NIIT UNIVERSITY
CONFIDENTIAL
Date: 04.01.2013
CREDIT NOTE
BALKRISHNA INDUSTRIES LIMITED
04/01/2013
GROUP NO– 9
P301411CMG155 Yogesh Nivangune
P301411CMG156 Sudhir Prajapati
Balkrishna Industries Ltd Page 2
BALKRISHNA INDUSTRIES LIMITED
1. Rating Rationale
2. Company details
3. Exposure details
4. Assistance details
5. Share market data
6. Background and business description
7. Physical performance
8. Financial Performance
9. Comments on financials (Historical)
10. Contingent liabilities
11. Projections
12. Key assumptions about the projected numbers
13. Cash flow analysis (Historical and projected) and comments
14. Proposal
a. Assistance details b. Assessment of limits (Fund and Non-fund based) c. Salient terms and conditions
15. CMA form V
Balkrishna Industries Ltd Page 3
RATING RATIONALE:
RATING RATIONALE
Borrower: Balkrishna Industries Ltd Industry : Tyres
Internal Rating : NA Borrower Group : Dharaprasad Poddar Group
Migration history : NA Rating date : 29-Dec-2012
External rating / (Agency): AA- (STABLE) Risk weight : NA
Transaction classification : Reaffirmed on
March 14, 2012 Country of Risk: INDIA
RATING STATEMENT:
Rating for the company Balkrishna Industries Ltd (BIL) is reaffirmed as “AA-(stable)”. The rating is
based on audited financials of the company for the year ended March 31, 2012 and unaudited
financials as at September 30, 2012.
The Rating draws comfort from following factors:
a) Favorable operating efficiency
b) Adequate financial risk profile
c) Healthy cash flows, moderate gearing, and comfortable gearing position.
The Rating is constrained by following factors:
a) Exposure to risks related to volatility in raw material prices
b) Marginal improvement in global market share
c) Implementation of the on-going 120,000 tonne per annum-(tpa) off-highway tyres (OHT)
project in Bhuj (Gujarat).
Outlook: Stable
According to CRISIL report BIL will continue to benefit over the medium term from its good brand
image and favorable operating efficiencies. Rating can be revised to ‘Positive’ if company increases
its global market share in the OHT segment on completion of its ongoing project and reports
steady and strong growth in turnover, while maintaining a healthy operating margin. Conversely,
the outlook may be revised to ‘Negative’ if company generates small cash accruals, or reports time
and cost overruns during project implementation, or lower-than-expected utilization levels in the
plant thereafter, which would adversely impacting its gearing and debt protection metrics.
Balkrishna Industries Ltd Page 4
COMPANY DETAILS:
Group / Sponsor : Dharaprasad Poddar Group
Risk Counter-party : Counter-party 1 Balkrishna Industries Ltd
: Counter-party 2 -
Industry : Tyres
Credit Rating : NA
Rating Migration : NA
External Rating
: Domestic: A1+ (Short term) and AA-/Stable (Long term)
(CRISIL)
International: NA
PROPOSAL:
Exposure at (04/01/2013) (including the proposed limits):
Counterparty 1 Counterparty 2 Borrower Group
(₹ in millions) Limit Outstanding Limit Outstanding Limit Outstanding
Amount 3247.3 - - -
As a % of capital
funds at April 01,
2011
- - - - - -
Long tenor exposure
(Project loan) - - - - - -
Long tenor (non-
project) - - - - - -
ICICI Group - - - - - -
Arrears/ irregularities in existing facilities (at December 04, 2012)
The current proposal is for sanction of:
1. Letters of Credit facility of ₹ 2352.1 million with Bank Guarantee as sub limit ₹ 290 million
2. Derivatives limits of ₹ 895.2 million.
Balkrishna Industries Ltd Page 5
RISK ANALYSIS:
Industry risk: Medium
Tractor industry registered a growth of 18.3% in FY2011, which has resulted in robust
demand for tractor tyres.
Domestic sales volumes growth of tractors has been declining for the past three years from
32% y-o-y in FY2010 to 11% y-o-y in FY2012. However, as the base has increased the
replacement demand has also increased simultaneously.
The three major segments of the tyre industry are original equipment (OE, 46%),
replacement (48%) and exports (6%). However, performance of the industry is influenced by
the replacement segment due to a larger share of truck tyres (67%) in the product mix.
Raw materials price volatility remains key concern for the industry as variation in prices
directly impact EBITDA margins.
Rubber accounts for around 30% of the tyre cost. Although rubber prices have soften in first
half of FY2013, cost of other raw materials like steel tyre cord, carbon black, rubber
chemicals have increased.
Business risk: Low
BIL operate in the segment of off highway tires. Around 94% of revenues are derived from
Agriculture (65%) and Earthmoving OTR (29%) space. It has market presence in more than
120 countries and earns 90% of its revenues through exports.
BIL has state of the art three manufacturing units and one mould shop located in North and
Western Province of India. To provide tyre as per customer's requirements BIL has
strategically located warehouses at each plants. All the warehouses are equipped with
modern storage facilities for better tyre storage and handling.
During FY2012, the company has incurred capital expenditure of ₹ 150 crores (approx.) on
account of increase in small production capacity at all the three plants through de-
bottlenecking and regular maintenance capex at all three plants.
The company also incurred capital expenditure of ₹ 531 crores (approx.) in connection with
its upcoming green field tyre project at Bhuj in the State of Gujarat which is progressing as
per schedule (1,20,000 MTPA)
Total estimated capital outlay for the expansion is ₹ 12,000 million which is likely to be
funded through debt and internal accruals in the ratio of 65:35.
BIL has incremental opportunity to develop the “Earth Moving Tyres” (OTR) markets and
take advantage of the shift from bias to radial tyres, which is picking up rapidly. In this
pursuit, the company has already set up an all-steel OTR Radial tyre plant at its Chopanki
Balkrishna Industries Ltd Page 6
location and thereby become the first company in India to set up such plant.
At the global level, the market share of the company in OHT arena has increased marginally
from 1.5% in FY2007 to more than 3% in FY2012. Company has been able to achieve this by
de-bottlenecking and increasing production capacities.
Financial risk: Medium
BIL achieved robust growth in revenues during FY2011 and FY2012 of 39.4% and 45.8%,
respectively. Europe its one of the key geographical segment, which contributes around
46% of the company’s total revenues, has performed considerably well as compared to
other geographical segments. Its Indian segment has seen a moderate growth in revenues
given the competition from the Chinese imports.
