For BEML Ltd.’S Long Term Non-Convertible Debentures of ` 300 Cr

Rating Rationale

Brickwork Ratings Reaffirms the Rating of ‘BWR AA’ for BEML Ltd.’s Long Term Non-Convertible Debentures of ` 300 Cr.

Brickwork Ratings have reaffirmed the Rating1 of BWR AA [Pronounced Double A] with a Stable Outlook for the outstanding NCD issue of ` 300 Cr with a tenor up to 10 years of BEML Ltd. (BEML). The reaffirmation factors in the stable financial performance, healthy order book and improving profitability. Instruments with BWR AA rating are considered to have a high degree of safety regarding timely servicing of financial obligations and such instruments carry very low credit risk.

BWR has essentially relied upon the published audited financial results of BEML for FY15, projected financials for FY16, publicly available information, and information and clarification provided by the Company’s management.

Background BEML Limited (formerly Bharat Earth Movers Limited) was established in May 1964 as a Public Sector Undertaking for manufacturing of Rail Coaches & Spare Parts and Mining Equipment at its Bangalore Complex. After partial disinvestment in 1992, presently the Government of India holds 54.03% equity in the Company. BEML is a ‘Miniratna-Category-1’, and serves India’s core sectors like Defense, Rail, Power, Mining and Infrastructure. BEML’s products are exported to more than 56 countries and the Company has offices in Indonesia and Brazil. BEML Sells and services its products through a large marketing network comprising 10 regional offices, 4 zonal offices, 17 district offices.

Board/Management Shri P Dwarakanath continues as the current Chairman and Managing Director. Other whole time Directors of the Company are Shri C N Durgesh - Director (Mining & Construction), Shri P R Naik - Director (Defense Business), Shri D K Hota – Director (HR), Shri Aniruddh Kumar Director (Rail & Metro Business) effective from April 18, 2014 and Shri Pradeep Swaminathan – Director (Finance). Apart from the above, the Board comprises of Independent Directors – Shri C Balakrishnan, Shri Suhas Anand Bhat and Shri N. P. Gupta and Government Nominee Directors Shri Rajnish Kumar – Additional Financial Advisor & Joint Secretary and Smt. Kusum Singh - Joint Secretary (P&C) effective from November 05, 2014 in place of Shri P K Mishra – Joint Secretary (ES).

Business Overview BEML operates on three major business verticals for associated equipment manufacturing:  Mining & Construction: Manufacturing and supplies of Mining & Construction equipment like Bull Dozers, Excavators, Dumpers, Shovels, Loaders and Motor Graders to various user segments.

1 Please refer to www.brickworkratings.com for definition of the Ratings

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 Defense: Manufacturing of Defense Ground Support Equipment such as Tatra based High Mobility Trucks, Recovery Vehicles, Bridge Systems, Vehicles for Missile Projects, Tank Transportation Trailers, Mail rail Wagons, Mine Ploughs, Crash Fire Tenders, Snow Cutters, Aircraft Towing tractors, Aircraft Weapon Loading Trolley. The company also plans to take up overhaul and up gradation of Battle Tanks with a view to assemble and roll out the products in future.  Rail & Metro: Manufacturing and supplies of Rail Coaches, Metro Cars, AC EMUs, OHE Cars, Steel and Aluminum Wagons to the rail sector

In addition to the above, there are three Strategic Business Units (SBUs) of BEML:  Trading Division for dealing in non-company products  International Business Division for export activities  With a view to expand its products profile the company is entering into Aero Space and dredging business.

In May 2014, BEML rolled out its 50th Metro Train set to Bangalore Metro Rail Corporation Limited (BMRCL)’s Namma Metro, thereby fulfilling the supply of prestigious BMRCL 2 RS- DM Contract. Till May 2014, BEML had supplied 700 Metro cars to Delhi Metro, Bangalore Metro and Jaipur Metro

In March 2015, BEML rolled out country’s first electric driver rear dump truck BH205-E for large scale coal mining applications. BH205E Rear Dump Truck is powered by Tier II emission compliant modular common rail Electronic Engine with 2300HP.

As of end May 2015, BEML had an order book of ` 5633 Cr, approximately 28% each is from Railways and Metro division and Mining and Construction segment, while 44% is from Defense.

NCD issue The entire amount of ` 300 Cr NCD has been raised and is repayable in bullet form in three tranches of ` 100 Cr each with a tenor of 8 years, 9 years and 10 years respectively. Interest servicing on the NCDs is on bi-annual basis. The NCDs are secured by First Charge on fixed assets of the Company. The Company has confirmed of timely servicing of its debt obligation

Financial Performance In FY15, Earthmoving equipment and Spares business contributed around 59%, Metro & Rail Business contributed around 35%, and Defense Business contributed around 6% to Company’s total turnover (net of excise).

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In FY 15 on a standalone basis, the Company reported a total net operating income of ` 2809.19 Cr as against ` 2911.51 Cr (FY14) – marginal dip of 3.51% YoY, Profit after tax has turned improved to ` 6.76 Cr from ` 4.68 Cr (FY14) - an increase of 44.44% on YoY basis.

