CRISIL downgrades rating of BHEL to AA+/Negative

“The downgrade reflects CRISIL’s belief that BHEL’s business risk profile will remain constrained over the medium term by continued weak profitability and stretch in working capital cycle,” CRISIL said in a statement 

CRISIL lowered its rating on long-term bank facilities of Bharat Heavy Electricals Ltd (BHEL), citing constrained business risk profile of the public sector power equipment maker.

The ratings agency cut the long-term rating of BHEL to ‘AA+/Negative’ from ‘AAA/Negative’ while reaffirming the grading of its short-term bank facilities at ‘Crisil A1+’. 

“The downgrade reflects CRISIL’s belief that BHEL’s business risk profile will remain constrained over the medium term by continued weak profitability and stretch in working capital cycle,” CRISIL said in a statement.

CRISIL observed that low capacity utilization, competitive pressures and higher material costs continue to weigh on profitability of BHEL and the reported operating loss of INR 2,322 crore for the first 9 months of FY16 was more than expected.

The profitability of BHEL will remain under pressure over the near term to medium term given the difficult market conditions and intense competition, according to CRISIL.

Competitive pressures and higher material costs, especially for super-critical power projects with higher import component, have impacted the company's profitability in FY16, says the ratings agency.

"A slowdown in order execution has led to stretched receivables of INR 32,000 to INR 40,000 crore. This has resulted into sizeable working capital requirement over the last 4 years and the pressure may continue in the medium-term," CRISIL adds.