| Bhagwati Autocast Limited | ||||||
| Ratings Reaffirmed | ||||||
| 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 reaffirmed its ‘CRISIL BBB/Stable/CRISIL A3+’ ratings on bank loan facilities of Bhagwati Autocast Limited (BAL).
Revenue from operations declined by 13% to Rs 134 crore for fiscal 2024, against Rs 154 crore for fiscal 2023, as weaker monsoon affected sales volume of tractors. BAL saw an 8% year-on-year fall in total volume for fiscal 2024. Average realisations too dropped by 5% in fiscal 2024, as the benefit of lower input cost was passed on to end-users. Revenue is likely to grow by 5-7% over the near to medium term, led by steady demand and increase in order inflow from existing customers such as Escorts Kubota Ltd (rated ‘CRISIL AA+/Stable/CRISIL A1+’), Swaraj Engines Ltd, Mahindra and Mahindra Ltd (rated ‘CRISIL AAA/Stable/CRISIL A1+’) and Mita India Pvt Ltd.
Operating margin stood at 9.6% for fiscal 2024, in line with the previous fiscal. Gross margin has improved to 37.2%, against 34.1% for fiscal 2023. However, this was offset by increase in other expenses (power and fuel, employees, selling and manufacturing), which formed 27.6% of sales for fiscal 2024, against 24.6% for fiscal 2023, amidst reduced operating leverage with lower sales.
Financial risk profile is marked by a healthy capital structure, marked by low gearing and total outside liabilities to tangible networth (TOL/TNW) ratios and comfortable debt protection metrics. Further, the company has also a planned debt funded capex of Rs 14-15 crores towards solar power plant, which is to be funded partly via debt and balance through internal accruals.
The ratings continue to reflect the established track record of BAL in the castings segment and its adequate financial risk profile. These strengths are partially offset by the modest scale of operations and exposure to risk arising from high customer concentration, volatility in raw material cost and cyclicality in the tractor industry. |
Analytical Approach Team assess the company on standalone basis. |
Key Rating Drivers & Detailed Description Strengths:
Nearly four decade-long presence of BAL in the castings business and its established clientele, comprising Escorts Ltd, Swaraj Engines Ltd, Mahindra & Mahindra Limited and Mita India Pvt Ltd, will continue to support the business risk profile.
Financial risk profile is marked by an adequate capital structure and healthy debt protection metrics. Gearing and TOL/TNW ratios stood at 0.21 time and 0.71 time, respectively, as on March 31, 2024 (0.31 time and 0.98 time, respectively, as on March 31, 2023), and should improve further, aided by better accretion to reserves and limited debt. Debt protection metrics were marked by interest coverage and net cash accrual to total debt ratios of 12.9 times and 1.06 times, respectively, for fiscal 2024. The ratios are likely to remain comfortable, at 12-15 times and 0.8-1.8 times, respectively, in the near to medium term.
Weaknesses:
BAL derives bulk of revenue from three key clients. Loss of a single customer or weak performance of either of them, could lead to significant decline in revenue and sub-optimal capacity utilisation. As the company mainly caters to the tractor industry, revenue is also dependent on its performance. Further, any adverse impact on the agricultural sector, such as weak monsoon affecting crop yield and farm incomes, could weaken the performance of BAL.
Scale of operations remains modest, amidst intense competition in the metal castings industry, and fluctuations in prices of key raw material (scrap and pig iron). However, BAL passes on any rise in input cost to its customers with a lag of 30-60 days. |
Liquidity: Adequate Expected cash accrual of Rs 9-11 crore per annum will suffice to cover the yearly debt obligation of Rs 2-3 crore and capex requirements. Prudent working capital management, as reflected in timely collection of receivables, has also aided liquidity. Bank limit of Rs 12 crore was moderately utilised, at an average of 10-20% in fiscal 2024. |
Outlook: Stable CRISIL Ratings believes the credit risk profile of BAL will benefit from pick-up in demand for castings from the tractor industry. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company BAL was set up by members of the Ahmedabad-based Bhagwati family. Commercial operations began in 1984. The company manufactures casting components, mainly for tractors. These include several large products, such as gear box housings, axle housings and exhaust castings. The manufacturing unit in Bavla (Ahmedabad district) has capacity of 18,000 tonne per annum. |
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 - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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Criteria Details
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