CRISIL downgraded long-term bank ratings for BHEL from 'AA+' to 'AA'

Rating agency CRISIL has downgraded long-term bank ratings for Bharat Heavy Electricals (BHEL) from “AA+” to “AA” on weaker-than-expected operating performance and the continued decline in net cash levels in the first half of the current financial year (H1FY20).

The rating on the short-term bank facilities has been reaffirmed at ‘CRISIL A1+’.

BHEL’s revenues declined to Rs 10,757 crore during H1FY20, as against Rs 12,715 crore during H1FY19. The fall in revenues was driven by slower execution of orders.

Lower revenues and high cost structure led to the decline in earnings before interest, tax, depreciation, and amortisation to nil during H1FY20, as against Rs 528 crore in H1FY19, CRISIL said in a statement.

Operating profitability is likely to remain subdued due to highly competitive bidding over the past few years. Further, overcapacity in the sector may lead to additional pricing pressure in upcoming bids.Debtors remained high at Rs 37,609 crore as of September 30 (Rs 35,493 crore as of March 31 a year ago). 

Higher working capital intensity along with non-recurring nature of payment like equity buyback and payment of wages revision arrears has led to fall in gross cash reserves to Rs 6,816 crore as of September 30 (Rs 11,409 crore as of March 31 a year ago). 

Further, net cash position (gross cash and cash equivalent less gross borrowings) had declined from Rs 11,000 crore as of March 31 last year to Rs 5,100 crore as of March 31 this year. This has further declined to Rs 2,000 crore as of September 30.CRISIL said BHEL’s short-term borrowing increased to Rs 4,793 crore as of September 30 (vis-a-vis negligible borrowing as of March 31 a year ago). 

The management’s focus on improving collection cycle is expected to increase the net cash levels to around Rs 5,000 crore by the end of FY20. Further, working capital intensity and liquidity position will be key monitorables, it added.