| Bharat Gears Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has revised its outlook on the long term bank facilities of Bharat Gears Limited (BGL) to ‘Positive’ from ‘Stable’; while reaffirming its rating at ‘CRISIL BB+’. Short term rating has been reaffirmed at ‘CRISIL A4+’.
Revision in outlook reflects expected improvement in business risk profile on the back of healthy revenue growth and improved profitability expected in current fiscal. Revenue is expected to grow by around 30-35% in fiscal 2022 backed by healthy demand from export market and improved orders from large clients in the domestic market. Company has posted 97.96% growth in revenue during first half of fiscal 2022 on a year-on-year basis; albeit on a lower base. While revenue growth is expected to moderate over medium term; scale is expected to be maintained given sustained orders expected from clients. Supported by improved fixed cost absorption and better efficiency at its Mumbra plant; operating margin is expected to improve by around 200-300 basis points in current fiscal and likely to further improve over medium term.
Financial risk profile has been marked by high leverage levels with total outside liabilities to adjusted debt (TOLANW) of 4.11 times as on 31st March 2021, which should also correct partially over the medium term on the back of equity infusion of Rs 9.5 crore in current fiscal, higher accruals, and repayment of existing debt.
The ratings continue to reflect BGL’s established market position in the automotive component industry with strong client profile in the tractor segment, albeit high concentration of revenue from few clients and strong manufacturing capabilities and infrastructure. These strengths are partially offset by high leverage levels, moderate debt protection metrics and exposure to cyclicality in end-user industries. |
Key rating drivers & detailed description Strengths:
BGL is a leading player in the Indian tractor gear market. By virtue of its established relationships with original equipment manufacturers (OEMs) and high quality, its products enjoy strong brand recognition. A major part of the company’s revenue is derived from large OEMs such as the John Deere group, which constitutes around 40-45% of the turnover. While there is client concentration, these customers have been dealing with BGL for over two decades and the components supplied are critical to the product, partially mitigating this risk.
The company has, over the years, developed strong capabilities in gear manufacturing, enabling it to be a quality and reliable supplier to reputed OEMs in the domestic as well as international markets. Facilities in Mumbra, Satara (Maharashtra), and Faridabad (Haryana) are fitted with modern equipment and certified as per International Organization for Standardization. BGL also has capable research and development facilities to support development of new product variants and evolvement of existing products to meet customer needs.
Weaknesses:
Networth remains moderate at Rs 72.75 crore as on March 31, 2021 (Rs 78.3 crore a year ago). TOLANW ratio remained high at 4.1 times largely due to debt-funded capital expenditure (capex) carried out in the past and large creditors. TOLANW has improved to around 3.7 times as on September 30th, 2021. Capital structure is expected to further improve over the medium term backed by improved accruals, repayment of existing debt and absence of any large, debt-funded capex.
Due to moderate profitability and higher debt levels, debt protection metrics were average with interest coverage and net cash accrual to adjusted debt of 1.63 and 0.15 times in fiscal 2021. Interest coverage has improved to around 3.7 times in first half of fiscal 2022. Debt protection metrics is expected improve over the medium term backed by improved profitability and reduction in debt levels from fiscal 2022 onwards.
Since BGL generates majority of its revenue from OEMs across the tractor, construction equipment, and commercial vehicle segments, it remains susceptible to cyclicality in these industries (especially tractors). Any downturn in these industries is likely to impact the company’s revenue and profitability. Any significant reduction in revenue is also expected to have a material impact on profitability given the high fixed cost structure. While the cost structure has improved over the past quarters and impact is expected to moderate; exposure to cyclicality in end-user industries is expected to continue over the medium term. |
Liquidity: Adequate Net cash accruals (NCA) is expected to be moderate in fiscal 2021 at Rs 16.45 crore, against repayment obligation of Rs 11.33 crore (adjusted for repayments deferred during moratorium availed in H1 2021). Net cash accruals are expected to be around Rs 37-45 crore per fiscal adequate to meet term loan repayment of Rs 28.5-24.6 crore per fiscal over the medium term and capex requirements. Capex is expected to be moderate at Rs 8-10 crore per annum over the medium term. Average bank limit utilisation was 78% (fund-based limit of Rs 40 crore) during the eight months through November 2021. Equity infusion of Rs 9.5 crore during current fiscal and improved accruals are expected to support liquidity profile over the medium term. The company is also planning to refinance its existing term debt; this should also support liquidity profile; subject to final terms and conditions. |
Outlook: Positive CRISIL believes BGL’s business and financial risk profile is expected improve supported by improved scale of operations and profitability backed by healthy demand from domestic and international markets. |
Rating sensitivity factors Upward factors
Downward factors
|
About the company Established in 1971, BGL manufactures a range of gears for tractors, commercial vehicles, buses, and utility vehicles. Products include hypoid and spiral gears, differential gears and shafts, complete automotive transmissions, gearbox sub-assemblies, and differential assemblies |
Key financial indicators
|
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)
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 03-Feb-22 in line with the lender-wise facility details as on 06-Dec-21 received from the rated entity.
Criteria Details
|