Crisil downgrades outlook on BHEL's long term bank loans

Rating agency Crisil has downgraded its outlook on Bharat Heavy Electricals Ltd's (BHEL) long-term bank facilities to 'negative' from 'stable', saying that the company's project execution and profitability will remain vulnerable to structural issues plaguing the power sector.

The company's working capital cycle will remain stretched, Crisil said in a statement. It, however, its reaffirmed "AAA' rating for the long term facility and "A1+' for short term loans.

The government's moves 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, Crisil said.

The working capital requirements have remained sizeable over the past four years, with receivables of Rs 350-400 billion, according to the agency.

BHEL's receivables stood at Rs 37,900 crore as on March 31, 2015. The receivables continue to be substantial owing to slowdown in order execution due to delays in obtaining clearances, and weak financial position of its customers, it added.

Crisil said the structural revival in India's power sector translating into better project execution will have a key bearing on profitability for BHEL over the medium term. The financial risk profile is strong, driven by low debt, robust liquidity and healthy financial flexibility, it added.

BHEL's adjusted consolidated debt was were low at an estimated Rs 400 crore (excluding the debt at the power project JVs). The cash and bank balance was substantial, at Rs 9,950 crore, enhancing financial flexibility, it said.

The strong financial flexibility and moderate capex should help BHEL maintain a strong financial risk profile over the medium term, the statement said.

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