During the same period company also pursued capacity additions which were in tandem
with the aggressive growth achieved by the company.
Profitability came under pressure due to increase in non-operating miscellaneous expense
and rise in raw material prices. However, going forward with softening natural rubber prices,
profitability is likely to come on track.
Gearing ratio came under pressure in FY2012 on account of rise in term debt during FY2011
and FY2012, which was used for capacity expansion project. In future with healthy growth
prospects and likely increase in cash accruals gearing ratio is expected to improve.
The company generates 90% of its revenue from exports and has 3% global market share in
the OTR segment.
BIL has strong global network with over 200 distributors in more than 120 countries, which
has enabled it to capture growing replacement market. BIL derives 80% of its revenues from
replacement market which fetches higher margins which are in the range of 18-20%.
BIL has healthy Return ratios as compared to industry with ROE & ROCE pegged at 25% and
22% respectively.
Management risk: Low
BIL is a flagship company of Siyaram-Poddar group.
The success story of BIL, begun in 1995 when it entered into production of cross ply off-
highway tyres, with the help of persistent and intensive market research coupled with ever
expanding production capabilities, BIL has made its mark in the niche segments like
Agricultural, Construction, Industrial, Earthmover, ATV (All Terrain Vehicle) and Turf care
applications.
BIL is continuously developing its production base and has expanded its product range
significantly. With three manufacturing plants and one in-house hi-tech mould-
manufacturing facility at different locations in India, BIL is very well equipped to feed the
Balkrishna Industries Ltd Page 7
ever-growing demand of its worldwide customers.
R&D is always at the forefronts of BKT and it spends about 5-6% of its revenue on research
and development. BKT has a dedicated team of professionals, who carryout design and
development of new products, as per specific customer needs.
The Company is fully compliant with the Corporate Governance norms in terms of
constitution of the Board. The Chairman of the Board was Non-Executive Chairman and is a
Promoter of the Company. The number of the Independent Directors is 50% of the total
number of Directors and the number of the Non-Executive Directors is more than 50% of
the total number of Directors. The Chairman Shri Dharaprasad Poddar resigned w.e.f 29th
May, 2012. Shri Arvind Poddar, Vice Chairman & Managing Director is re-designated as
Chairman & Managing Director of the Company w.e.f. 30th May, 2012. Shri Anurag Poddar,
the Executive Director resigned w.e.f. 29th May, 2012. Smt. Vijaylaxmi Poddar has been
appointed as Executive Director w.e.f. 30th May, 2012
Project risk: Medium
BIL currently has a production capacity of 144,000 tpa which has aided company to garner a
market share of about 3 per cent globally. Company has embarked on a project at Bhuj in
Gujarat to increase its capacity by 120,000 tpa. The total project cost is estimated to be Rs
18 billion (70 per cent through ECB). BIL received ECB of USD 175 million in June 2011.
However given the big size of the project completion of project on time and cost overrun
would be key areas of look out.
Structure risk: Medium
Working Capital Loans from banks repayable on demand is secured by first pari-passu
charge by way of hypothecation of inventories, receivables and other movables and further
secured by second charge by way of hypothecation on all present and future movable and
immovable fixed assets of company on pari-passu basis.
Term Loam of company is secured by first pari-passu charge over all present and future
movable fixed assets by way of hypothecation and in case of 2nd Term loan is further
secured by second charge by hypothecation of inventories, receivables and other movables
on pari-passu basis.
The company has given Bank Guarantee to statutory authorities like custom and excise
authorities.
Critical compliance matters (Internal/ RBI related):
Nil
Balkrishna Industries Ltd Page 8
ASSISTANCE DETAILS:
(₹ in millions)
Facility
Current Proposal
Existing Limit Proposed
Total O/s at
04/01/2013 Renewal Additional
Rupee Term Loan - - - - -
ECB - - - - -
Rupee Term Loan - - - - -
One Time Short Term
Loan* - - - - -
Cash Credit - - - - -
WCDL - - - - -
EPC / EBD - - - - -
PCFC - - - - -
FUB / FBD / FBP - - - - -
Buyers Credit – As a sub
limit of secured LC - - - - -
Buyers Credit – As a sub
limit of unsecured LC - - - - -
CMS - - - - -
Sub Total - A - - - - -
LC – secured - 2352.1 - 2352.1 -
LC - unsecured - - - - -
Bank Guarantee – sub limit
of secured LC - 290 - 290 -
Bank Guarantee – sub limit
of unsecured LC - - - - -
Stand-by LC^ - - - - -
Derivatives - 895.2 - 895.2 -
Sub Total - B - - - - -
Total (A+ B) - 3247.3 - 3247.3 -
Balkrishna Industries Ltd Page 9
BENCHMARKING:
Companies (₹ in millions)
Principal Business Segment Apollo Ceat MRF JK Tyres BKT
For the Year Ended March 31st '12
Price Earning (P/E) 22.54 43.36 4.52 37.42 7.94
Price to Book Value ( P/BV) 1.96 0.46 1.22 0.55 2.54
Price/Cash EPS (P/CEPS) 11.02 3.91 3.23 3.15 6.28
Market Cap/Sales 0.45 0.06 0.26 0.06 0.85
PBIDT/Sales (%) 7.75 5.65 11.6 4.63 17.9
Sales 89065 48248 106370 61485 28446
Sales/Net Assets 2.12 2.5 2.32 2.19 0.98
PBDIT/Net Assets 0.16 0.14 0.27 0.1 0.17
PAT/PBIDT(%) 26.26 2.77 50.18 3.86 52.73
Net Assets/Net Worth 2.06 2.94 1.99 4.45 2.7
ROE(%) 9.21 1.49 17.47 1.57 28.09
Debt-Equity Ratio 1.03 1.73 0.91 2.45 1.19
Long Term Debt-Equity Ratio 0.54 0.78 0.74 1.1 0.49
Current Ratio 0.72 0.76 1.54 0.83 1.23
Turnover Ratios
Fixed Assets 2.46 2.42 2.95 2.28 2.54
Inventory 7.92 8.41 8.07 9.11 6.38
Debtors 31.35 8.83 10.04 7.81 7.08
Interest Cover Ratio 2.04 1.07 6.14 1.07 13.67
ROCE (%) 12.59 11.49 14.98 7.24 18.06
RONW (%) 9.21 1.49 17.47 1.57 28.09
Comments:
BIL as compared to its peers has low market share and turnover which in lead by MRF at ₹ 106,370
Million. But BIL deals in niche products like Off-Highway Specialty Tyres with 90% of production
being exported, which gives better margins as evident from two ratios PBIDT/Sales (%), PAT/PBIDT
(%) at 17.9 and 52.73. BIL does have some concern about the lowest inventory turnover ratio 6.38
as compared to the peers. The interest cover ratio is the best in the industry at 13.67 which reflects
good cash flow. Along this return on net worth is highest amongst all major industry players.
