India Ratings & Research has revised the rating on the long term bank facilities of
Bharat Heavy Electricals Limited (BHEL) from ‘IND AA’ to ‘IND AA-’ and reaffirmed the outlook to ‘Negative’.
In its rationale report, Ind-Ra said that the downgrade reflects BHEL’s continued weaker-than-Ind-Ra-expected operating performance in FY21 due to COVID-19 led to delays in the execution of orders, coupled with a weak ordering environment in the power sector, which is likely to linger through the 1HFY22. The company’s order inflow reduced to a multiyear low of INR135 billion during FY21 after remaining close to INR250 billion over FY19- FY20.
Further, Ind-Ra said that the Negative Outlook factors in Ind-Ra’s the expectation of a further deterioration in BHEL’s FY22 performance owing to:
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subdued order inflow on account of excess capacity in the sector
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persistently long working capital cycle
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limited diversification progress, and
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the likelihood of a further deterioration in its balance sheet strength.
Ind-Ra said, "BHEL has been working on various cost-cutting and quality-improving measures, along with focussing on cash collections. However, the envisaged diversification initiatives are still under progress and are yet to deliver meaningful results; the industrial segment’s average margins remain lower than that of the power segment. However, BHEL’s market position in the power segment remains strong with its large order book and strong financial position."
Moreover, Ind-Ra reaffirmed the rating on the short term facilities at ‘IND A1+’.
At around 11.14 AM, BHEL was trading at Rs65.90 per piece up by 1.5% on Sensex.
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