Rating agency ICRA has downgraded various debt instruments of Bajaj Electricals, amounting to Rs 5,592.50 crore. According to the rating agency, the revision in the ratings takes into account the significant decline in profitability of the Engineering, Procurement and Construction (EPC) business, particularly pertaining to the orders in rural electrification in H1 FY20 and the subsequent weakening in the company’s debt coverage metrics. Data from Bloomberg showed that total debt of Bajaj Electricals stood at Rs 1,585.32 crore as on March 2019.
Data from Value Research shows that mutual funds have investments worth Rs 642.46 crore as on October 2019. Various equity and hybrid funds have invested Rs 442.35 crore while the remaining Rs 200.11 crore is invested in debt funds. “The company’s revenue from the EPC business declined by 39% to Rs 914.51 crore in H1FY2020 from Rs 1,498.86 crore reported in the corresponding period of the previous year.
Further, high overheads in the EPC business segment and the input cost pressures have moderated its Ebit (Earnings before interest and taxes) margin to 0.28% in H1 FY20 from 4.87% in H1 FY19. The sharp decline in the Ebit margin of the EPC business coupled with the high finance cost, following the elevated borrowing levels due to high working capital requirements has impacted the company’s deb coverage metrics evident from the decline in interest coverage ratio to 1.1 times in H1 FY20 from 3.4 times in the H1FY19,” said ICRA in their rating rationale.
The stock of Bajaj Electricals Ltd on Monday ended the day at Rs 318.35 down by 2.45% or Rs 8 on BSE.
Bajaj Electricals also in their exchange filing said, “The company has taken a strategic call by adopting a more risk-calibrated approach for the EPC segment and the thrust is on completion of running projects; bidding only for those projects which have better margins, good payment terms and do not require high working capital; and optimising the mix of EPC business from Power Distribution (PD) to a greater share from Transmission Line Towers (TLT) and Illumination – as they meet the above criteria.”
It also added the company had a positive cash flow from operations of Rs 294 crore for the half year ended September 30, 2019 (versus a negative cash flow from operations of Rs 470 crore for the half year ended September 30, 2018).