CRISIL, a leading rating firm, has revised its rating outlook on the long-term bank facilities of Bharat Heavy Electricals Ltd (BHEL) to 'Negative' from 'Stable', citing that company's project execution and profitability will remain vulnerable to ongoing structural issues in the power sector.
The agency has reaffirmed the long-term rating at 'CRISIL AAA', while revised the rating on the company's short-term facilities to 'CRISIL A1+'.
The outlook revision reflects CRISIL's belief that BHEL's working capital cycle will remain stretched. Initiatives by the government to speed up clearances for stranded power projects, including auction of coal blocks, may take longer than expected to materially strengthen BHEL's business profile. Receivables continue to be sizeable with around a fifth of the outstanding receivables from projects undertaken by private sector developers some of which continue to face delays in implementation and/or shortfalls in project funding.
For the quarter ended June 30, 2015, BHEL reported an operating loss (before depreciation and amortisation) of Rs.2 billion, primarily due to a 15 per cent decline in sales over the corresponding quarter of 2014-15 (refers to financial year April 1 to March 31), to Rs.4.3 billion. Moreover, the costs remain high.
CRISIL's ratings on the bank facilities of BHEL continue to reflect BHEL's leading position in the power and industrial electrical equipment markets in India, healthy order book, and strong financial risk profile. These rating strengths are partially offset by high receivables, declining sales, and exposure to intense competition and structural issues in execution of power sector orders.