Balkrishna Industries Ltd Page 10
Share-market Data:
Last traded price at 01/04/2013 ₹ 288.55
52 week High / Low ₹ 153.00/ ₹ 307.50
Market capitalization at 01/04/2013 ₹ 27890.8 million
Promoter holding (%) 54.37%
COMPANY BACKGROUND AND BUSINESS DESCRIPTION:
BIL is the world's premier manufacturer of pneumatic tyres for special applications. Company was
incorporated on November 20, 1961. The company operates mainly in the business segment of
tyres. They focus on the production of range of off-highway tires that includes agricultural,
industry, material handling, forestry, lawn and garden, construction and earth moving tyres. The
company has a worldwide distribution network ensuring extensive reach and penetration. Agri
Max, Agri Max force, Agri Max fortis, Agri Max Teris, Earth Max, Fores Tech, Multi Max, Ride Max
are different varieties of product under BKT brand.
During the year FY2003, the company acquired the Auto tyre Plant of Govind Rubber Ltd at Bhiwadi
in Rajasthan. During the financial year FY2005, the company launched Tractor Radial Tyres. The
company expanded the production capacity in Bhiwadi unit and Waluj unit to 42000 tpa and 18000
tpa respectively. They also installed five MW Wind-Farm near Jaisalmer in Rajasthan for captive
usage.
In February, FY2005, the company has set up a 100% subsidiary company in UK under the name of
BIL (Europe) Ltd to promote sales and marketing of the products of their tyre division in Europe
which commenced their business activities on April 1, 2005. The company expanded the
production capacity in Bhiwadi unit by 3000 tpa to 45000 tpa.
In August 30, 2006, the company incorporated BIL Europe srl in Italy as a wholly owned subsidiary
company and in January FY2007 they incorporated BIL Exim Ltd as a wholly owned subsidiary.
Also they incorporated Balkrishna Paper Mills Ltd and Balkrishna Synthetic Ltd in March FY2007 as
wholly owned subsidiary companies to facilitate the transfer of their paper and textile processing
business respectively.
During the year 2006-07, the company increased the production capacity in Bhiwadi unit from
45000 tpa to 48000 tpa and Waluj unit from 18000 tpa to 22000 tpa. Also, the company introduced
the product 'Premium Super Chromo Board' in the market.
The company has three business activities namely tyre, paper and textile processing. The tyre
business is a focused business activity of the company that constitutes more than 80% of
company's total business and becomes their core business. In order to pay more attention to their
various business activities, the company transferred their Paper business and Textile Processing
business to their wholly owned subsidiaries, Balkrishna Paper Mills Ltd and Balkrishna Synthetic Ltd
respectively with effective from April 1, FY2007.
During the year FY2008, BKT Tyres Pvt Ltd became the subsidiary of the company. Also BIL
(Europe) Ltd and BKT Europe srl ceased to be the subsidiaries of the company due to the
disinvestment by the company.
Balkrishna Industries Ltd Page 11
The company is in the process to set up a new green field Tyre plant into special economic zone to
increase the production capacity. Also the company plans to set up storage facilities at different
locations to store finished goods and raw materials.
Year - Milestone Events:
1988 - First Manufacturing unit was established at Aurangabad in Western India, with full-fledged
in- house R & D department.
1992 - A range of Light Commercial Vehicle tires launched in the international market.
1995 - Identified a niche segment for International Market, commenced production of Off Highway
Segment.
1996 - Commenced exports to Europe & North American markets with Agricultural Range of tires.
Based on initial success in the International markets, a massive production expansion program was
undertaken
2000 - More than 500 SKUs developed in Agricultural application segment since FY1996.
2001 - Started production of Flotation & MPT tires and further expanded the production capacities
and capabilities.
2002 - Second Manufacturing unit was established at Bhiwadi in Northern part of India, thereby
doubling the production capacity. Awarded with prestigious ISO 9001:2000 certificate for Quality
Management System by KPMG, Netherlands.
2003 - Launch of Earthmover tires, All Terrain Vehicle (ATVs), Lawn & Garden tires.
2004 - Launch of Radial Agricultural tires. First company from India to introduce Radial Agricultural
tires sub branded as AGRIMAX.
2005 - In house mould shop established.
2006 - Third Manufacturing unit commissioned at Chopanki in Northern India Opened European
office at Milan, Italy Launched Floatation Radial tires
2007 - Introduced 65 series and 90 Series AGRIMAX range of tires Port application tires & Row crop
tires.
2008 - Launch of All Steel Radial OTR tires.
2009 - Launch of Radial MPT Range of tires.
2010 - Introduced Radial Harvester tires sub branded as AGRIMAX TERIS Radial extra-large tires
sub branded as AGRI MAX FORTIS Introduced Steel belted Forestry tires sub branded as
FORSTECH also introduced steel belted ROADMAX range of tires.
2011 - 4th Plant; a Greenfield project. Work commenced.
Balkrishna Industries Ltd Page 12
Infrastructure Details:
BKT has state of the art three manufacturing units & one mould shop located in North and Western
Province of India. To provide tyre as per customer's requirements BKT has strategically located
warehouses at each plants, a huge ware house in between the two manufacturing units in Northern
Province and a centralized warehouse near the Port. All the warehouses are equipped with all
modern storage facilities for better tyre storage and handling.
1. Bhiwadi Factory
1. Located in Northern Province of India. Around 100 kms from national capital New Delhi.
2. Plant features manufacturing Radial Agricultural tires
3. Other range manufactured are Bias Agriculture & Industrial tires
2. Chopanki Factory
1. Located in Northern Province, 13 kms away from the Bhiwadi plant, plant was
commissioned in FY2006.
