Press Release

Bharat Gears Limited

October 03, 2023

Facilities/Instruments Amount (₹ crore) Rating1 Rating Action

138.59
Long Term Bank Facilities CARE BBB; Stable Reaffirmed
(Reduced from 144.79)
86.41
Short Term Bank Facilities CARE A3+ Reaffirmed
(Enhanced from 80.21)
Details of instruments/facilities in Annexure-1.

Rationale and key rating drivers

The ratings assigned to the bank facilities of Bharat Gears Limited (BGL) derives strength from the well-experienced
promoters with long track record of operations, established market position in the automotive gears and component
industry, having strong and reputed clientele base albeit high customer concentration risk. Further the ratings
favourably factor in moderate financial profile of the company.
The rating strengths continue to be constrained by susceptibility of margins to volatility in raw material prices and
foreign exchange fluctuation risk, moderately working capital intensive nature of operations and inherent cyclicality
of the auto component industry.

Rating sensitivities: Factors likely to lead to rating actions

Positive factors

• Healthy increase in revenue to around Rs. 900 crore on the back of healthy order book position coupled
improvement in PBILDT margin at around 10%
• Sustenance of capital structure below unity levels along with improvement in debt coverage indicators
• Improvement in collection days to reach below 50 days

Negative factors

• Decline in scale of operations with revenue below 700 crore and PBILDT margin declining below 5% on sustained
basis.
• Deterioration in overall gearing levels to more than envisaged levels and interest coverage ratio below 1.50x in
projected years
• Increase in the operating cycle beyond 100 days leading to higher utilization of limits resulting into pressure on
liquidity parameters.
• Any large debt funded capex or significant increase in operating cycle resulting into higher working capital
requirements and weakening its liquidity and financial risk profile.

Analytical approach:
Standalone

Outlook: Stable
CARE Ratings believes that Bharat Gears Ltd will continue to benefit from the experience of promoters, their
entrenched market position in the auto industry and their strong and reputed clientele base.

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Complete definition of the ratings assigned are available at www.careedge.in and other CARE Ratings Ltd.’s publications

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Detailed description of the key rating drivers:

Key strengths

Highly experienced promoters with long track record of operations in the industry
BPL is currently managed by Mr. Surinder Paul Kanwar (Chairman and Managing Director) and Mr. Sameer Kanwar,
Joint Managing Director who hold rich and vast experience of above four decades in the industry and is involved in
the overall business operations of the company along with five other board of directors and a strong management
team in place. Besides, the key management team at BGL comprises of five well experienced and qualified personnel
holding experience of over three decades and who are instrumental in development and streamlining of various
business operations of BGL.

Established marked position in the automotive component industry and strong and reputed clientele
base albeit high customer concentration risk
BGL is a leading player in the Indian tractor gear market. By virtue of its established relationships with original
equipment manufacturers (OEMs) and high quality, its products enjoy strong brand recognition. A major part of the
company’s revenue is derived from large OEMs such as the John Deere group, which constitutes around 28% (PY
42%) of the turnover in FY23. Bharat Gears Limited has a diverse customer base in the realm of tractors, utility
vehicles, commercial vehicles, and construction equipment industries and who are some of the most eminent and
distinguished automobile players in India and abroad. The company has been associated with these customers from
many years and receives regular orders from them.

Comprehensive product portfolio albeit higher dependency on flagship product

BGL has a comprehensive product portfolio catering to diverse customer base in the realm of tractors, utility vehicles,
commercial vehicles, and construction equipment industries and who are some of the most eminent and distinguished
automobile players in India and abroad. BGL’s plants are located in prominent places viz, Faridabad (New Delhi),
Mumbra and Satara (Maharashtra) which are in close proximity to the vendors and customers and suppliers.
Although, the product portfolio is skewed to one product i.e. gears, however comfort can be derived from the fact
that it caters to agricultural sector which in itself is a diverse and vast sector with BGL catering to farm auto equipment
and largely dependent on rural demand. Besides, BGL supplies to renowned customers having healthy credit profile
and credit worthiness wherein regular orders and collection is ensured.

