Key Rating Drivers & Detailed Description

Strengths:

Established market position: Mr. Chandock has an overall experience of more than 30 years in the same line of business. Over the period, he and other professional qualified staff has helped the company establish its presence across 80 countries. This has enabled the company to diversify its product portfolio thus increasing its operating income to Rs.275 crores in fiscal 2022. BFIL will continue to benefit from its promoters' extensive industry experience over the medium term.

Above average financial profile: Despite high dependence on outside borrowings for capital expenditure and working capital requirements, the capital structure is comfortable with gearing and Total outside liabilities to adjusted net worth of 0.37 times and 0.99 times, respectively, as on March 31, 2022. Gearing and Total outside liabilities to adjusted net worth are expected to remain around 0.2 to 0.4 times and 0.6-0.9 times over the medium term0.44 times and 0.97 times as on March 31, 2022.Debt protection metrics have been healthy with interest coverage and net cash accruals to adjusted debt of 8.71 times and 0.66 times for Fiscal 2022. Overall financial risk profile is expected to remain above average over the medium term backed by healthy accretion to reserves.

Weaknesses:

Susceptibility to volatility in raw material costs: Because of volatility in the price of major raw material- steel and aluminum, the operating margin remain susceptible to these volatilities. The ability of players to pass on input cost increases or retain any benefit of lower input costs is constrained due to intense competition. While Balu forge industries ltd  is able to pass on price increase to customers, any significant movement in the price of raw material and a lag in passing on price fluctuations to customers can impact profitability.

Large working capital cycle: Working capital cycle continues to remain large with Gross Current Asset (GCA) of 299 days as on March 31, 2022. The company provides a credit period of 150-180 days to its customers due to business requirements and maintains an inventory of 60-80 days due to diversified product portfolio. High working capital requirements have led to high bank limit utilization of around 98% over the last 12 months ended Nov 22. Operations are expected to remain working capital intensive over the medium term and hence remains key monitorable.

Key Financial Indicators

Annexure - Details of Instrument(s)

Annexure – List of entities consolidated

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