Rating Rationale

Strengths
*Healthy business risk profile, with established presence in the BFSI, hi-tech & media and energy & utilities segments
BSL has an established position in the BFSI, Hi-tech & media, energy and utilities and lifesciences. It also has a well-established client base, which includes large global organizations. The company is also focusing on the digital business as there is a sufficient growth prospect in the vertical. CRISIL believes BSL will sustain its healthy business risk profile on the back of its established market position in the automotive and manufacturing verticals.

*Strong financial risk profile
The financial risk profile is supported by healthy networth, robust debt protection metrics, and healthy liquidity. Networth and gearing were at Rs 1199 crore and 0.03 time, respectively, as on March 31, 2019. Net cash accrual to total debt and interest coverage ratios, at 9.0 times and 33.7 times, respectively, in fiscal 2019, reflect healthy debt protection metrics. Debt was at Rs 125 crore (lease liabilities) and cash and cash equivalents at Rs 463 crore as on June 30, 2019.

Operating performance should gradually improve over the medium term with better absorption of employee costs and moderate revenue growth benefitting financial risk profile.

Weaknesses
*Exposure to intense competition in the IT industry
The business environment for the IT industry remains challenging. Indian IT players will need to scale up their operations, primarily due to intense competition among themselves and from multinational corporations that are expanding their offshore operations in India. Other key success factors include acquiring and retaining new customers, maintaining an efficient cost structure, and ensuring effective labour retention and utilisation. Protectionist measures adopted by the US remain yet another business challenge for Indian IT companies. However, players are likely to effectively counter challenges backed by the Indian IT industry's inherent strengths.

*Client and geographical concentration in revenue
While BSL has a well-established client base. The US market contributed 76% of revenue in Q1-20, which is higher than 55%-65% commonly found in the industry. Although geographical diversity mitigates business risk, this skew in revenue is unavoidable, as the US is the largest global IT spender.

Liquidity: Strong
BSL enjoys strong liquidity driven by expected cash accruals of Rs. 220-250 crore per annum in FY19 and FY20 and cash and cash equivalents of Rs. 478 crore as on June 30, 2019. The company was debt free as of June 2019 and has no long term repayment obligations The company can sufficiently fund its capex and working capital requirements through internal accruals. With no debt on the books, BSL has sufficient gearing headroom, to raise additional debt to meet its capex requirement if required.

Outlook: Stable
CRISIL believes business risk profile of BSL will continue to benefit by presence in diverse verticals viz: BFSI, automotive, manufacturing and hi-tech media, lifesciences, etc. Financial risk profile is also expected to be healthy with debt free capital structure and absence of large capex plans.

Rating Sensitivity factors
Upward Factor
* Sustained revenue growth of 12-15%
* Steady improvement operating profitability to around 15-16%
* Sustenance of strong financial risk profile and liquidity

Downward Factor
* Significant degrowth in revenues or operating profitability dipping below 8%
* Large debt funded capex resulting in gearing greater than 0.3 time.