2. Plant boast of manufacturing All steel Radial OTR tires
3. Other range manufactured Bias OTR , Industrial & construction tires
4. Plant has one the most modern machineries used in the world for tyre manufacturing.
3. Waluj Factory Aurangabad
1. Located in Western Province of India, around 250 kms from commercial capital Mumbai
2. This was the first plant of BIL commissioned in FY1988.
3. Range manufactured in this plant includes material handling, floatation, Industrial & OTR
tires.
4. Dombivali Mould Plant
As part of backward integration, BIL has in-house mould manufacturing unit which caters to
designing and development of all moulds requirements. Mould shop is equipped with latest and
most modern designing and carving technologies.
Balkrishna Industries Ltd Page 13
Share Holding Pattern as on 30/09/2012
No. Of Shares % Holding
Promoter’s Holding
Indian Promoters 52551510 54.37
Sub Total 52551510 54.37
Non Promoter’s Holding
Institutional Investors
Mutual Funds and UTI 19241516 19.91
Banks Fin. Inst. and
Insurance 15895 0.02
FII's 10406761 10.77
Sub Total 29664172 30.69
Other Investors
Private Corporate Bodies 2533159 2.62
NRI's/OCB's/Foreign Others 242036 0.25
Others 100 0
Sub Total 2775295 2.87
General Public 11667618 12.07
Total 96658595 100
PHYSICAL AND FINANCIAL PERFORMANCE:
Physical Performance:
For the year ended March 31 2010 2011 2012
1. Tyres
Installed capacity (million pieces) 39400000 41020000 42630000
Production (million pieces) 18833860 24502720 27819910
Capacity utilization (%) 47.8 59.73 65.26
Sales (million pieces) 19254730 24901780 27897290
Gross Sales (₹ in millions) 13475.1 18830.3 27923.1
Avg. Sales realization (₹ per piece) 699.8 756.2 1000.9
2. Tyre Flaps
Installed capacity (million pieces) 3790000 3790000 3790000
Production (million pieces) 807270 961950 468240
Capacity utilization (%) 21.3 25.38 12.35
Sales (million pieces) 1602270 1938570 1814590
Gross Sales (₹ in millions) 25.7 34.1 40.1
Avg. sales realization (₹/unit) 16.0 17.6 22.1
3. Tubes
Installed capacity (tones) 0 0 12440000
Production (tones) 0 0 371830
Capacity utilization (%) 0 0 2.99
Balkrishna Industries Ltd Page 14
Sales (tones) 1638550 2281480 2167310
Gross Sales (₹ in millions) 120.7 190 231.1
Avg. Sales realization (₹ per tones) 73.7 83.3 106.6
4. Power-Wind Mill
Installed capacity (tones) 50 50 0
Production (tones) 70299840 54937840 61972180
Capacity utilization (%) 0 0 0
Sales (tones) 0 0 0
Gross Sales (₹ in millions) 0 0 0
Avg. Sales realization (₹ per tones) 0 0 0
Comment on Physical Performance: BIL approx. 95% revenue is generated from Tyres segment, under this capacity utilization is around 65%, which is decided on the basis of order book and inventory maintenance cost. As per the projection if company revenue would increase by 15% than capacity utilization would go up to 85% by FY 2014
Balkrishna Industries Ltd Page 15
Financial Performance:
Year Ended March 31, 2010 2011 2012 Unaudited
₹ in million Actuals Actuals Actuals Actuals
No of months 12 12 12 3
Total operating income (TOI) 13,869.6 19,341.4 28,199.6 8,871.0
EBIDTA 3,899.4 3,051.6 5,650.8 1,872.4
EBIDTA/TOI (%) 28.11% 15.78% 20.04% 21.11%
Interest 186.6 206.6 277.5 61.0
Depreciation 662.2 744.4 831.4 254.2
Operating Profit (OP) 3,050.7 2,100.5 4,541.9 1,557.2
Net of non-operating income / expenses 62.7 648.8 (559.8) 259.0
PBT 3,113.3 2,749.4 3,982.2 1,557.2
PAT 2,087.3 1,855.6 2,685.2 1,237.1
PAT/TOI (%) 15.05% 9.59% 9.52% 13.95%
Net Cash Accruals (NCA) 2,614.1 2,464.6 3,371.6
Net fixed assets 6,737.5 7,296.8 12,766.0
Tangible Networth (TNW) 6,607.8 8,299.7 10,786.6
Exposure in subsidiaries /Group Cos. 807.3 322.4 322.4
· Investments 807.3 322.4 322.4
· Loans and advances 0.0 - -
Adjusted TNW (ATNW) 5,800.5 7,977.3 10,464.3
Long term debt (LTD) 883.3 4,496.7 11,358.1
Short term debt (STD) 3,540.3 2,080.4 3,540.3
Working Capital Bank Finance 3,290.1 3,645.9 3,951.9
Guarantee* - - -
Total Debt 7,713.6 10,223.1 18,850.3
Total Debt /ATNW 1.33 1.28 1.80
LTD/ ATNW 0.15 0.56 1.09
Total Current Assets 8,172.6 8,714.5 15,378.9
Total Current Liabilities 8,226.4 8,160.8 10,256.7
Net working capital (53.8) 553.6 5,122.2
Current ratio 0.99 1.07 1.50
ROCE (%) 25.93% 15.36% 18.13%
Interest cover 15.74 13.58 13.67
Total debt/ EBIDTA 1.98 3.35 3.34
Total debt/ NCA 2.95 4.15 5.59
DSCR 20.90 14.77 20.36
Note: Unaudited figures are for Q2 2013
Balkrishna Industries Ltd Page 16
Comment on financials:
Total Income: Total operating income registered significant growth rate of 45.80% in FY2012 vis-à-
vis 39.45% in FY2011. International sales increased by 51% in FY2012 whereas domestic sales
increased by only 6% in FY2012. Company major revenue contribution is from outside India
(majorly from Europe).
Profitability: EBITDA margins have increased from 15.78% in FY2011 to 20.04% in FY2012. This
was primarily due to reduction in manufacturing cost from 84% to 79.9% (as % of total revenue)
SGA has also reduced from 2.7% to 2.5 of total cost which was due to reduction in the professional
expenses.
