CRISIL downgrades rating of BHEL to AA+/Negative

By: | Published: March 10, 2016 1:22 AM

Credit rating agency CRISIL on Wednesday lowered its rating of long-term bank facilities of Bharat Heavy Electricals Limited (BHEL) citing constrained business risk profile of the capital goods player.

Credit rating agency CRISIL on Wednesday lowered its rating of long-term bank facilities of Bharat Heavy Electricals Limited (BHEL) citing constrained business risk profile of the capital goods player.

The rating agency cut the long-term rating of public sector enterprise to ‘AA+/Negative’ from ‘AAA/Negative’ while reaffirming the grading of its short-term bank facilities at ‘Crisil A1+’. R60,000 crore of bank facilities of BHEL are rated by CRISIL.

“The downgrade reflects CRISIL’s belief that BHEL’s business risk profile will remain constrained over the medium term by continued weak profitability and stretch in working capital cycle,” said CRISIL on a rating update on its website.

CRISIL observed that low capacity utilization, competitive pressures and higher material costs continue to weigh on profitability of BHEL and the reported operating loss of R2,322 crore for the first nine months of FY16 was more than expected.

It anticipates the profitability of BHEL to remain under pressure over the near to medium term given the difficult market condition and intense competition.

Competitive pressures and higher material costs especially for super-critical projects with higher import component have impacted profitability in FY16.

The rating company pointed out that a slowdown in order execution, has led to stretched receivables of R32,000 to R40,000 crore. This has resulted into sizeable working capital requirement over the last four years and this pressure may continue over the medium-term.

“Despite stringent measures adopted, including stoppage of supplies, close monitoring of outstanding dues, and liaison with banks and financial institutions to ensure collection of payments, traction in reducing receivables will be a key monitorable,” added CRISIL.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition