Rating Rationale
December 20, 2024 | Mumbai
Thermax Babcock and Wilcox Energy Solutions Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.2140 Crore
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank loan facilities of Thermax Babcock and Wilcox Energy Solutions Ltd (TBWES).

 

For fiscal 2024, TBWES reported total revenues of Rs 2258 crores against Rs. 2126 crore the previous fiscal on the back of continued order flow across multiple industries. Overall revenues for TBWES is likely to see a pick-up in growth over the medium term, backed by healthy order booking and increased traction in waste to energy projects. Operating margin was ~7% in fiscal 2024 and should remain stable at 8-9% over the medium term.

 

The ratings continue to reflect the strong technological, managerial, operational, and financial support TBWES receives from its parent, Thermax Ltd (Thermax; ‘CRISIL AA+/Stable/CRISIL A1+’). The ratings also consider its strong financial risk profile, established market position in the boilers segment and diverse revenue profile of the company. These strengths are partially offset by exposure to cyclical vagaries of end-user industries and average operating profitability amid intense competition.

Analytical Approach

CRISIL Ratings has factored in the business, financial and managerial support that TBWES receives from Thermax.

Key Rating Drivers & Detailed Description

Strengths:

  • Strong support from the parent, Thermax: TBWES is strategically important to Thermax, especially after the transfer of the parent’s boilers and heaters (B&H) business (core product offering) in the second half of fiscal 2020. TBWES receives strong support from the parent in project execution, as well as technical and operational support. Financial aid may also be forthcoming in case of any exigency.

 

  • Established market position in the boilers segment: Boilers & Heaters (B & H) are one of the flagship offerings of Thermax (which is also the market leader in low- and medium-capacity boilers). The B&H business caters to several end-user industries, including power, oil and gas, steel, and cement, providing diverse streams of revenue. The varied product and geographical portfolios of B&H business should minimize the business risk of TBWES. TBWES is in receipt of two large international orders with a cumulative amount of over Rs 1000crs. This is expected to aid the company’s focus on increasing its share of export sales to 25% (which currently accounts for ~13% for the fiscal year ending 2024).

 

  • Healthy financial risk profile: Capital structure of TBWES continued to be supported by modest capital expenditure (capex), healthy cash accrual and absence of any debt obligation over the medium term. Networth was above Rs 819 crore as on March 31, 2024, while total outside liabilities to tangible networth (TOLTNW) ratio was 1.45 times. Healthy liquidity backed by cash and cash equivalent (around Rs 650 crore as of March 2024).

 

Weaknesses:

  • Exposure to cyclical vagaries of end-user industries: Business risk profile of TBWES remains susceptible to business cycles and overall infrastructure spending of end-user industries which may restrict the company’s operating performance. Additionally, as on fiscal 2024, sales in India constituted ~87% of total sales thus limiting geographical diversity. That said, order book of over Rs 3,600 crore (as on September 30, 2024) would provide robust revenue visibility over the next fiscal. 

 

  • Modest operating profitability amid intense competition: TBWES operates in an increasingly competitive market scenario and hence, faces pricing pressure from other large incumbents in the B&H space. Therefore, its operating margin has largely remained 7-9% in the past. The margin is also moderately vulnerable to fluctuations in input prices. Since most orders do not have price escalation clauses, risk of any variation in cost may persist.

Liquidity: Strong

TBWES enjoys strong liquidity, driven by the expectation of ongoing and need-based support from the parent, Thermax. On a standalone basis, liquidity is expected to remain healthy owing to nil debt obligation and cash accrual of over Rs 200 crore per annum over the medium term. Capex may remain nominal and be met entirely through cash accrual. Cash and equivalent were over Rs 650 crore as on March 31, 2024, and the marginally utilised fund-based working capital limit of Rs 140 crore provide additional liquidity comfort.

Outlook: Stable

TBWES will continue to derive strong support from Thermax, thereby sustaining its credit risk profile.

