| 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 Ltd (BDL)
BDL’s revenue and operating margin improved to Rs. 1436 crore and 22.4%, respectively, during the first nine months through December 31, 2021 vis-à-vis Rs 768 crore and negative 3.5%, respectively, in the corresponding period last fiscal owing to strong execution of orders during the third quarter post slowdown faced in the first half of the current fiscal. Revenues in fiscal 2021 moderated by 40% to Rs. 1914 crore owing to supply chain disruptions resulting in inability to execute orders in a timely manner; however these concerns have now been alleviated with resumption of economic activities post pandemic-induced lockdowns.
Revenues are expected to grow by over 50% in fiscal 2022 on a low base and driven by the company’s continued status as key domestic supplier of Surface-to-Air missiles (SAMs) and Anti-Tank Guided Missiles (ATGMs) to the Indian Armed forces and increasing share of exports of Light weight torpedoes & Counter Measure Dispensing Systems (CMDS). Unexecuted order book as on February 02, 2022 stood at Rs. 11,400 crores as against Rs 8386 crore as on 1st April 2021 reflecting healthy revenue visibility over the medium term.
Operating margins are expected to remain stable at 20-21% over the medium term, aided by increasing indigenization contents in the manufacture of ATGMs. For instance, indigenization of products like Konkurs-M, Invar, Milan-2T, Akash, TAL-XP and Varunastra has been achieved up to 96%, 78.6%, 71%, 96%, 82.9% and 86.8 % respectively
Healthy financial risk profile should sustain supported by strong estimated networth in excess of Rs.2,800 crore as on March 31, 2022 , nil debt and strong cash generation. More-than-expected stretch in the working capital cycle or delay in execution of the orderbook will be the key monitorables.
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. |
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 (74.93%) in BDL. |
Key Rating Drivers & Detailed Description Strengths: High strategic importance to GoI 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 February 02, 2022, BDL had unexecuted orders of Rs 11,400 crore. Further, BDL is expected to receive orders worth Rs 15,000 crore, which are at an advanced stage of negotiation with GoI.
Established position as a prime production agency for guided weapon systems to Indian armed forces 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.
Robust financial risk profile 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 stood at Rs. 2552 crores as on March 31, 2021. Gearing and total outside liabilities to tangible networth ratios were 0.02 time and 1.27 times, respectively, as on March 31, 2021 and are expected to remain at similar levels over the medium term. Net cash accrual to total debt and interest coverage ratios were 397% and 91.24 times, respectively, for fiscal 2021, vis-à-vis 892% and 149.15 times, respectively, in fiscal 2020.
Weakness: Large working capital requirement The working capital cycle may remain stretched over the medium term and hence will be closely monitored. Gross current assets were high at 895 days as on March 31, 2021, vis-à-vis 460 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 2022 will remain closely monitored.
Susceptibility to time and cost overruns in order execution, and to volatility in forex rates 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 expected to be in the range of Rs 350-450 crore in fiscals 2022 and 2023, against nil long-term debt obligation. As on December 31, 2021, cash and bank balance stood at Rs 1344 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 * Any change in stance of GoI’s support to BDL and the latter's strategic importance to the former * Large, debt-funded capital expenditure or acquisition, leading to debt to earnings before interest, taxes, depreciation, and amortization of over 2 times on a sustained basis * Weakening of operating performance, resulting in a steep decline in profitability margin |
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
BDL reported revenue and operating margin of Rs. 1436 crore and 22.4%, respectively, during the first nine months through December 31, 2021 vis-à-vis Rs 768 crore and negative 3.5%, respectively, in the corresponding period last fiscal. |
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 | ||||||||||||||||||||
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This Annexure has been updated on 31-Mar-2022 in line with the lender-wise facility details as on 3-Aug-2021 received from the rated entity.
Criteria Details
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