and ranks top 5 in terms of market capitalisation. 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 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:

• Modest, but improving, profitability: The power T&D business is exposed to intense competition due to low entry barrier. Additionally, cost overruns in the past and some inefficiencies impacted profitability. The company has taken several corrective actions and is expected to improve the performance over the medium term. Cost efficiency improvements, prudent selection of counterparties and robust pre-bid assessment of contracts are expected to support the margin over the medium term.

 

Furthermore, any large-scale project deferrals or slow project execution could lead to cost overruns, thereby impacting profitability. However, these risks are mitigated by the execution capabilities of the company in the power T&D EPC segment.

 

• Working capital-intensive operations: Working capital requirement is large owing to the inherent nature of the business and the long project execution cycle of 18-24 months. The business is capital intensive, as reflected in high gross current assets of ~300 days due to receivables of ~235 days as on March 31, 2024. The inventory (along with contract assets) was ~80 days. Receivables are typically high in the business due to the sizeable retention money blocked in completed projects till the defect liability period is over. Receivables recovery risk is mitigated as majority of projects are backed by central public sector undertakings. Efficient working capital management, especially with growing scale of operations, will remain monitorable.

Liquidity: Adequate

Liquidity is adequate with unencumbered cash and equivalents were Rs 59 crore (out of total cash of Rs 159 crore) as on March 31, 2024. The company has total limits of Rs 1,200 crores (includes sublimit of Rs 100 crore as fund-based limits) with utilisation of around 80% for last 6 months through June, 2024. Net cash accrual of Rs 50-60 crore, unencumbered cash and unutilised working capital facilities will be sufficient to fund the capex and working capital requirement over the medium term.

Outlook: Stable

The company will benefit from the increasing scale of operations and strong inflow of order book. BPL is also expected to benefit from support from JSPL, which has strong financial flexibility.

Rating sensitivity factors

Upward factors:

• Significant scale up of operations along with improvement in operating margins (Ebitda [earnings before interest, taxes, depreciation, and amortisation]) above 5% on a sustained basis
• Material improvement in working capital cycle

 

Downward factors:

• Weak operational performance with operating profitability (Ebitda) remaining below 2% on a sustained basis
• Lack of improvement in working capital cycle
• Change in stance of support from JSPL or change in criticality of the company for JSPL

About the Company

Bajel Projects Limited (Bajel), incorporated in January 2022 (formerly a wholly owned subsidiary of Bajaj Electricals Ltd (BEL) (“CRISIL AA-/Stable/CRISIL A1+”). In September 2023, the Engineering & Projects (E&P) or the EPC business of BEL was demerged into Bajel and the shareholding was mirrored.

About the Group

The Bajaj group is a globally renowned and trusted group founded by the late Jamnalal Bajaj and presently managed by the third generation of promoters. It is among the top five business groups in terms of market capitalisation in India.

Key Financial Indicators

As on/for the period ended March 31	Unit	2024	2023
Revenue	Rs crore	1191	694
PAT	Rs crore	4	-2
PAT margin	%	0.4	-0.2
Adjusted interest coverage	Times	1.96	0.55
Adjusted debt/networth	Times	0.08	0.00

   Note: Fiscal 2023 numbers are from January 19, 2022, to March 2024 as the company was incorporated in January 2024

Any other information: Not Applicable