The Trade Receivables of ` 991.7 Cr an increase from ` 977.4 Cr (FY14) are mostly from the Railway Board and Ministry of Defense for design development and supply. The Tangible Net-worth is ` 2076.75 Cr in FY15 from ` 2079.84 Cr in FY14 and debt is ` 909.13 Cr (including other long term liabilities of ` 316.97 Cr) in FY15 from ` 1284.03 Cr (including other long term liabilities of ` 379.40 Cr) in FY14. The reduction in Balance Sheet size to ` 4590.93 Cr in FY15 from ` 4760.83 Cr (FY14) is a result of Company’s continued efforts to improve inventory management and effectively utilize working capital limit. It has also helped the Company to reduce the interest cost burden in FY14 to ` 70.51 Cr from ` 110.46Cr in FY14.

BEML’s major revenues come from Mining and Construction equipment segment out of which Construction Equipment segment is cyclical in nature. A continued pressure in macro- economic situation will affect the revenue from this segment. Low cost equipment manufacturers are increasing competitive pressure. However, better after sales service network of BEML and strategic sourcing is helping Company mitigate this risk. An improvement in the macro economic situation will help the Company grow revenue in this segment.

The Company has a major dependency on orders from various Ministries and PSUs. The conversion of Order book to sales is largely dependent on the Government Policies amongst other factors. Besides, the slowdown in mining activities, the Company has been able to improve its revenue share from around 50% in FY 14 to 59% in FY 15. Further, the strategy of the Company to capitalize on the order book with Government’s policy to open-up 100% FDI in defense leading to competition which may have an impact on the performance and financials of BEML

Rating Outlook BEML generates its revenues from Mining and Construction Equipment, Defense and Rail & Metro divisions. In Mining and Construction, the construction segment is cyclical in nature and is sensitive to delays in project approvals, Monsoon etc. The mining industry now passing through a weak phase is expected to show positive developments. The construction and equipment industry is expected to grow in the range of 12%-15% for next 2-3 years and BEML will have a larger role to participate in this growth. BEML is gearing up to expand its Defense product range to meet the long term procurement plan of Ministry of Defense and also the opportunities thrown up on account of availability of offsets in Defense Procurement.

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While the company has been taking steps to improve performance, it is passing through a challenging time and achieving growth in top line and improving margins remain crucial rating sensitivities.

Analyst Contact Relationship Contact

[email protected] [email protected]

Phone Media Contact

1-860-425-2742 [email protected]

Disclaimer: Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.

www.brickworkratings.com 4 21 Jul 2015

Key Financials Annexure I: BEML Ltd – Standalone Balance Sheet

` Crores FY14 FY15 Liabilities Audited Audited EQUITY & LIABILITIES 2079.84 2076.75 Share capital 41.77 41.77 Reserves and Surplus 2038.07 2034.98 Non-current liabilities 980.47 895.26 Long-Term Borrowings 465.20 413.93 Other Long Term liabilities 379.40 316.97 Long-Term Provisions 135.87 164.36 Current liabilities 1700.52 1618.92 Short-Term Borrowings 439.43 178.23 Trade Payables 385.80 543.29 Other Current Liabilities 728.86 771.42 Short-Term Provisions 146.43 125.98 Total Liabilities 4760.83 4590.93 ASSETS Audited Audited Non-current assets 1076.09 1002.35 Net Fixed assets 671.57 660.41 Non Current Investments 2.58 2.58 Deferred Tax Assets (Net) 100.05 101.38 Long Term Loans & Advances 297.61 233.91 Other Non-Current Assets 4.28 4.07 Current assets 3684.74 3588.58 Current Investments 1.29 0.80 Inventories 2152.1 1921.20 Trade Receivables 977.36 991.70 Cash and Cash Equivalents 16.23 144.73 Short-Term Loans & Advances 234.38 166.31 Other Current Assets 303.38 363.84 Total Assets 4760.83 4590.93

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Annexure II: BEML Ltd – Standalone Profit & Loss

` Crores FY14 FY15 Result Type Audited Audited Total Operating Income 2911.51 2809.19 Operating Expenses 2817.69 2739.28 Operating Profit Before Depreciation Interest Tax 93.82 69.91 Depreciation/Amortization/ Impairment 53.56 52.14 Operating Profit Before Interest Tax 40.26 17.77 Interest & Finance Charge 110.46 70.51 Operating Profit Before Tax -70.20 -52.74 Non-Operating Income(Expenses) 63.39 59.50 Profit Before Tax -6.81 6.76 Extraordinary/Prior Period - Income(Expense) 15.89 0.15 Provision for Taxes 4.40 0.15 Profit After Tax 4.68 6.76

Annexure III: BEML Ltd –Financials Ratios*

FY14 FY15 Result Type Audited Audited Total Debt/Tangible Net-worth (x) 0.62 0.44 Total Debt (` Cr) 1284 909.13 Tangible Net-worth (` Cr) 2079.84 2076.75 Interest Service Coverage (x) 0.85 0.99 Debt Service Coverage (x) 1.04 1.06 NPM (%) 0.16 0.24 NCA/Total Debt (x) 0.06 0.10 ROCE (%) 1.20 0.60 Current Ratio (x) 2.17 2.22

*As per Brickwork Calculation