BGR Energy Systems Limited

Brickwork Ratings reaffirms the long term ratings and the short- term ratings for the Bank Loan Facilities aggregating Rs. 6,699.06 Crs. of BGR Energy Systems Limited

Particulars

Facilities**	Amount (Rs.Crs.)		Tenure	Rating#
	Previous	Present		Previous (12 Jul 2021)	Present
Fund Based	2911.00	2134.30	Long Term	BWR BBB- /Negative Downgrade	BWR BBB - /Negative Reaffirmation
	(0.00)	(40.20)
	(0.00)	(31.00)
Non Fund Based	5394.00	4564.76	Short Term	BWR A3 Reaffirmation	BWR A3 Reaffirmation
	(10.00)	(0.00)
	(10.00)	(10.00)
	(65.00)	(65.00)
	(30.00)	(30.00)
	(175.00)	(175.00)
	(25.00)	(25.00)
Grand Total	8305.00	6699.06	(Rupees Six Thousand Six Hundred Ninety Nine Crores and Six lakhs 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

Brickwork Ratings (BWR) reaffirms the long-term rating of BGR Energy Systems Ltd (BESL or the company) considering improvement in the key financial metrics with significant reduction in net losses by Rs 177.35 Crs. in FY22, restoration of the Letter of Intent (LOI) of Rs. 4,442.75 Crs- TANGEDCO, Ennore project, increased revenue visibility with the expected high value projects in hand in FY23 and reduction in the bank facilities to the tune of Rs 615.0 Crs in FY22. The ratings also factor in the experience of the promoters, established market position in the Boiler, Turbine and Generator (BTG) and Balance Of Plant (BOP) segments of the power sector with long operational track record and its execution capabilities of large and long-term power projects (BOP), which has been demonstrated by the company over the years. The ratings are constrained by    continued net losses and  cash loss in FY22,  moderate turnover levels, and, high receivable levels.

The outlook for the company continues to be Negative, considering the continued losses at the net level. Furthermore, BWR expects that the improvement in the financial performance in the current financial year will continue to remain modest. 

 

KEY RATING DRIVERS

Credit Strengths:

• Experienced and Qualified Management team :

  BGR Energy Systems Limited (BGR) was founded by late Mr. B.G. Raghupathy in 1985. After his demise of Mr. Raghupathy, in July 2013, the company is being led by his wife, Mrs. Sasikila Raghupathy (Chairperson) supported by his son Mr. Arjun Govind Raghupathy (Managing Director) and other Executive Directors on the board. They are further supported by a team of experienced and professional senior management having a long-standing association with the company.

• Moderate order book position :

  BGR has an outstanding order book of approx. Rs. 6,279 crore as on April 01, 2022 with orders from power division (72%), Environment, and, Electrical & Product Division (28%). The company has been able to  improve the order book size  in the   Electrical & Product division which has supported the order book and revenue visibility in the medium term. The orders in said division are also of smaller ticket size, with relatively lower labour requirement and gestation period. The  company has received the reinstated Letter of Intent from TANGEDCO-Ennore, and project work is expected to commence by Q3-FY23. However, Ennore project forms 58% of the order book.  

  Hence, the ability of the company to add up new orders by translating the expected high value orders in hand in FY23, and improve execution of the non-power projects is  a key monitorable.

Credit Risks:

• High gearing :

  The company has a high gearing  resulting from  large working capital requirement given the long gestation period of projects and high debtors level. However, the company does not have any term debt in the books. While the company has recovered long pending retention money dues from few projects and has closed project specific limits for respective projects in FY22, the gearing continues to remain weak due to continued cash losses (FY22: Rs. 212.16 Crs;  FY21: Rs 445.24 Crs) incurred, resulting in erosion of networth. The overall gearing ratio stood at 2.13 x as on March 31, 2022 (as against 1.83x as on March 31, 2021).

   

• Stretched Collection Period: :

  BGR had been continually facing issues in recovery of retention proceeds from completed projects which resulted in significant long standing debtors built up, resulting in receivable write offs and higher provisions, resulting in lower profitability with high interest cost on working capital for financing the same. However, company witnessed reduction in debtors on account of completion of pending projects as at Mar 31, 2022. 

• Price fluctuation risk :

  The EPC contract entered with certain clients is a fixed price contract with absence of any price escalation or variations clauses. Other contracts have  price variation clause which allows for pass through of increase in raw material price. The fixed price nature of contracts may adversely impact the profit in scenarios of sharp price increase of major inputs.

• Competition from established domestic players :

  In the BOP segment BGR faces competition from established domestic players such as L&T Limited, Tata Projects Limited, Thermax Limited, etc. The company derives strength from its established track record in executing BOP projects backed by in-house Engineering and Manufacturing capability developed over the years to support the BOP projects. However, the growth prospects in the long term would depend upon project diversification, given the slowdown in the new project addition / expansion in the thermal power project segment.

