| Bharat Gears Limited | ||||||
| Ratings upgraded to 'CRISIL BBB-/Stable/CRISIL A3' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed rationale CRISIL Ratings has upgraded its ratings on the bank loan facilities of Bharat Gears Limited (BGL) to ‘CRISIL BBB-/Stable/CRISIL A3’ from ‘CRISIL BB+/Positive/CRISIL A4+’
The rating upgrade reflects 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 35-40% in fiscal 2022 backed by healthy demand from export market and improved orders from large clients in the domestic market. Company has posted 63.7% growth in revenue during first nine months 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 be sustained over medium term.
The rating action also reflects improvement in financial risk profile of the company on the back of refinancing of Rs 40 crore debt with longer tenure. This has significantly reduced the annual repayment obligations of the company, enhancing the cash flow cushion available and strengthening the overall financial flexibility of the company. 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 moderate over the medium term on the back of equity infusion of Rs 9.5 crore in current fiscal, higher accruals, and moderation in creditors.
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, and exposure to cyclicality in end-user industries. |
Key Rating Drivers & Detailed Description Strengths Established market position in the automotive component industry and strong client profile, albeit high customer concentration in revenue 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 50% 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.
Strong manufacturing infrastructure 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 Leveraged capital structure Networth is expected to improve to over Rs 100 crores in fiscal 2022 from Rs 72.75 crore as on March 31, 2021; however remains moderate. TOLANW ratio remained high at 4.1 times, as on March 31st 2021, 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, and is expected to further improve over the medium term backed by improved accruals, repayment of existing debt, moderation in creditors and absence of any large, debt-funded capex.
While 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, this was largely due to pandemic related impact. Interest coverage has improved to around 3.98 times in the first nine months of fiscal 2022. Debt protection metrics is expected to remain comfortable overt the medium term.
Exposure to cyclicality in end-user industries and volatile operating margin 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 are expected to be around Rs 43-50 crore per fiscal adequate to meet term loan repayment of Rs Rs 7-15 crore per fiscal over the medium term and capex requirements expected at Rs 8-10 crore per annum over the medium term. Average bank limit utilisation was 77% (fund-based limit of Rs 40 crore) during the twelve months through March 2022. Equity infusion of Rs 9.5 crore during current fiscal and improved accruals are expected to support liquidity profile over the medium term.
Outlook: Stable CRISIL Ratings 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
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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
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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 19-May-22 in line with the lender-wise facility details as on 06-Dec-21 received from the rated entity.
Criteria Details
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