| Bharat Dynamics Limited | ||||
| Rating 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 A1+' rating on the short-term bank facilities of Bharat Dynamics Ltd (BDL).
The rating continues to reflect BDL's strategic importance to the Government of India (GoI), being the prime guided weapons production agency in the country. The rating also factors in an established market position in the guided weapon systems segment, satisfactory order pipeline, and a strong capital structure marked by strong networth and nil debt. These strengths are partially offset by large working capital requirement and susceptibility to time and cost overruns in order execution.
BDL’s revenues declined by 11% in fiscal 2023 to Rs.2,489 crore on account of slower than anticipated order execution due to delay in receipt of certain imported raw materials and components. Operating margins contracted sharply by 900 basis points (bps) to 16.4% on account of unfavourable product mix, higher Research and Development (R&D) spends, and negative operating leverage emanating from lower fixed cost absorption.
Turnover is expected to grow by around 12-15% over the medium term on account of healthy order book and steady execution of order backlog which stood at Rs. 20,418 crore as on May 31, 2023. Operating margins on the other hand, are expected to improve to around 19-20%, on the back of positive operating leverage emanating from better fixed overhead absorption and stabilisation in R&D spends.
Financial risk profile remains strong, backed by healthy networth, debt-free balance sheet, and sufficient cash reserves. Leverage marked by Total Outside Liabilities / Adjusted Networth (TOLANW) stood at 1.74 times as on March 31, 2023, primarily on account of high customer advances; over the medium term the same is expected to remain around 1.30-1.60 times. BDL has scheduled capital expenditure (capex) investments of around Rs.120 crore in fiscal 2024 towards capacity enhancement, setting-up of new capacities, and maintenance capex; the said capex shall be funded through internal cash accruals. |
Analytical Approach CRISIL Ratings has applied the criteria for notching up standalone ratings of entities based on Government Support. Bharat Dynamics Limited (“BDL”) will, in case of exigencies, received support from Government of India (“GoI”) considering its strategic importance to the Government. GoI has majority ownership (74.93%) in Bharat Dynamics Limited. In addition, the team has considered standalone business and financial risk profiles of BDL, as the company does not have any subsidiaries. |
Key Rating Drivers & Detailed Description Strengths: High strategic importance to GoI and established position as a prime production agency for guided weapon systems to Indian armed forces BDL is strategically important to GoI, considering it is the primary agency to produce guided missiles for the armed forces. The company is the exclusive service provider for indigenously developed guided missiles such as Akash surface-to-air missiles and Konkur anti-tank guided missiles. It also benefits from GoI's thrust on indigenous guided weapon systems production, leading to healthy order flow and strong financial support from the government in the form of healthy advances for all its orders. As on May 31, 2023, BDL had unexecuted orders of Rs 20,408 crore.
BDL has a well-developed vendor network and provides continuous assistance to its vendors in tool development, fixture building and related technologies. Consequently, it has indigenised ~90% of major missiles. BDL's established market position and ability to achieve high indigenisation has led to consistent order flow.
Robust financial risk profile Financial risk profile remains strong, back by healthy networth of Rs. 3,104 crore, and debt-free balance sheet. TOLANW is expected to remain at around 1.30-1.60 times over the medium term on account of high customer advances and high payable days, however, the same is mitigated by strong liquidity metrics and cash reserves. Balance sheet is further strengthened by sufficient cash and cash equivalents of around Rs. 3,859 crore as on March 31, 2023.
Weakness: Large working capital requirement The working capital cycle may remain elongated over the medium term and hence will be closely monitored. Gross current assets net of cash was high at 531 days as on March 31, 2023, as against 468 days in fiscal 2022, led by large unbilled revenue due to delayed customer clearances and high inventory days due to medium to high gestation products. GCA days net of cash is expected to remain between 480-510 days and shall remain key monitorable.
Susceptibility to time and cost overruns in order execution The ministry of defence is BDL's major customer, and the company bids for defence projects floated by the ministry on a fixed-contract basis with minimal profitability, considering national interest. BDL depends on Defence Research and Development Organisation for technical modifications for orders. Any delay in finalisation of technical modifications renders BDL liable for damages, thereby weakening its profitability. |
Rating Sensitivity Factors Downward factors
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About the Company BDL was set up in Hyderabad in 1970 as a central public sector enterprise. The company is the prime production agency for guided weapon systems for the Indian defence forces. BDL also manufactures underwater weapon systems, surface-to-air missiles and associated equipment. Furthermore, it is into refurbishment of vintage defence equipment for the Indian army. BDL has three manufacturing facilities, one in Visakhapatnam (Andhra Pradesh) and two in Telangana(1). The company is setting up three more facilities, one each in Amravati (Maharashtra), Jhansi (Uttar Pradesh) and Ibrahimpatnam (Telangana).
(1)Facilities are in Rangareddy district and Bhanur in Medak district |
Key Financial Indicators - CRISIL Ratings adjusted numbers
^FY23 figures and ratios are based on published abridged financials |
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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