ANALYTICAL APPROACH - Standalone

For arriving at its ratings, BWR has considered the standalone financials of the company. BGR has 3  subsidiary companies, namely, BGR Boilers  Pvt Ltd, BGR Turbines Company Pvt Ltd and Sravanna Properties Ltd. However, as the contribution from the  subsidiary companies is not significant, a standalone approach is adopted for rating. BWR has applied its rating methodology as detailed in the Rating Criteria.

RATING SENSITIVITIES

Going forward, the ability of the company to improve its revenues and profitability, garner additional high value orders, reduction of dependancy on bank facilities, equity infusion by the promoters,  maintain adequate cash accruals for meeting working capital requirements, will remain key rating sensitivities

Upward: Substantial improvement in revenues and profitability of the company, growth in the order book position with additional high value orders, and,  significant reduction of fund based bank facilities. 

 Downward: Substantial increase in the fund based bank facilities, decrease in the revenues and profitability of the company, reduction in the order book position, and, delays in obtention of the retention money and  receivables.

LIQUIDITY INDICATORS - Adequate

The liquidity is considered to be adequate considering improvement in the EBIDTA at Rs. 137.09 Crs during FY22 (FY21: - Rs.117.81 Crs) driven by improvement in the revenues and cost rationalization. The company had nil term borrowings as at March 31, 2022 with nominal improvement (y-y) in working capital outstanding as at March 31, 2022. Further, during FY22,  following factors as mentioned, closure of past projects, resulting in realization of receivables and old retention monies,   receipts of : 1) income tax refunds, 2) arbitration award, and, 3) margin money refunds in FY22 majorly supported the company to improve the liquidity profile.  

Additionally, long-standing RRVUNL project arbitration has been in the company's favor and settlement is expected in FY23,  and, it expects NFB facilities to the tune of Rs. 168.25 Crs to be released in FY23. 

ABOUT THE ENTITY

Company Background:

BGR Energy Systems Limited (BESL) is a listed company, was incorporated in 1985 as GEA Energy System India Pvt ltd, as a  joint venture between GEA Energie technik GmbH, Germany and the Promoter, Mr B G Raghupathy to manufacture and sell Condenser Tube Cleaning Systems, Debris Filters and Rubber Cleaning Balls used in Thermal and Nuclear Power Plants.

In 1993, BGR family became the sole shareholders of the Company as the joint venture partner exited the business. During 2007, erstwhile GEA Energy System (India) Limited was renamed to BGR Energy Systems Limited.  BESL comprises of 5 divisions viz., Power Projects division, Oil & Gas Equipment Division, Air Fin cooler division, Environmental Engineering division and Electrical Projects Division. Majority of the projects of the company are in the BTG (Boiler, Turbine & Generator) and BOP (Balance of Plant) segments for the power sector. 

KEY FINANCIAL INDICATORS (Standalone)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	1220.70	1139.72
EBITDA	Rs.Crs.	137.09	-117.81
PAT	Rs.Crs.	-178.07	-355.42
Tangible Net Worth	Rs.Crs.	881.35	1061.80
Total Debt/TNW	Times	2.13	1.83
Current Ratio	Times	1.00	1.04

KEY FINANCIAL INDICATORS (Consolidated)

Key Parameters	Units	FY 21-22 (Audited)	FY 20-21 (Audited)
Operating Revenue	Rs.Crs.	1220.70	1139.72
EBITDA	Rs.Crs.	64.79	-199.77
PAT	Rs.Crs.	-185.97	-368.31
Tangible Net Worth	Rs.Crs.	544.87	733.21
Total Debt/TNW	Times	3.45	2.64
Current Ratio	Times	0.95	0.98

KEY COVENANTS OF THE FACILITY RATED

• The terms of sanction include standard covenants normally stipulated for bank loan facilities. 

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

Facilities	Current Rating (2022)			2021		2020		2019
Type	Tenure	Amount (Rs.Crs.)	Rating	Date	Rating	Date	Rating	Date	Rating
Fund Based	LT	2134.30	BWR BBB-/Negative (Reaffirmation)	12Jul2021	BWR BBB- Negative (Downgrade)	07Sep2020	BWR BBB Stable (Downgrade)	27Aug2019	BWR BBB+ Negative to Stable (Downgrade)
		0.00	NA	05Mar2021	BWR BBB Negative (Reaffirmation and change in Outlook)	NA	NA	NA	NA
Non Fund Based	ST	4564.76	BWR A3 (Reaffirmation)	12Jul2021	BWR A3 (Reaffirmation)	07Sep2020	BWR A3+ (Downgrade)	27Aug2019	BWR A2 (Downgrade)
		0.00	NA	05Mar2021	BWR A3 (Downgrade)	NA	NA	NA	NA
Grand Total		6699.06	(Rupees Six Thousand Six Hundred Ninety Nine Crores and Six lakhs Only)