Moderate financial risk profile

The overall gearing of the company slightly improved from 1.42 times as on March 31, 2022 to 1.39 times as on
March 31, 2023 owing to with improvement in the tangible net worth base from Rs. 107 crore as on March 31, 2022
to Rs. 120 crore as on March 31, 2023. The interest coverage ratio remained comfortable at 2.87 times in FY23 (PY
3.57 times). The company does not plan to undertake any major capital expansion plan and thus the gearing is
expected to improve in next couple of years.

Key weaknesses

Marginal Growth in scale of operations coupled with decline in profit margins

The total operating income (TOI) of the company grew marginally by 5% to 769.28 crores in FY23 from 729.17
crores in FY22.The growth has slowed down compared to the 45.53% growth in FY22 wherein the company recorded
significant growth owing to the recovery of market segments catered by the company post easing of the lockdown
restrictions. During Q1FY24(refers to period April 2023 to June 2023), the company reported sales of Rs 170.89 crore

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i.e 8.12% decline compared to Q1FY23(186.00 crore).The profitability margins of BGL have declined from 8.98% in
FY22 to 6.98% in FY23 .This in turn has led to decrease in PAT margin from 3.54% in FY22 to 1.75% in FY23 and
subsequently gross cash accruals. The performance is expected to remain moderate in FY24 due to slowdown in the
export market and improve in FY25.

Moderately working capital intensive nature of operations

The operations of BGL remained moderately working capital-intensive owing to funds being utilized towards debtors
and inventory. The company offers a credit period of 45-60 days to its customers. Also, BGL procures the raw
materials from various steel forging companies based in and outside of the state, from whom it gets credit terms of
90 days. 60%- 70% of purchase of raw material is LC based. The inventory period improved slightly from 50 days
in FY22 to 48 days in FY23. However, the operating cycle of the company deteriorated from 29 days in FY22 to 41
days in FY23 owing to decline in credit period. The average utilization of the cash credit facility for past 12 months
ending August 2023 remained moderately utilized at 59% and LC utilization remained fully utilized for past twelve
months ending August 2023.

Inherent cyclicality of the auto component and end-user industry

The products manufactured by BGL find applications in the automobile sector and agricultural tractor market which
is cyclical in nature. The group derives majority of its income from heavy, medium, light trucks, utility vehicles,
tractors and off-highway vehicles, with the remaining income coming from the commercial vehicle segment and
construction equipment segment. Since BGL generates majority of its revenue from OEMs across the tractor,
construction equipment, and commercial vehicle segments, it remains susceptible to cyclicality in these industries.
The demand for this industry is also susceptible to changes in the economic climate. Furthermore customers
preferences in many countries are moving towards environmentally friendly vehicles and there has been pressure on
the automotive industry to reduce carbon emissions. Thus, such cyclicality in the respective sectors to which BGL
caters may pose a threat to the business of BGL.

Susceptibility of margins to volatility in raw material prices

The operations of BGL are raw material intensive in nature with the raw material cost constituting 55.88% of the
total operating income in FY23 vis-à-vis 55.05% of the TOI in FY22. With global steel prices highly volatile in nature
and susceptible to speculative trading, the margins of BGL are exposed to raw material fluctuation risk. Given large
variety of products being manufactured for different types of customers, which necessitates large inventory holding,
the margins are exposed to any adverse movement in the raw material prices. However, BGL is able to pass on the
increase in prices of steel and other RM to their customers to an extent with a lag of around three months. The
company has a credit period to the tune of 90 days with its suppliers and the company gives credit period of 45-60
days to its customers.

Foreign exchange fluctuation risk

The company is exposed to foreign exchange fluctuation risk as the company exports to North American, European,
and Asian countries with export contribution being around 39% in FY23. As compared to exports, there are no
imports with the suppliers being domestic steel forging companies. However, the company partly mitigates foreign
currency risk through foreign denominated PCFC limit of Rs. 17.20 crore and takes partial forward cover to hedge
the risk. Nevertheless, the foreign exchange fluctuation risk continues to persist due to timing differences and
volatility in the dollar prices. BGL has incurred foreign exchange profit of Rs. 2.76 crore in FY23 vis-à-vis foreign
exchange profit of Rs. 2.82 crore in FY22.

