It is also important to highlight risk,
From latest credit report
Operations remain linked to investments in power and capital goods sectors; exposed to intense competition in transformer as well as motor segments – BBL’s operations are inherently linked to strong revival of investment activity in the power andcapital goods sectors. Thus, such investments will remain critical for the company to ramp up its scale of operations in the medium term. Also, the demand–supply situation in the domestic transformer industry, remains challenging on account of
issues posed by the power sector in terms of large capacity additions (especially in thermal and gas-based units), leading tostiff competition, limiting the pricing flexibility for most players in the segment. Moreover, in the motor segment, the competition remains stiff, given the large MNCs as well as domestic players in the field, apart from more standard product offerings compared to customization available in the transformer portfolio.
Elongated receivable cycle due to slow payments from SEBs – BBL’s receivable days remain over 100 days due to elongated payment cycle from the SEBs. Nevertheless, the collection cycle has improved over the last two fiscals to 105 days in FY2023 compared to over 126 days in FY2021. This is because the company has started catering to more private players due to the relatively shorter credit period. Further, government has also taken measures to support the SEBs through various financing
schemes for timely payments to its vendors.
Susceptible to variations in raw material prices; events of any non-applicability of PVC or invocation of LD clause remain an ongoing challenge to profitability levels – Typically, ~70-80% of BBL’s contracts for transformers come with PVCs, while the rest are fixed-price contracts. For electrical motors, only fixed-price contracts are prevalent. This is because of the lower lead time for manufacturing these products and the large proportion of sales to retail segments. Although BBL is protected against
any raw material price increase in case of PVCs, it is sensitive to variations in copper and Cold Rolled Grain Oriented (CRGO) steel prices for fixed-price contracts. This is because BBL buys copper and CRGO steel in spot markets, where their rates are volatile, while immediate and full pass-on of the increase in costs to customers is not always possible.
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