| Balu Forge Industries Limited | ||||||
| Ratings upgraded to 'CRISIL BBB+ / Stable / CRISIL A2 ' | ||||||
| Rating Action | ||||||
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| 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 upgraded its ratings on the bank facilities of Balu Forge Industries Limited (BFIL) to 'CRISIL BBB+/Stable/CRISIL A2' from 'CRISIL BBB/Stable/CRISIL A3+'.
The rating action reflects the overall improvement in the credit risk profile of the company backed by strong growth in scale of operations and healthy profitability. The company achieved revenues of around Rs 398 crores in first half of fiscal 2025 and is expected to achieve 40% to 45% year on year growth as compared to revenues of Rs 561 crores in fiscal 2024. The improvement is on account of improved order flow from the existing customer base along with the healthy order flow from the heavy engineering, commercial vehicles and defense sector. Given the shift in the end user industry mix and product mix with improved focus on the heavy components which find better margins has led to overall improvement in operating profitability to around 27% in first half of fiscal 2025 as compared to 22.6% in fiscal 2024. Operating profitability is expected to sustain at similar levels over the medium term backed by healthy orderbook. Additionally, the working capital cycle has also improved on account of the change in the end user industry mix leading to continued improvement in debtor days which is expected to sustain over the medium term.
The rating action also factors in the improved financial risk profile despite aggressive capex, with continuous equity infusions which have been supporting the capex and working capital requirements leading to moderate dependence on external borrowings. As a result, capital structure and debt protection measures have further improved and are expected to remain strong over the medium term in the absence of any debt funding towards the capex being incurred. Healthy ramp up in operations while efficiently managing its working capital requirements for ongoing and expected capex remains a key monitorable.
The rating reflects BFIL's established market position in the crankshaft manufacturing industry, improving scale of operations and comfortable financial risk profile. These strengths are partially offset by susceptibility to volatility in raw material prices and moderate working capital cycle. |
Analytical Approach For arriving at the rating of BFIL, the team has consolidated the business and financial risk profiles of Balu Forge Industries Ltd and its subsidiary Safa Otomotiv FZ LLC which are strategically important to and have a significant degree of operational integration with Balu Forge Industries Ltd. CRISIL Ratings considers these entities as being strategic to Balu Forge Industries Ltd in view of their strong integration with BFIL’s operations.
Goodwill amounting to Rs 32.54 crores has been knocked off to arrive at the Net worth for analytical purpose.
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: Established market position: Mr. Chandock has overall experience of more than 30 years in the same line of business. Over the period, he and other professionally qualified staff have helped the company establish its presence across 80 countries. Over the years, they have built a healthy relationship with their customers and suppliers leading to a repeated order flow. This has enabled the company to diversify its product portfolio thus increasing its operating income to Rs.559 crores in fiscal 2024 from Rs 326 crores in fiscal 2023. BFIL will continue to benefit from its promoters' extensive industry experience over the medium term.
Increasing scale of operations: The scale of operations has grown at a CAGR of 58% for the last three years ended FY 2024. It has further achieved revenues of Rs 398 crores in H1 of fiscal 2025 and is expected to achieve around 40% to 45% year on year growth as compared to fiscal 2024. Strong demand for CVs, Heavy engineering and Defense sector has supported growth in revenue over the past few quarters. With the healthy ramp up in the machining capacity and steady order flow from the customers the volumes continue to improve leading to the estimated growth in scale by around 40% to 45% year on year in fiscal 2025 over fiscal 2024. While the company is also setting up forging capacities, timely completion and healthy ramp up of the same leading to further improvement in the revenues and as a result further strengthening the business risk profile will be monitorable.
Comfortable financial risk profile: Financial risk profile of the company is marked with improved net worth of Rs 520 crores in fiscal 2024 led by the equity infusion and accretion to the reserves. The tangible net worth has further improved to around Rs 881 crores as on Sep 2024 largely driven by the equity infusion in current fiscal to the tune of Rs 245 crores (Primarily to be utilized towards the ongoing capital expenditure, working capital and general purpose). The capital structure of the company has also improved significantly as reflected in the gearing and total outside liability to adjusted net worth ratio of 0.09 times and 0.30 times as on March 31, 2024 (0.31 times and 1.04 times a year ago). While the company has aggressive capex plans over the next two years, the management stance of funding the same with equity infusions should continue to support the capital structure. Debt protection measures continue to be at comfortable levels due to the moderate interest expenditure and healthy profitability as reflected in the interest cover of around 9 times and NCATD of 1.9 times for fiscal 2024 (5.9 times and 0.78 times a year ago). The overall financial risk profile is expected to improve further over the medium term backed by the healthy accretion to the reserves.
Weaknesses: Susceptibility to volatility in raw material costs and ongoing capex : 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 BFIL is able to pass on price increases to customers, any significant movement in the price of raw material and a lag in passing on price fluctuations to customers can impact profitability. Furthermore, the company is currently aggressive towards the capital expenditure by setting up forging capacities. While it is largely funded from the equity infusions and internal accruals, any delay in the completion of the same or delay in the ramp up or any cost over run may impact the profitability, thus the timely completion of the capital expenditure undertaken along with healthy ramp up in the same will remain a monitorable.
Large working capital cycle: Working capital cycle continues to remain large with Gross Current Asset (GCA) of 320 days as on March 31, 2024. 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. The working capital cycle has however been improving with debtors improving to around 117 days as on Sep 2024 with overall gross current assets to around 220 days as on Sep 2024. This is largely on account of the negotiations with the customer and revising the credit period offered, nevertheless, operations are expected to remain working capital intensive over the medium term and hence remains key monitorable. |
Liquidity: Adequate BFIL has adequate liquidity driven by expected cash accruals of Rs. 150 to Rs 170 crores in fiscal 2025 and fiscal 2026 against repayment obligations of Rs 3.5 to 8 crores. Bank limits utilization was high at around 91% for the last 6 months ended Sep 2024. Cash and cash equivalents were Rs. 233 crores as on Sep 2024 which is completely free and to be largely utilized towards the capital expenditure and working capital requirements. CRISIL expects internal accruals, cash & cash equivalents and unutilized bank lines to be sufficient to meet its repayment obligations and incremental working capital requirements. |
CRISIL Ratings believes BFIL’s business and financial risk profile will continue to remain stable over the medium term backed by established market position of the company. |
Rating sensitivity factors Upward factors
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About the Company Balu India was set up in 1989by Mr. Prehlad Singh Chandoc as a proprietary firm. In August 2020 it was acquired by Amaze Intertech Limited and converted into a listed entity by the name Balu Forge Industries Ltd. It is based in Mumbai and has its manufactures type of crankshaft in a large range of applications namely Automotive, Agricultural, Marine & Industrial in Karnataka. It is listed on Bombay Stock exchange and promoted by Mr Jaspal Singh Chandok , Mr Trimaan Chandok and Mr Jaikaran Chandok who look after overall business operations of the company. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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* - Issuer did not cooperate; based on best-available information
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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