The profit before tax for FY2012 was ₹ 3982.2 million against ₹ 2749.4 million for the twelve months
ending March 31, 2011. PAT margin slightly decreased from 9.59% in FY2011 to 9.52% in FY2012.
The profit after tax for FY2012 was ₹ 2685.2 million. The increase in PAT is commensurate with the
increase in top line of the company.
Interest: Interest part has been increased for the company due to significant increase in borrowing
cost and interest expense. Interest part has increased from 10.7% in FY2011 to 34.3% in FY2012.
Non-operating income and expense: In FY2012, non-operating expenses were higher than non-
operating income and it has come down by 186% in FY2012, it was mainly due to high misc.
expenses, loss of foreign exchange fluctuations and writing off of fixed asset.
Net cash accruals: Due to significant increase in profit net cash accruals have increased by 37% in
FY2012. Company has paid 5.4% in the form of dividend out of its net profit in FY2012.
Net fixed assets: Company has purchased plant and equipment of ₹ 1196.95 million during FY2012.
Net fixed asset increased by 8% in FY2011 and 75% in FY2012.
Tangible Net worth: The physical worth of the company increased to ₹ 10786.6 million as on March
31, 2012 from ₹ 8299.7 million as on March 31, 2011 due to increase in general reserves by ₹ 4500
million.
Adjusted Tangible Net worth: Robust performance in revenues and growth in retained earnings has
led to an increase in ATNW from ₹ 7977.3 million in FY2011 to ₹ 10464.3 million in FY2012.
Net working capital: Net working capital gap has gone up from ₹ 553 million to ₹ 5122 in FY2012.
Rationale for low current ratio: Company is having high cash balance which leads to increase in
current asset in comparison of current liability, which further leads to current ratio of 1.5. Current
ratio increased from 0.99 in FY2010 to 1.5 in FY2012. Deatisl of current asset and current liability in
FY2011 and FY2012 is given below -
Balkrishna Industries Ltd Page 17
Leverage: The outstanding debt as on March 31, 2012 was ₹ 18850.3 million, which include WC
bank finance of ₹ 3951.9 million, STD of ₹ 3540.3 and LTD of ₹ 11358.1. The total debt has
increased by 84% in March 31, 2012. Company has set up a new plant at Bhuj and this project was
funded through ECB of USD 175 million which increases the debt level of the company
substantially.
Non-current assets:
The non-current assets of the company as at March 31, 2012 were ₹ 12780 million (₹ 7296 million in
the previous year). The non-current assets mainly comprised of advances to supplier of capital
goods and contractors of ₹ 3929.2 million. During the year, the company has incurred capital
expenditure of ₹150 crores (approx.) to increase production capacity at all the three plants through
de-bottlenecking and regular maintenance capex. The company also incurred capital expenditure
of ₹ 531 crores (approx.) for its upcoming green field tyre project at Bhuj in the State of Gujarat.
Contingent Liabilities
The contingent liabilities of the company are detailed in the following table:
(₹ in millions)
Particulars FY2011 FY2012
Guarantees undertaken 6615.6 15959.1
Disputed Income Tax 138.8 79.0
Disputed Excise Duty 136.4 140.4
Others 0.0 0.0
Total 6890.8 16178.5
(₹ in million)
Cuurent Asset 2011 2012
Cash and Bank Balances 109.9 3574.0
Sundry Debtors 3242.4 4796.1
Inventory 4103.8 4810.7
Advances to Supplier 323.0 1037.5
Advance payment of taxes 561.9 912.4
Other CA 373.6 248.1
Total Current Asset
Current liability 2011 2012
Short term borrowing 5726.3 7492.2
Sundry Creditors 1249.1 2157.9
Provision for tax and div payable 187.9 206.7
Installment payments 89.3 102.3
Other CL 908.2 297.5
Total Current Liability 8160.8 10256.7
Balkrishna Industries Ltd Page 18
Foreign currency risk:
BIL took an ECB loan of USD 175 for capex for its tyre project at Bhuj. Additionally, 90% of the
company’s total revenues are earned via exports. 80% of the total raw materials are imported. In
FY2012 total foreign exchange earned and used were in the tune of 25700 million and 17190
million, respectively. Also BIL incurred the loss of ₹ 179.7 million in FY2012. Hence, due to huge
exposure to foreign currency and fluctuations and volatility in foreign currency BIL faces huge
foreign currency risk.
Statutory auditor’s comment:
Messers Jayantilal Thakkar & Co., Chartered Accountants, is the current auditor of Balkrishna
Industries Limited. According to annexure given to auditor’s report in Annual report nothing found
out discrepant. Company is regular in payment of dues of borrowing, service tax and custom duty.
Only some disputes which are currently pending under various statute.
