BPL Ltd.

Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of Rs. 28.00 Crs. of BPL Ltd.

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
Facilities**	Previous	Present	Tenure	Previous (17 Jun 2020)	Present
Fund Based	10.00	15.00	Long Term	BWR B /Stable Assignment	BWR B /Stable Reaffirmation
Non Fund Based	18.00	13.00	Short Term	BWR A4 Assignment	BWR A4 Reaffirmation
Grand Total	28.00	28.00	(Rupees Twenty Eight Crores Only)

#Please refer to BWR website www.brickworkratings.com for definition of the ratings
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure

RATING ACTION / OUTLOOK

The rating reaffirmation of the bank loan facilities of BPL Ltd ('BPL' or 'the company') continues to reflect the promoters’ experience of more than three decades in the consumer durables industry, established track record and brand and the recent modernization of its Printed Circuit Board (PCB) manufacturing facility. The ratings, are constrained by the modest scale of operations, deterioration in the credit risk profile with less than average credit metrics, stretched liquidity and customer concentration risks. The ratings also factor in the continuing delay in redemption of preference shares of Rs.169.59 Crs. which have fallen due in Aug 2019, impact of Covid-19 on the operations of the company, the competitive landscape, exposure to exchange fluctuation risks on account of imports from China, Korea etc. BWR notes the erosion in Tangible net worth (TNW) after adjusting for investments in group companies and advances to related parties. BWR also notes the outstanding contingent liabilities of around ~Rs.77 Crs. including statutory dues, litigations and corporate guarantee.

BWR notes that the company availed Covid-19 related RBI Moratorium Package during Mar'20 - Aug'20. As part of the Moratorium Package, the company got relief from Union Bank of India. The company has been regular in honouring the debt obligations post moratorium, as confirmed by lender. The company did not apply for one time restructuring (OTR) of any loan under RBI Resolution Framework for Covid-19 related Stress.

BWR believes BPL’s business risk profile will be maintained over the medium term. The outlook may be revised to ‘Negative’ if the company reports significantly lower than expected performance resulting in further deterioration of coverage indicators, delay in recovering advances from the related parties, further delays in redemption of the preference shares of ~Rs 54 Crs. and weakening of liquidity position. Further, any major debt-funded expenditure resulting in deterioration in capital structure and debt coverage indicators and/or a sharp reversal in industry operating conditions and/or delay or non-realization of receivables, thereby weakening the credit risk profile, may exert a downward pressure on the ratings.

KEY RATING DRIVERS

Credit Strengths:

Experienced promoters :
The company and the promoters have a long track record of around three decades and extensive experience in the printed circuit board (PCB) and consumer durables industry, which has helped in understanding the business cycles, establishing relationships with suppliers and customers, obtaining repeat orders and addressing associated inherent risks.
Established infrastructure for PCB manufacturing :
The company has its PCB manufacturing facility at Doddaballapur, Bangalore rural, with an annual installed capacity of 5.40 lakh square metres. The company added new customers like Havells, Crompton Greaves during FY20 which is likely to support the envisaged increased sales from manufacturing of PCBs. PCB sales were ~22% of company's revenue in FY20 which increased to ~69% in FY21.

Credit Risks:

