| Bemco Hydraulics Limited | ||||||
| Long-term rating upgraded to 'CRISIL B/Stable' ; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||||
| Detailed Rationale |
|
CRISIL has upgraded its rating on the long term bank facilities of Bemco Hydraulics Limited (Bemco) to 'CRISIL B/Stable' from 'CRISIL B-/Stable' while reaffirming the short term rating at 'CRISIL A4' |
| Key Rating Drivers & Detailed Description |
|
Weakness * Below-average financial risk profile The financial risk profile of the company continues to remain weak with low net worth, leveraged capital structure and weak debt protection metrics. Bemco's net worth has been small since inception, and its operations have been funded primarily through external debt. Moreover, the company's modest scale of operations leads to modest accruals, which restricts increase in its net worth. The net worth of the company has eroded because of operating level losses incurred in the company during 2013-14 (refers to financial year, April 1 to March 31) and though improved backed by addition of equity by the promoters of the company, remains low on account of accumulated losses. The net worth of the company is expected to improve over the medium term on account of expected improvement in profitability and accretion to reserves. The capital structure of the company is expected to be weak over the medium term. Bemco's large interest outgo because of continued reliance on external debt resulted in below-average debt protection metrics for the company. The debt protection metric of the company is weak with less than 1 time interest coverage ratio and net cash accruals to total debt of 0.02 times. Driven by expected improvement in cash accruals, the company's debt protection metrics are expected to improve over the medium term. CRISIL believes that Bemco's financial risk profile will improve over the medium term on account of expected improvement in cash accruals, though the same will be constrained by low net worth and high gearing. * Working-capital-intensive and modest scale of operations Bemco's operations are marked by large working capital requirements and are modest in scale. The company's large working capital requirements are on account of large inventory levels of over 300 days, as on March 31, 2019. Bemco's modest scale of operations limits its ability to sustain downturns and constrains its bargaining power with suppliers and pricing power with customers. The company's modest scale is a major factor preventing it from participating in large tenders, thereby inhibiting its growth. CRISIL believes that Bemco's business risk profile will remain constrained over the medium term by its modest scale of operations and large working capital requirements. Strengths * Niche product profile and its promoters' extensive industry experience: Bemco was founded in the late 1930s as a proprietorship concern to meet the requirements of the British army. Since then, the company has developed highly sophisticated machinery and machinery equipment for Hindustan Aeronautics Ltd (HAL), Indian Railways, and auto companies. In many cases, Bemco is the only manufacturer in India with the required technical expertise to manufacture the machinery (for example, re-railing equipment for Indian Railways, for which Bemco is the only manufacturer in India and one of the few in the world). Bemco often receives special requests from private and public sector companies to jointly develop sophisticated products. Furthermore, Bemco's promoters, Mr. M M Mohta and Mr. Anirudh Mohta, with their technical and industry expertise and contacts, have been instrumental in establishing strong relationship with customers. Bemco's clients include Garden Reach Shipbuilders & Engineers Ltd (a Government of India [GoI] undertaking; a leading shipyard in the country, which builds warships to commercial vessels); Vikram Sarabhai Space Centre ' Thiruvananthapuram (lead centre for development of satellite launch vehicles and associated technologies); High Energy Materials Research Laboratory (HEMRL; a unit of Defence Research and Development Organisation, Ministry of Defence, GoI, engaged in formulation, design, and development of propellants, high explosives and high energy materials); and TATA AutoComp Systems Ltd. CRISIL believes that Bemco will continue to benefit from the industry experience of its promoters over the medium term. |
| Outlook: Stable |
|
CRISIL believes that Bemco will continue to benefit over the medium term from its moderate order book and its promoters' extensive industry experience. The outlook may be revised to 'Positive' if there is sustained improvement in the company's cash accruals, or there is a sustained improvement in its working capital management. Conversely, the outlook may be revised to 'Negative' if Bemco's profitability margins decline or its liquidity deteriorates significantly because of large working capital requirements or large debt-funded capital expenditure plan. |
| About the Company |
|
Bemco was incorporated as New Bemco Engineering Products Company Ltd in 1957; it got its current name in 1976. The company manufactures hydraulic presses and equipment used in the automotive, defense, railways, and other heavy engineering sectors. |
|
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
|