Details are mention below (₹ in millions)
Name of
Statute
Nature of
Dues Amount
Period to which
the Amount
Relates
Forum where dispute
is
pending
Income
Tax Act
Income Tax(Including
Interest and Penalty
19.0
2004-2005 Commissioner
2006-2007 (Appeals)
2.2 2007-2008 Assessing Authority
Sales Tax
Acts
Sales Tax(Including
Interest and Penalty)
0.3 2004-2005 High Court
18.8
1996-1999 Commissioner
2002-2006 (Appeals)
Central
Excise Act
Excise Duty(Including
Interest and Penalty)
2.0 2002-2006 High Court
42.3 2003-2011 Tribunal
6.2
1999-2001 Commissioner
2005-2011 (Appeals)
29.0 1994-2004 Assessing Authority
Total 144.6
Balkrishna Industries Ltd Page 19
2011 2012
Operating Activities
PBT 2,749.4 3,982.2
Depreciation 629.4 764.6
Interest Paid 206.6 277.5
Income tax paid (893.8) (1,297.0)
Change in Work ing Capital (895.7) (1,410.5)
Interest/dividend received (68.9) (22.9)
Cash Flow from Operating Activities 1,727.0 2,293.9
Investing Activities
Interest/dividend received 68.9 22.9
Capital Expenditures (1,188.7) (6,233.8)
Investment Expenditure (4,133.3) 689.0
Additions to Goodwill / Intangibles (18.1) 3.8
Due from director (5.4) 0.4
Cash Flow from Investing Activities (5,276.6) (5,517.6)
CASH FLOW AVAILABLE FOR FINANCING ACTIVITIES (3,549.6) (3,223.7)
Financing Activities
Interest Paid (206.6) (277.5)
Proceeds from / (Repayment of) Revolver
Proceeds from / (Repayment of) Long Term Debt 3,613.4 6,861.3
Issuance / (Repurchase of) Equity
Dividends (157.2) (168.5)
Issue of Work ing capital loan 355.9 306.0
Income from other sources 11.6 (33.5)
Cash Flow from Financing Activities 3,617.1 6,687.8
Effects of Exchange Rates on Cash
Net Change in Cash 67.6 3,464.1
Beginning Cash Balance 42.3 109.9
Ending Cash Balance 109.85385 3,574.0
Cash flow analysis
(₹ in millions)
*
As per audited cash flow statement
Balkrishna Industries Ltd Page 20
Projections (Cash Flow table): (₹ in millions)
2012 2013 2014
Operating Activities
PBT 3,982.2 4,835.3 5,485.4
Depreciation 764.6 1,061.8 1,540.9
Interest Paid 277.5 277.5 277.5
Income tax paid (1,297.0) (1,574.8) (1,786.5)
Change in Working Capital (1,410.5) (795.3) (1,115.6)
Interest/dividend received (22.9) (22.9) (22.9)
Cash Flow from Operating Activities 2,293.9 3,781.5 4,378.7
Investing Activities
Interest/dividend received 22.9 22.9 22.9
Capital Expenditures (6,233.8) (1,076.1) (1,540.9)
Investment Expenditure 689.0 - -
Additions to Goodwill / Intangibles 3.8 - -
Due from director 0.4 - -
Cash Flow from Investing Activities (5,517.6) (1,053.1) (1,517.9)
CASH FLOW AVAILABLE FOR FINANCING ACTIVITIES (3,223.7) 2,728.3 2,860.7
Financing Activities
Interest Paid (277.5) (277.5) (277.5)
Proceeds from / (Repayment of) Revolver
Proceeds from / (Repayment of) Long Term Debt 6,861.3 (1,500.0) (1,500.0)
Issuance / (Repurchase of) Equity
Dividends (168.5) (242.2) (273.5)
Issue of Working capital loan 306.0 - -
Income from other sources (33.5) (0.0) -
Cash Flow from Financing Activities 6,687.8 (2,019.8) (2,051.0)
Effects of Exchange Rates on Cash
Net Change in Cash 3,464.1 708.6 809.7
Beginning Cash Balance 109.9 3,574.0 4,282.6
Ending Cash Balance 3,574.0 4,282.6 5,092.3
Balkrishna Industries Ltd Page 21
Key assumptions about the projected Cash Flow numbers: Depreciation rate: Historically assets have been depreciated considering the useful life of asset in the range of 11-12 years. Hence in the projected years depreciation rate is used taking useful life assets as 12 years. Capex: For the projected year the current capex and the previous year’s work in progress is used to calculate the cash flows. Also the maintenance capex at the rate of 9 % is considered. Working capital changes: Considering the growing market share the bargaining for BIL is assumed to have increased in FY2012. So during the projected years the payable days have been kept at high of FY2012. While in case of current assets given the softening of raw material prices and better management of stock the inventory days are kept at reduced levels of 77.5 days (FY2012) for the projected period. In case of the accounts receivable, given the fact that maximum revenues are generated from Europe and export sales, and taking into consideration the tightness in money supply in those economies the accounts receivable days are kept at increased levels of 62.1 days(FY2012) for the projected period. With rise in revenues and net cash accruals advance payments of taxes are kept at increase level of 3.2% of the Net sales of the company. Assuming that further loan is not taken by the company the interest expense in kept at levels of ₹277.5
million over the projected period. Dividend distribution rate: There is no constant dividend distribution rate for the company observed in the past. Hence for the projected period the dividend distribution rate is kept as an average of past three year’s dividend distribution rate and the dividend tax is calculated as a effective dividend distribution tax rate of the previous year. Income tax rate: It was observed that for the previous three years company has paid tax at an effective tax rate of 32-33%. Hence for the projected period the tax rate was assumed to be at 32.57%. Term Loan Repayment: With healthy cash flows we have projected that company would repay its term liability by ₹ 1,500
million in the first year and ₹ 1,500 million in the second year of projection.
Balkrishna Industries Ltd Page 22
DETIALED PROPOSAL:
The current proposal is for sanction of:
1. Letters of Credit facility of ₹ 2352.1 million with Bank Guarantee as sub limit ₹ 290 million
2. Derivatives limits of ₹ 895.2 million.
ASSESSMENT OF LIMITS: Fund based limits:
(₹ in millions)
Computation of Assessed Bank Finance
Year ended / ending March 31, FY2012 FY2013 FY2014 Actual Projections Projections
Sales (Net) 28,445.7 32,712.6 38,600.8
Total Current Assets (TCA) 11,062.4 14,489.9 18,423.5
Current Liabilities (other than bank
borrowings) 6,304.7 7,375.8 8,777.5
Working Capital Gap 4,757.7 7,114.1 9,646.0
Net working capital 5,122.2 8,126.1 11,551.5
Assessed Bank Finance (ABF) (364.6) (1,012.0) (1,905.5)
Net Working Capital Analysis
Year ended / ending March 31, FY2012 FY2013 FY2014
Actual Projections Projections NWC / TCA 0.46 0.56 0.63
ABF / TCA -0.03 -0.07 -0.1
Sundry Creditors & Other Current
Liabilities / TCA 0.57 0.51 0.48
As per the above table, going forward there is no requirement of fund based assessment.
Assessment of Non-Fund Based Limits:
Letter of Credit:
The company requires letter of credit for procurement of raw material both imported and domestic.