Modest scale of operations and below average financial risk profile :
The company continues to have a modest scale of operations vis-a vis the competition from various domestic and international brands. After the brand licensing agreement with Reliance Retail Limited in FY20, PCB manufacturing and brand royalty remained the two sources of revenue for the company. As such owing to the change in the business incomes the financials of FY20 and FY21 are not considered comparable. Operating income declined from Rs. 94.56 Crs. in FY20 (22% contributed by PCB segment) to Rs. 43.76 Crs. in FY21. EBITDA and PAT in FY21 were at Rs. 2.09 Crs. and Rs. (21.46) Crs. respectively. One time deferred tax of Rs. 20.92 Crs. charged in FY21 led to loss for the company. Loss registered in FY21 led to decline in Tangible Net worth (TNW) to Rs. 148.72 Crs. as on 31Mar2021. TNW, adjusted for fair value of investments of Rs. 34.82 Crs., was Rs. 134.93 Crs. as on 31Mar2020. BWR notes the continued substantial advances and investments in the related entities/Group companies leading to erosion of TNW. Gearing remained comfortable at 0.08 time as on 31Mar2021 as total debt remained low. Debt coverage metrics given by ISCR and DSCR remained subdued at 1.03 times and (7.36) time respectively as on 31Mar2021.
Delay in redemption of Preference Shares of Rs. 169.59 Crs. :
During FY2006, the company underwent debt restructuring through then available CDR scheme and as part of the approved package, Non- Convertible, Non-Cumulative 0.001% Preference Shares of Rs. 100/- each aggregating to Rs.169.59 Crs. were issued to various lenders. Rs.115.19 Crs. of preference shares have been subscribed by promoters and promoter group. Preference shares amounting to Rs. 54.39 Crs. are held by outsiders like OBC (now PNB), Canara Bank, HDFC Limited, Export Import Bank Ltd, CBI. These preference shares amounting to Rs.169.59 Crs. fell due for redemption in Aug'19 and are yet to be redeemed. The company has informed that the preference shares were issued under the CDR scheme where debt was converted to equity and as such there is no separate Shareholders Agreement. Such delay in redemption/ buy back is contingent on liquidation from non-core investments/assets/ recoveries from advances to group companies as the same is segregated from operational cash flow by the company. The ability of the company to monetize its non core assets and recover its advances to the group companies is a key rating sensitivity.
Impact of Covid-19 pandemic :
The company's operations were impacted due to Covid-19 induced lockdown in FY21. The disruption in production and supply chain resulted in cash flow mismatches and the company had to incur losses on account of fixed costs. During the current wave of the pandemic too, there has been slowdown in sales and BWR expects the Q1FY22 sales to remain subdued compared to Q4FY21. Any prolonged disruption due to the pandemic may adversely impact the operating income, profitability and credit risk profile of the company.
Forex risk and competitive landscape :
Although the company has a long track record in the PCB business, the competition from domestic and global players will put pressure on the margin. The company will have to strengthen its market position with its brand and product differentiation. Due to ever evolving nature of the technological landscape in PCB segment, it may have to keep investing on R&D and hi-tech equipment. Furthermore, the company imported ~60% of its raw material in FY21 making it vulnerable to forex risk fluctuation. Although the dependence on imports has since reduced from ~80% in FY20 and the company has hedging limits in place, nonetheless the associated risks are mitigated to a certain degree.

ANALYTICAL APPROACH - Standalone

BWR has adopted a Standalone approach while arriving at its ratings and applied its rating methodology as detailed in the Rating Criteria (hyperlinks provided at the end of the document). The company does not have any subsidiaries.

RATING SENSITIVITIES

Going forward, the ability of the company to increase its revenue and profitability, effectively manage impact on business operations due to the Covid-19 pandemic , monetize its non core assets and recover its advances to the group companies are key monitorables. BPL has outstanding contingent liabilities amounting to ~Rs.77 Crs. as on 31 Mar 2021 on account of disputed statutory liabilities and corporate guarantee offered to one of the group companies. Any crystallization of the above contingent liabilities and the impact of the same on the financial risk profile of the company, if any, would also be a key rating sensitivity.