Liquidity: Adequate

The company has repayment obligations of Rs. 16 crore in FY24 and Rs. 20 crore in FY25 and cash accruals is
expected to be sufficient to meet the same. The average fund-based utilization for past 12 months ending August

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2023 stood at 59% and non-fund-based limit utilization was 99% for the past twelve months ending August 2023.
Also, cash flow from operating activities remained positive at Rs. 36.45 crore in FY23 (PY Rs. 22.13 crore in FY22).
Further, current ratio slightly improved to 1.43 in FY23 from 1.32 in FY22.

Applicable criteria
Policy on default recognition
Financial Ratios – Non financial Sector
Liquidity Analysis of Non-financial sector entities
Rating Outlook and Credit Watch
Auto Ancillary Companies
Manufacturing Companies
Policy on Withdrawal of Ratings

About the company and industry

Incorporated in 1971, Bharat Gears Limited is a commercial gear manufacturing company and amongst the leading
suppliers of automotive gears. BGL manufactures a wide spectrum of high-quality and highly engineered automotive
gears for heavy, medium and light trucks, utility vehicles, tractors and off-highway vehicles in India and exports to
North American, European, and Asian countries. The company has state-of-the-art manufacturing facilities located
at 3 places - Mumbra near Mumbai; Faridabad near Delhi; and Satara in Maharashtra with installed capacity of
86,91,712 Tonnes per annum having capacity utilization of 7398822 Tonnes per annum i.e. 85% in FY23 . BGL’s
business segments is classified under various industries viz. Agricultural machinery, Commercial Vehicle, Construction
Equipment, etc. with Agriculture machinery segment remaining the major revenue driver for the company (65% in
FY23), with tractors being the key end user sector for its products.

Industry classification
Macro Economic Sector Industry Basic Industry
Indicator
Consumer Discretionary Automobile and Auto Auto Components Auto Components &
Components Equipments

Brief Financials (₹ crore) March 31, 2022 (A) March 31, 2023 (A) Q1FY24(UA)

Total operating income 729.17 769.29 170.89

PBILDT 65.49 49.10 8.95

PAT 25.84 13.48 (0.76)

Overall gearing (times) 1.42 1.39 NA

Interest coverage (times) 3.57 2.87 2.02

A: Audited UA: Unaudited; Note: ‘the above results are latest financial results available’

Status of non-cooperation with previous CRA: Not applicable

Any other information: Not Applicable

Rating history for last three years: Please refer Annexure-2

Covenants of rated instrument / facility: Detailed explanation of covenants of the rated instruments/facilities
is given in Annexure-3

Complexity level of various instruments rated: Annexure-4

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Lender details: Annexure-5

Annexure-1: Details of instruments/facilities

Rating
Date of
Maturity Size of the Assigned
Name of the Issuance Coupon
ISIN Date (DD- Issue along with
Instrument (DD-MM- Rate (%)
MM-YYYY) (₹ crore) Rating
YYYY)
Outlook
Fund-based - CARE BBB;
- - - 45.00
LT-Cash Credit Stable
Fund-based -
LT-Proposed CARE BBB;
- - - 5.00
fund based Stable
limits
Fund-based - CARE BBB;
- - May 10, 2028 88.59
LT-Term Loan Stable
Non-fund-
based - ST- - - - 75.00 CARE A3+
BG/LC
Non-fund-
based - ST-
Proposed non - - - 11.41 CARE A3+
fund based
limits

Annexure-2: Rating history for the last three years

Current Ratings Rating History

Date(s) Date(s) Date(s) Date(s)