Rating Sensitivity Factors

Upward factors:

  • Improvement in the credit risk profile of the parent, Thermax
  • Healthy revenue growth and operating profitability of over 12% on sustained basis
  • Sustenance of strong financial risk profile, with TOLTNW ratio less than 1.2 times and strong liquidity position

 

Downward factors:

  • Deterioration in the credit risk profile of the parent
  • Operating profitability less than 7% either due to cost overruns or weakening of the market position
  • Major, debt-funded capex or acquisition, leading to significant moderation in credit metrics and TOLTNW ratio rising over 2.0 times
  • Change in stance of support from Thermax

About the Company

TBWES was an erstwhile joint venture between Thermax and the US-based Babcock & Wilcox Power Generation Group, Inc. The company has a plant in Shirwal, Maharashtra where it manufactures critical boilers for thermal power plants. Thermax acquired 100% stake in TBWES in fiscal 2019, post which TBWES became a fully owned subsidiary of the former. Furthermore, effective from the second half of fiscal 2020, Thermax transferred its B&H division to TBWES to optimally utilise the existing capacities in the latter.

About the parent

Pune-based Thermax was incorporated in 1966 as Wanson India Pvt Ltd and went public in February 1995. It began operations by manufacturing packaged boilers but has subsequently diversified its product portfolio, which now includes packaged and custom-made large boilers, cogeneration equipment, air pollution-control equipment, water- and waste-treatment plants and chemicals, and absorption chillers. Thermax has traditionally focused on turnkey projects for large boiler systems, water- and effluent-treatment plants, air-pollution-control systems, and co-generation plants. It also pioneered the vapour-absorption cooling plants segment in India.

Key Financial Indicators (CRISIL Ratings Adjusted Numbers)

Particulars

Unit

2024

2023

Operating income^

Rs.Crore

2258

2126

Profit after tax (PAT)

Rs.Crore

132

92

PAT margin

%

5.85

4.3

Adjusted debt/adjusted networth

Times

0.20

0.19

Interest coverage

Times

15.71

15.25

^Reported Numbers as per the annual report

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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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.Crore) Complexity Levels Rating Outstanding with Outlook
NA Fund-Based Facilities NA NA NA 140.00 NA CRISIL AA+/Stable
NA Non-Fund Based Limit NA NA NA 1975.00 NA CRISIL A1+
NA Proposed Non Fund based limits NA NA NA 25.00 NA CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 140.0 CRISIL AA+/Stable   -- 22-09-23 CRISIL AA+/Stable 23-12-22 CRISIL AA+/Stable 06-04-21 CRISIL AA+/Stable CRISIL AA+/Stable
      --   --   -- 16-12-22 CRISIL AA+/Stable   -- CRISIL AA+/Stable / CRISIL A1+
      --   --   -- 28-06-22 CRISIL AA+/Stable   -- --
Non-Fund Based Facilities ST 2000.0 CRISIL A1+   -- 22-09-23 CRISIL A1+ 23-12-22 CRISIL A1+ 06-04-21 CRISIL A1+ CRISIL A1+
      --   --   -- 16-12-22 CRISIL A1+   -- --
      --   --   -- 28-06-22 CRISIL A1+   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 25 The Hongkong and Shanghai Banking Corporation Limited CRISIL AA+/Stable
Fund-Based Facilities 50 ICICI Bank Limited CRISIL AA+/Stable
Fund-Based Facilities 60 Citibank N. A. CRISIL AA+/Stable
Fund-Based Facilities 5 Union Bank of India CRISIL AA+/Stable
Non-Fund Based Limit 250 ICICI Bank Limited CRISIL A1+
Non-Fund Based Limit 250 Citibank N. A. CRISIL A1+
Non-Fund Based Limit 500 Citibank N. A. CRISIL A1+
Non-Fund Based Limit 200 The Hongkong and Shanghai Banking Corporation Limited CRISIL A1+
Non-Fund Based Limit 500 ICICI Bank Limited CRISIL A1+
Non-Fund Based Limit 275 Union Bank of India CRISIL A1+
Proposed Non Fund based limits 25 Not Applicable CRISIL A1+
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Engineering Sector
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Criteria for rating short term debt

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