Positive:

Increase in scale of operations, profitability and net cash accruals on a sustainable basis
Successful redemption of the preference shares pending for redemption since Aug'19

Negative:

Delay in recovery of advances made to group companies
Continued delay in redemption of the preference shares
Deterioration in key credit metrics on account of weaker than expected business performance and sustained pressure on net margins
Prolonged impact of Covid-19 on the revenue and cash flow leading to material deterioration in financial risk profile and liquidity

LIQUIDITY INDICATORS - Stretched

The company's liquidity is stretched as reflected in the working capital limit utilization of ~90% in past six months, low operating profit, net cash accruals and cash and cash equivalents and subdued debt coverage metrics and current ratio. Operating profit just covered the finance cost in FY21 and the trend may remain similar in FY22. Although the company has no term loan from any bank/FI as on 31Mar2021, the low net cash accruals are not sufficient to provide cushion for working capital requirements. Cash and cash equivalents remained low at ~Rs. 1.51 Crs. as on 31Mar2021. Current ratio continued to remain below 1.00 time as on 31Mar2021 due to high current liabilities as a result of reporting redeemable preference shares of Rs. 169.59 Crs. as other current liabilities. BWR notes that the company has availed benefits under RBI’s Covid-19 relief package. It has not applied for one time restructuring (OTR) of any account under RBI Resolution Framework for Covid-19 related Stress.

ABOUT THE ENTITY

BPL Limited was incorporated in 1963 at Palakkad, Kerala. The company is listed on BSE and NSE. BPL Ltd. is in the business of consumer electronic durable products and manufacturing of Printed Circuit Boards (PCB). Till FY20, the company sold its consumer durable products to online platforms like Amazon and Flipkart etc. In February 2020, BPL entered into an exclusive brand licence agreement with Reliance Retail Limited according to which Reliance will trade in BPL branded products across its own stores, its distribution network and its online selling platform. BPL will regulate quality and customer experience and will earn a royalty on usage of the BPL brand by Reliance. So, the company’s source of revenue in FY21 has been the manufacturing and sale of PCB and brand licensing fee from Reliance Retail Limited. The company’s PCB segment has an installed capacity of 5.40 lakh square metres with utilization of ~36% in FY21. The end use industries for the manufactured PCBs are lighting and automotive industry.

Mr. Ajit Gopal Nambiar is the Chairman and Managing Director.

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 20-21 (Audited)	FY 19-20 (Audited)
Operating Revenue	Rs.Crs.	43.76	94.56
EBITDA	Rs.Crs.	2.09	-16.34
PAT	Rs.Crs.	-21.46	3.75
Tangible Net Worth	Rs.Crs.	148.72	169.75
Total Debt/Tangible Net Worth	Times	0.08	0.07
Current Ratio	Times	0.68	0.68

KEY COVENANTS OF THE FACILITY RATED

The terms of sanction include standard covenants normally stipulated for such facilities.

STATUS OF NON-COOPERATION WITH PREVIOUS CRA

Not applicable

RATING HISTORY FOR THE PREVIOUS THREE YEARS (including withdrawal and suspended)

Facilities	Current Rating (2021)			2020		2019		2018
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	15.00	BWR B/Stable (Reaffirmation)	17Jun2020	BWR B/Stable (Assignment)	NA	NA	NA	NA
Non Fund Based	ST	13.00	BWR A4 (Reaffirmation)	17Jun2020	BWR A4 (Assignment)	NA	NA	NA	NA
Grand Total		28.00	(Rupees Twenty Eight Crores Only)

COMPLEXITY LEVELS OF THE INSTRUMENTS - Simple

BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.

Hyperlink/Reference to applicable Criteria

Analytical Contacts
Swarn Saurabh Senior Rating Analyst swarn.s@brickworkratings.com	Saakshi Kanwar Senior Manager Ratings saakshi.k@brickworkratings.com
1-860-425-2742 \| media@brickworkratings.com

BPL Ltd.

ANNEXURE-I

Details of Bank Facilities rated by BWR

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Union Bank of India	SOD-RE - Sanctioned	15.00	_	15.00
2	Union Bank of India	ILC/FLC - Sanctioned	_	13.00	13.00
Total			15.00	13.00	28.00
TOTAL (Rupees Twenty Eight Crores Only)

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About Brickwork Ratings

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