The letter of credit is required for import/purchases of raw materials like steel tyre cord, carbon
black, rubber chemicals. Assessment details is given in table below -
Balkrishna Industries Ltd Page 23
Bank Guarantee:
Particulaors (₹ in million) FY 2013
1] Opening Balance as on 01st April 141.7
2] Guarantees required: 150.0
a) Earnest Money Deposits :
b) Security Deposits : -
c) Advance Payment Guarantees :
d) Retention / Maintenance Guarantees :
e) Guarantees on account of Sales Tax, Commercial Tax and Excise Duty payments 150.0
Total : (1 + 2) 291.7
3] Less : Bank Guarantees expected to be expired during the year -
4] Bank Guarantees Limit required 291.7
5] Bank Guarantees Limit recommended for sanction 290.0
Particulars FY2013
Raw materials consumption
- Imported (rounded off) 16,189.9
- Indigenous (rounded off) 4,048.6
Procurement through L/C
Imported - A1 8,095.0
Indigenous - A2 2,429.2
Sub-Total (rounded off) – A 10,524.1
Imported
Lead time (30 days) + Average usance (90 days) - B1 120.0
Limit turnover (365/B1) - C1 3.0
Requirement (Imports) (A1/C1) - D1 2,661.4
Indigenous
Lead time (15 days) + Average usance (90 days) – B2 105.0
Limit turnover (365/B2) - C2 3.5
Requirement (Indigenous) (A2/C2) - D2 698.8
Total Requirement (D1 + D2) 3,360.2
Proposed total (70% of total requirement) 2,352.1
Additional LC limit required -
Total LC Limit proposed from ICICI Bank Limited 2,352.1
Limit to be tied (10%) 235.2
Balkrishna Industries Ltd Page 24
Forex/ Derivative Products:
The total derivative limit required for the company has been assessed in the table below:
(`₹ in millions)
Derivative Products
Particulars Amount
Loan Amount in (USD Million) 175.0
Exchange Rate 51.2
Loan Amount in (₹ million) 8,952.4
Conversion factor 0.1
Limits required (₹ million) 895.2
Forex Products
Particulars Amount
Forward Cover limit (USD million) 899.7
Credit conversion factor (%) for 1 year 0.1
Loan equivalent value (USD million) 90.0
Exchange Rate 51.2
LEV – INR (₹ in million INR) 4,602.4
Salient terms and conditions:
Facility 1: Letter of Credit
Principal amount 0
Stipulated interest rate 0.75% pa
Stipulated front end fee/ commission/renew al fee NIL
Security Subservient Charge
Validity of facility 12 Months
Average maturity (for ECB facilities) NA
Repayment schedule NA
Terms and Condition
Facility 2: Bank Guarantee Terms and Condition
Principal amount ₹ million 290
Stipulated interest rate % per annum 0.5
Stipulated front end fee/ commission/renewal fee NA
Security NA
Validity of facility Years 1
Average maturity (for ECB facilities) NA
Repayment schedule NA
Balkrishna Industries Ltd Page 25
Facility 3: Forex/ Derivative Products
Principal amount (₹ million) 8,952.4
Stipulated interest rate N.A.
Stipulated front end fee/ commission/renewal fee As per treasury rates
Security Subservient Charge
Validity of facility 12 months
Average maturity (for ECB facilities) N.A.
Repayment schedule N.A.
Terms and Condition - Derivative Products
Balkrishna Industries Ltd Page 26
PROJECTIONS
(₹ in million)
Year Ended March 31, 2012 2013 2014
₹ in million Actuals Estimates Projections
No of months 12 12 12
Total operating income (TOI) 28,199.6 32,429.5 38,266.9
EBIDTA 5,650.8 6,153.3 7,282.6
EBIDTA/TOI (%) 20.04% 18.97% 19.03%
Interest 277.5 277.5 277.5
Depreciation 831.4 1,061.8 1,540.9
Operating Profit (OP) 4,541.9 4,814.0 5,464.2
Net of non-operating income / expenses (559.8) 21.2 21.2
PBT 3,982.2 4,835.3 5,485.4
PAT 2,685.2 3,260.5 3,698.8
PAT/TOI (%) 9.52% 10.05% 9.67%
Net Cash Accruals (NCA) 3,371.6 4,113.8 5,004.4
Net fixed assets 12,766.0 12,780.3 12,780.3
Tangible Networth (TNW) 10,786.6 13,804.8 17,230.2
Exposure in subsidiaries /Group Cos. 322.4 322.4 322.4
· Investments 322.4 322.4 322.4
· Loans and advances - - -
Adjusted TNW (ATNW) 10,464.3 13,482.5 16,907.9
Long term debt (LTD) 11,358.1 9,858.1 8,358.1
Short term debt (STD) 3,540.3 4,141.7 4,928.8
Working Capital Bank Finance 3,951.9 3,951.9 3,951.9
Guarantee* - - -
Total Debt 18,850.3 17,951.7 17,238.8
Total Debt /ATNW 1.80 1.33 1.02
LTD/ ATNW 1.09 0.73 0.49
Total Current Assets 15,378.9 17,953.9 21,281.0
Total Current Liabilities 10,256.7 11,327.8 12,729.5
Net working capital 5,122.2 6,626.1 8,551.5
Current ratio 1.50 1.58 1.67
ROCE (%) 18.13% 18.50% 20.32%
Interest cover 13.67 16.57 19.88
Total debt/ EBIDTA 3.34 2.92 2.37
Total debt/ NCA 5.59 4.36 3.44
DSCR 20.36 22.17 26.24
Note: Unaudited figures are for Q2 2013
Balkrishna Industries Ltd Page 27
Key assumptions with respect to fin note: Revenue growth rate: BIL showed robust growth in revenues during FY2011 and FY2012. Considering the bigger base and economic pressure in Europe its biggest segment, the revenue growth is moderated at 15% for FY2013 and increased marginally to 18% in FY2014. Raw material prices: Prices of natural rubber which forms 30% of the tyre cost are expected to soften going forward with marginal increase in supply. However, prices of other raw materials are expected to remain firm over the medium term. Also, rupee is likely to appreciate in short term which will reduce the import burden of the raw materials. Considering above assumptions raw material cost is expected to remain at moderate levels and thus aid operating margins of the company. Power and fuel cost: With like fall in crude prices power and fuel cost is assumed to reduce marginally. Other manufacturing expenses: with maintenance and de-bottlenecking capex done recently on all the three factories other manufacturing expenses are also expected to soften marginally during the projected period.
Balkrishna Industries Ltd Page 28
1 Facility Limit for Derivative transactions for:
Business purpose other than ECB linked transactions/Buyer's credit
2 Limit Existing Limit- LEV (Loan Equivalent Value ) of ₹ 0.00
Proposed Limit- LEV (Loan Equivalent Value) of ₹ 895.2 million only
3 Interchangeability NIL
4 Purpose
To enter into forwards, swaps, options or other derivatives ("Contracts") with
ICICI Bank to hedge interest rate or currency risk
5 Validity period 12 months from the date of sanction
6 Tenor 12 months
7 Security Security template for working capital facilities.
8 Cash Margin Nil
9 Functional Currency INR, USD
10 Pricing As per treasury rates.
11
Margining Clause is
Applicable
No
12
Break Clause is
Applicable
No
13 Nature of Limit Credit Backed Limit
14 Documentation
The facility is subject to the terms and conditions contained in the standard
International Swaps and Derivatives Association (ISDA) Agreement
The company shall execute the ISDA Agreement in a form and manner
satisfactory to ICICI Bank before entering into any Contract under the facility.