Name of the
and and and and
Sr. No. Instrument/Bank Amount
Rating(s) Rating(s) Rating(s) Rating(s)
Facilities Type Outstanding Rating
assigned assigned assigned assigned
(₹ crore)
in 2023- in 2022- in 2021- in 2020-
2024 2023 2022 2021
1)CARE
CARE BBB;
Fund-based - LT-
1 LT 88.59 BBB; - Stable - -
Term Loan
Stable (26-Sep-
22)
1)CARE
Non-fund-based -
CARE A3+
2 ST-Proposed non ST 11.41 - - -
A3+ (26-Sep-
fund based limits
22)
1)CARE
CARE BBB;
Fund-based - LT-
3 LT 45.00 BBB; - Stable - -
Cash Credit
Stable (26-Sep-
22)
Fund-based - LT- CARE 1)CARE
4 Proposed fund LT 5.00 BBB; - BBB; - -
based limits Stable Stable

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(26-Sep-
22)
1)CARE
Non-fund-based - CARE A3+
5 ST 75.00 - - -
ST-BG/LC A3+ (26-Sep-
22)

*Long term/Short term.

Annexure-3: Detailed explanation of covenants of the rated instruments/facilities : Not Applicable

Annexure-4: Complexity level of the various instruments rated

Sr. No. Name of the Instrument Complexity Level

1 Fund-based - LT-Cash Credit Simple

Fund-based - LT-Proposed fund based

2 Simple
limits

3 Fund-based - LT-Term Loan Simple

4 Non-fund-based - ST-BG/LC Simple

Non-fund-based - ST-Proposed non

5 Simple
fund based limits

Annexure-5: Lender details

To view the lender wise details of bank facilities please click here

Note on the complexity levels of the rated instruments: CARE Ratings has classified instruments rated by it on the basis
of complexity. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any
clarifications.

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Contact us

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Mradul Mishra Sudarshan Shreenivas

Director Director
CARE Ratings Limited CARE Ratings Limited
Phone: +91-22-6754 3596 Phone: : +91 -22 – 6754 3566 (Direct)
E-mail: [email protected] +91 - 22 – 6754 3456 (Board)
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Arunava Paul
Saikat Roy Associate Director
Senior Director CARE Ratings Limited
CARE Ratings Limited Phone: +91 -22 – 6754 3667 (Direct)
Phone: +91-22-67543404 +91 -22 – 6754 3456 (Board)
E-mail: [email protected] E-mail: [email protected]

Arnav Navarange
Rating Analyst
CARE Ratings Limited
E-mail: [email protected]

About us:
Established in 1993, CARE Ratings is one of the leading credit rating agencies in India. Registered under the Securities and
Exchange Board of India, it has been acknowledged as an External Credit Assessment Institution by the RBI. With an equitable
position in the Indian capital market, CARE Ratings provides a wide array of credit rating services that help corporates raise capital
and enable investors to make informed decisions. With an established track record of rating companies over almost three decades,
CARE Ratings follows a robust and transparent rating process that leverages its domain and analytical expertise, backed by the
methodologies congruent with the international best practices. CARE Ratings has played a pivotal role in developing bank debt
and capital market instruments, including commercial papers, corporate bonds and debentures, and structured credit.

Disclaimer:
The ratings issued by CARE Ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to
sanction, renew, disburse, or recall the concerned bank facilities or to buy, sell, or hold any security. These ratings do not convey suitability or price for the investor.
The agency does not constitute an audit on the rated entity. CARE Ratings has based its ratings/outlook based on information obtained from reliable and credible
sources. CARE Ratings does not, however, guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions
and the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE Ratings have paid a credit rating fee,
based on the amount and type of bank facilities/instruments. CARE Ratings or its subsidiaries/associates may also be involved with other commercial transactions with
the entity. In case of partnership/proprietary concerns, the rating/outlook assigned by CARE Ratings is, inter-alia, based on the capital deployed by the
partners/proprietors and the current financial strength of the firm. The ratings/outlook may change in case of withdrawal of capital, or the unsecured loans brought
in by the partners/proprietors in addition to the financial performance and other relevant factors. CARE Ratings is not responsible for any errors and states that it has
no financial liability whatsoever to the users of the ratings of CARE Ratings. The ratings of CARE Ratings do not factor in any rating-related trigger clauses as per the
terms of the facilities/instruments, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and
triggered, the ratings may see volatility and sharp downgrades.

For the detailed Rationale Report and subscription information,

please visit www.careedge.in

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