Rating Advisory, as on 18Jul2022
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

• General Criteria
• Approach to Financial Ratios
• Engineering Procurement and Construction (EPC) Companies
• Infrastructure Sector
• Banks & Financial Institutions

Analytical Contacts
Ronojyoti Deb Senior Manager - Ratings ronojyoti.d@brickworkratings.com	Vipula Sharma Director - Ratings Board : +91 80 4040 9940 vipula.s@brickworkratings.com
1-860-425-2742 | media@brickworkratings.com

SL.No.	Name of the Bank/Lender	Type Of Facilities	Long Term(Rs.Crs.)	Short Term(Rs.Crs.)	Total(Rs.Crs.)
1	Axis Bank Ltd.	Cash Credit - Sanctioned	_	_	0.00
2	Axis Bank Ltd.	Bank Guarantee - Sanctioned	_	81.02	81.02
3	Bank of Baroda	Bank Guarantee - Sanctioned	_	10.05	10.05
4	Bank of Baroda	Cash Credit - Sanctioned	62.00	_	62.00
	Sub-Limit (Letter of Credit) - Sanctioned		(0.00)
5	Bank of India	Cash Credit - Sanctioned	89.00	_	89.00
	Sub-Limit (Letter of Credit) - Sanctioned		(10.00)
6	Bank of India	Bank Guarantee - Sanctioned	_	200.00	200.00
7	Canara Bank	Bank Guarantee - Sanctioned	_	358.99	358.99
8	Canara Bank	Cash Credit - Sanctioned	109.74	_	109.74
	Sub-Limit (Letter of Credit) - Sanctioned		(65.00)
9	Canara Bank	Working Capital Demand Loan - Sanctioned	164.60	_	164.60
10	Central Bank of India	Working Capital Demand Loan - Sanctioned	23.40	_	23.40
11	Central Bank of India	Cash Credit - Sanctioned	35.60	_	35.60
12	Central Bank of India	Bank Guarantee - Sanctioned	_	71.82	71.82
13	Export Import Bank of India	Bank Guarantee - Sanctioned	_	100.00	100.00
14	ICICI Bank	Bank Guarantee - Sanctioned	_	81.00	81.00
15	ICICI Bank	Cash Credit - Sanctioned	31.00	_	31.00
	Sub-Limit (Working Capital Loan) - Sanctioned	(31.00)
16	IDBI Bank	Cash Credit - Sanctioned	22.08	_	22.08
17	IDBI Bank	Bank Guarantee - Sanctioned	_	333.26	333.26
18	IDBI Bank	Working Capital Demand Loan - Sanctioned	70.38	_	70.38
19	Indian Bank	Letter of Credit - Sanctioned	_	10.00	10.00
20	Indian Bank	Bank Guarantee - Sanctioned	_	258.00	258.00
21	Indian Bank	Cash Credit - Sanctioned	219.00	_	219.00
	Sub-Limit (Letter of Credit) - Sanctioned		(30.00)
22	Karur Vysya Bank	Bank Guarantee - Sanctioned	_	10.00	10.00
23	Kotak Mahindra Bank	Cash Credit - Sanctioned	0.50	_	0.50
24	Kotak Mahindra Bank	Bank Guarantee - Sanctioned	_	16.21	16.21
25	Punjab National Bank	Cash Credit - Sanctioned	170.00	_	170.00
26	Punjab National Bank	Bank Guarantee - Sanctioned	_	277.00	277.00
27	State Bank Of India (SBI)	Bank Guarantee - Sanctioned	_	1311.37	1311.37
28	State Bank Of India (SBI)	Letter of Credit - Sanctioned	_	65.00	65.00
29	State Bank Of India (SBI)	Credit Exposure Limit (CEL) - Sanctioned	_	10.00	10.00
30	State Bank Of India (SBI)	Cash Credit - Sanctioned	870.00	_	870.00
	Sub-Limit (Letter Of Credit) - Sanctioned		(175.00)
31	Un tied portion	Cash Credit - Proposed	200.00	_	200.00
32	Un tied portion	Bank Guarantee - Proposed	_	750.00	750.00
33	Un tied portion	Letter of Credit - Proposed	_	450.00	450.00
34	Union Bank of India	Bank Guarantee - Sanctioned	_	171.04	171.04
35	Union Bank of India	Cash Credit - Sanctioned	67.00	_	67.00
	Sub-Limit (Letter of Credit) - Sanctioned		(25.00)
	Sub-Limit (Working Capital Loan) - Sanctioned	(40.20)
Total			2134.30	4564.76	6699.06
TOTAL (Rupees Six Thousand Six Hundred Ninety Nine Crores and Six lakhs Only)