Rating Rationale
October 23, 2019 | Mumbai
Bharat Dynamics Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.410 Crore
Short Term Rating CRISIL A1+
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL's rating on the bank facilities of Bharat Dynamics Limited (BDL) continues to reflect the company's strategic importance to the Government of India (GoI), being the prime guided missile production agency in the country. The rating also factors in its established market position in the guided weapon systems segment, and its robust financial risk profile. These strengths are partially offset by working capital-intensive operations, and susceptibility to time and cost overruns in order execution and to volatility in foreign exchange (forex) rates.
 
Revenue and operating margin were Rs 492 crore and 22.7%, respectively, in the quarter ended June 2019. The operating margin was healthy on account of better product mix. Cash and bank balance rose to Rs 590 crore as on June 20, 2019 from Rs 371 crore as on March 31, 2019, though it declined substantially from Rs 1,782 crore as on March 31, 2017, on account of share buyback from GoI, capital expenditure (capex) and working capital requirement. Cash and bank balance is expected to increase over the medium term and will remain a key monitorable.

Analytical Approach

CRISIL has applied its criteria for notching up standalone ratings of entities based on government support.

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 a healthy order flow, and the strong financial support from the government in the form of healthy advances for all its orders. As on June 20, 2019, BDL had unexecuted orders of Rs 8,000 crore.
 
*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 have resulted in consistent order flow.
 
*Robust financial risk profile: The financial risk profile is supported by comfortable capital structure, healthy debt protection metrics, and adequate liquidity. The liquidity is aided by healthy advances for orders from GoI.
 
Weaknesses
*Working capital-intensive operations: Gross current assets were 436 days as on March 31, 2019, due to sizeable inventory. Working capital requirement will remain large over the medium term.
 
*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. As a result, it had operating losses in the three fiscals ended March 31, 2013. BDL depends on Defence Research and Development Organisation (DRDO) for technical modifications for orders. Any delay in finalisation of technical modifications renders BDL liable for damages, adversely impacting 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 is strong with healthy cash accrual and minimal utilisation of bank lines. CRISIL expects cash accrual of over Rs 200 crore in fiscal 2020 and 2021. BDL has no long-term debt obligation. As on June 20, 2019, cash and bank balance rose to Rs 590 crore from Rs 371 crore as on March 31, 2019, though it declined substantially from Rs 1,782 crore as on March 31, 2017, on account of share buyback from GoI, capex and working capital requirement. However, the cash and bank balance is expected to improve over the medium term and will remain a key monitorable. CRISIL expects accrual, cash and cash equivalent, and unutilised bank lines to be sufficient to meet capex and incremental working capital requirement. CRISIL also believes GoI will provide need-based support, considering BDL is the primary agency for the production of guided missiles for the armed forces.
 
Rating sensitivity factor
Downward factor
*Large debt-funded capex or acquisition leading to debt to EBITDA of over 3 times on a sustained basis 
*Weakening of operating performance leading to a significant decline in margins
*Any change in stance of GoI support.
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 Telangana1. 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
Particulars Unit 2019 2018
Revenue Rs crore 3,259 4,650
Profit After Tax (PAT) Rs crore 423 528
PAT Margin % 13.0 11.4
Adjusted debt/adjusted networth Times 0.03 0.03
Interest coverage Times 128.25 137.02

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity Date Issue size (Rs.Cr) Rating assigned with outlook
NA Bank Guarantee NA NA NA 110 CRISIL A1+
NA Foreign Letter of Credit NA NA NA 300 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Fund-based Bank Facilities  LT/ST  410.00  CRISIL A1+  27-06-19  CRISIL A1+  21-03-18  CRISIL A1+  26-09-17  CRISIL A1+  17-06-16  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 110 CRISIL A1+ Bank Guarantee 10 CRISIL A1+
Foreign Letter of Credit 300 CRISIL A1+ Foreign Letter of Credit 300 CRISIL A1+
-- 0 -- Proposed Letter of Credit 100 CRISIL A1+
Total 410 -- Total 410 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

 Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023
Sachin.Gupta@crisil.com

Nitesh Jain
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3329
nitesh.jain@crisil.com

Aditi Phatak
Rating Analyst - CRISIL Ratings
CRISIL Limited
B:+91 22 3342 3000
Aditi.Phatak@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL