| Bharat Dynamics Limited | ||||
| Rating reaffirmed at 'CRISIL A1+ ' | ||||
| Rating Action | ||||
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| 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 Limited (BDL)
The rating continues to reflect BDL's strategic importance to the Government of India (GoI), being the prime guided missile production agency in the country. The rating also factors in an established market position in the guided weapon systems segment and a robust financial risk profile. These strengths are partially offset by large working capital requirement and susceptibility to time and cost overruns in order execution and to volatility in foreign exchange (forex) rates.
BDL’s revenue and operating margin declined to Rs 308 crore and a negative 21.5%, respectively, in the first six months through September 2020 vis-à-vis Rs 1,151 crore and 23.4%, respectively, in the first six months through September 2019 owing to disruptions in production activities in April and May 2020 due to the nationwide lockdown to contain the spread of Covid-19. Though the situation has improved since the third quarter of fiscal 2021, pandemic-led business disruptions are expected to impact BDL's overall operating margin in fiscal 2021 and will remain a key monitorable.
Further, the financial risk profile remains comfortable, in the absence of long-term debt and strong liquidity, aided by cash and cash equivalents of Rs 763 crore as on September 30, 2020, customer advances and minimal bank limit utilisation. |
Analytical Approach CRISIL Ratings has applied its criteria for notching up standalone ratings of entities based on government support. BDL will, in case of exigencies, receive support from GoI considering its strategic importance to the government and GoI has majority ownership (75%) in BDL. |
Key Rating Drivers & Detailed Description Strengths:
BDL is strategically important to GoI, considering it is the primary agency for the production of 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 January 06, 2021, BDL had unexecuted orders of Rs 8,100 crore. Further, BDL is expected to receive orders worth Rs 13,000 crore, which are at an advanced stage of negotiation with GoI.
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 led to consistent order flow.
Capital structure and debt protection metrics should remain healthy, in the absence of any long-term debt and healthy advances for orders from GoI. Networth is estimated at around Rs 2,600 crore in fiscal 2021. Gearing and total outside liabilities to tangible networth ratios were 0.02 time and 1.22 times, respectively, as on March 31, 2020 and are projected at 0.05 time and 1.30 times, respectively, over the medium term. Net cash accrual to total debt and interest coverage ratios were 892% and 138.63 times, respectively, for fiscal 2020, vis-à-vis 431% and 128.25 times, respectively, in fiscal 2019.
Weaknesses:
The working capital cycle may remain stretched over the medium term and hence will be closely monitored. Gross current assets were high at 460 days as on March 31, 2020, vis-à-vis 485 days a year before, led by large unbilled revenue due to delayed customer clearances caused by Covid-19 related disruptions. Movement of unbilled revenue during fiscal 2021 will remain closely monitored.
The ministry of defence is BDL's sole customer, and the company bids for defence projects floated by the ministry on a fixed-contract basis with minimal profitability, considering national interest. Hence, it had operating losses in the three fiscals ended March 31, 2013. 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. BDL imports components for orders executed under the transfer of technology arrangement, and does not hedge the resultant forex exposure. Consequently, its profitability is susceptible to volatility in forex rates to a minimum extent. |
Liquidity: Strong Liquidity should remain strong, supported by healthy cash accrual and minimal utilisation of bank lines. Cash accrual is projected at Rs 250-350 crore in fiscals 2021 and 2022, against nil long-term debt obligation. As on September 30, 2020, cash and bank balance stood at Rs 763 crore. Further, GoI will provide need-based support, considering BDL is the primary agency for the production of guided missiles for the armed forces. |
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 two more facilities, one each in Amravati (Maharashtra) and Ibrahimpatnam (Telangana).
1Facilities are in Rangareddy district and Bhanur in Medak district |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
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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 | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Bank Guarantee | Andhra Bank | 60 | CRISIL A1+ |
| Bank Guarantee | State Bank of India | 65 | CRISIL A1+ |
| Foreign Letter of Credit | Andhra Bank | 150 | CRISIL A1+ |
| Foreign Letter of Credit | State Bank of India | 135 | CRISIL A1+ |
This Annexure has been updated on 7-Sep-2021 in line with the lender-wise facility details as on 3-Aug-2021 received from the rated entity.
Criteria Details
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