In addition to the above, ICICI Bank may ask the Company to furnish the
following documents from time to time:
· Proof of underlying transaction/declaration of underlying exposure,
required by ICICI Bank from time to time.
· Duly executed Confirmation for every transaction in a format prescribed by
ICICI Bank.
· Board Resolution in a format prescribed by ICICI Bank.
· List of Authorized Signatories
· Any other documents as required by ICICI Bank from time to time
·Underlying documents shall be collected at the time of deal. In case the
underlying documents are not submitted on time, ICICI Bank reserves the
right to withold the payouts and terminate the transaction at the cost and
expense of the company
Covenants
TERMS AND CONDITIONS:
Balkrishna Industries Ltd Page 29
1 Facility Bank Guarantee
2 Type Performance guarantees (PBG)
3 Proposed Limit ₹290.0 million ( as a sublimit of LC )
5 Sublimits Nil
6 Interchange-ability
Full interchangeability between Inland Bank Guarantees and Foreign currency Bank and Letter
of Credit.
For meeting the working capital requirements
Towards bid bond, security deposit, earnest money deposit, contract performance/
performance guarantees, advance payment and retention money purposes; Customs, central
excise, sales tax, electricity, insurance purposes.
8 Validity 12 months from the date of Credit Arrangement Letter
9 Security Security template for working capital facilities.
Guarantees covering disputed liabilities – 100%
Performance guarantees – Nil
11 BG Tenor
For Performance guarantee - Maximum period of BG (excluding claim period, if any) to be
restricted to 60 months.
The Borrower shall pay to the Bank commission as follows:
Advance Payment Guarantee: 0.5% p.a. (all inclusive)
PBG: 0.5% p.a. (all inclusive)
In case of foreign currency bank guarantees, the following charges will be additional:
· SWIFT/communication charges – ₹ 500.0 per guarantee
· Correspondent bank charges, if any, shall be charged on actuals.
· Other Charges – NIL
The bank guarantees to be issued shall be as per the format acceptable to the Bank.
In case of bid bond/EMD/advance payment/retention money guarantees stipulated under
project exports, Bank shall obtain counter guarantees from ECGC at the expense of the
If the guarantees to be issued come under EPCG scheme, bank will obtain counter guarantee of
ECGC at the expense of the company.
To issue Bank guarantees with URDG clause after taking the required indemnity from the
To issue BG without the NWC clause or with modified NWC clause to PSU and public sector
undertakings BG after taking required indemnity from the company.
At the beginning of each quarter in advance
Covenants
15 General
7 Purpose
10 Cash margin
12 Commission
14Commission Collection
frequency
Balkrishna Industries Ltd Page 30
KEY RISKS AND MITIGANTS
Mitigants
Industry Medium
Robust domestic and export growth. Also recent USFDA approvals
will allow the company to penetrate into the regulated markets.
Business Low Significant presence in different countries.
Structure Medium
Secured by first pari-passu charge over all present and future
movable fixed assets and WCDL secured through hypothecation of
inventories.
Financial flexibility Medium High capacity addition, Strong global netwrok, healthy return ratios.
Promoters/Manageme
nt
Low
Highly experienced and focussed promotors, and is fully compliant
with the Corporate Governance norms.
Project risk (If any) NA NA
Others, if any NA NA
Risks
Balkrishna Industries Ltd Page 31
CMA form V
COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE FOR WORKING CAPITAL
(₹ in millions)
Last Year Last Year Last Year Next Year Next Year
First Method of Lending Actuals Actuals Actuals Estimates Projections
Year 2010 2011 2012 2013 2014
1. Total Current Assets (Form-IV-9) 6,009.9 5,796.3 11,062.4 14,489.9 18,423.5
2. Other Current Liabilities (other than
bank borrowings (Form-IV-14) 4,936.3 4,514.9 6,304.7 7,375.8 8,777.5
3. Working Capital Gap (WCG) (1-2) 1,073.6 1,281.4 4,757.7 7,114.1 9,646.0
4. Min. stipulated net working capital:
(25% of WCG excluding export receivables) 268.4 320.4 1,189.4 1,778.5 2,411.5
5. Actual / Projected net working capital (Form-III-45) (53.8) 553.6 5,122.2 8,126.1 11,551.5
6. Item-3 minus Item-4 805.2 961.1 3,568.2 5,335.6 7,234.5
7. Item-3 minus Item-5 1,127.3 727.8 (364.6) (1,012.0) (1,905.5)
8. Max. permissible bank finance (item-6 or 7, whichever is lower) 805.2 727.8 (364.6) (1,012.0) (1,905.5)
9. Excess borrowings representingshortfall in NWC (4 - 5) 322.2
Second Method of Lending
1. Total Current Assets (Form-IV-9) 6,009.9 5,796.3 11,062.4 14,489.9 18,423.5
2. Other Current Liabilities (other than
bank borrowings (Form-IV-14) 4,936.3 4,514.9 6,304.7 7,375.8 8,777.5
3. Working Capital Gap (WCG) (1-2) 1,073.6 1,281.4 4,757.7 7,114.1 9,646.0
4. Min. stipulated net working capital: (25% of total Current Assets excluding export receivables) 1,502.5 1,449.1 2,765.6 3,622.5 4,605.9
5. Actual / Projected net working capital (Form-III-45) (53.8) 553.6 5,122.2 8,126.1 11,551.5
6. Item-3 minus Item-4 (428.9) (167.7) 1,992.1 3,491.6 5,040.1
7. Item-3 minus Item-5 1,127.3 727.8 (364.6) (1,012.0) (1,905.5)
8. Max. permissible bank finance (item-6 or 7, whichever is lower) (428.9) (167.7) (364.6) (1,012.0) (1,905.5)
9. Excess borrowings representingshortfall in NWC (4 - 5) 1,556.2 895.4