| ACC Limited | ||||||
| Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of ACC Limited (ACC; part of the Adani group).
CRISIL Ratings has taken note of the Hindenburg Research report on the Adani group published on January 24, 2023. While the ratings on ACC are driven by its strong business risk profile and robust debt protection metrics (owing to debt-free balance sheet), weakening in the credit risk profile of the Adani group may have implications for ACC’s credit risk profile and thus will be a rating sensitivity factor.
In calendar year 2022, consolidated sales volume was flat year-on-year at 53.7 MTPA (vs 53.2 MTPA in CY2021). However, the earnings before interest, tax, depreciation and amortisation (EBITDA) margin declined to 12.6% from 22.7% in 2021, due to a steep rise in fuel prices and freight cost. The company has revised its financial year from January-December to April-March (accordingly, the financial year ended March 31, 2023, would be for 15 months starting from January 2022 to March 2023 and the current financial year would be for 12 months between April 2023 and March 2024). Profitability is likely to improve in fiscal 2024, owing to softening of coal and pet coke prices, better operational efficiency and enhanced synergies between Ambuja and ACC as well as with other group companies.
The ratings continue to reflect the strong pan-India market position of Ambuja and ACC, its robust operating efficiency and strong financial risk profile, driven by healthy cash flow and the debt-free position. These strengths are partially offset by susceptibility to the commoditised and cyclical nature of the cement industry. Substantial leveraging of the balance sheet or change in financial policies, which could weaken the financial risk profile, will be a key rating sensitivity factor. |
Analytical Approach
Debt in ultimate holding company/companies of ACC and of Ambuja has not been consolidated as it is non-recourse to these entities and will likely be serviced via cash flow streams at the promoter level not limited to dividends of either company.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Strong market position
Healthy operating efficiencies
For calendar year 2021, consolidated EBITDA margin was around 22% with adjusted ROCE of around 23%. While operating margin has dipped owing to a steep rise in input prices, it is likely to recover to around 20% over the medium term. Similarly, ROCE should moderate from current levels owing to aggressive capex plans but will remain healthy at 13-15% over the medium term.
Strong financial risk profile Reported networth of more than Rs 30,000 crore (including Rs 5,000 crore received against share warrants) and cash and equivalents of Rs 9,454 crore as on December 31, 2022, lend strength to the balance sheet at a consolidated level. Overall gearing too remained healthy. Strong cash flow and debt free position further translate into robust debt protection metrics.
The ultimate holding companies of cement business (i.e. of Ambuja and ACC) have outstanding debt of $4 billion with bullet repayments and semi-annual interest servicing. The management has articulated to service this debt from the existing liquidity and cash flows generated at the group level from interest and dividend income, along with refinancing of the principal amount. Further, the cash balance and cash accrual of ACC/Ambuja will be primarily utilised towards their growth capex. Therefore, the financial risk profile is expected to remain strong. However, any substantial increase in dividend or support to group/holding company from cash flows of ACC/Ambuja may potentially weaken the credit risk profile of these companies and thus, would be a key monitorable.
The company at a consolidated level is likely to incur a large capex of nearly Rs 22,000 crore over fiscals 2024 and 2025, towards capacity addition, captive power plants, plant maintenance and other infrastructure development. These are likely to be funded through internal accrual and existing liquidity. Further, Ambuja is also expected to receive Rs 15,000 crore in fiscals 2024 and 2025, as the balance sum pending towards the warrants issued. This will ensure negligible reliance on debt to fund capex.
In October 2022, Ambuja issued share warrants amounting to Rs 20,000 crore to the promoter group on a preferential basis and received Rs 5,000 crore as 25% payment towards the warrants.
Weakness: Susceptibility to volatility in input cost and realisations, and cyclicality in the cement industry Capacity addition in the cement industry is sporadic, given the long gestation period for setting up a facility and the large number of players adding capacity during the peak of a cycle. This has led to unfavourable price cycles in the past. Profitability also remains susceptible to volatility in input prices, including raw material, power, fuel, and freight cost. Increase in pet coke prices over the past year has impacted profitability of cement players. Realisations and profitability are also affected by demand, supply, offtake, and other regional factors. However, the initiatives to reduce cost and improve efficiencies will mitigate this risk some extent. |
Liquidity: Superior Under ACC, liquidity remains robust in the absence of external debt. Cash and equivalent stood at Rs 2,835 crore as on December 31, 2022. At Ambuja on a standalone level, cash and equivalent stood at Rs 6,619 crore as on December 31, 2022. Unutilised bank limit and healthy cash accrual will suffice to meet working capital requirement.
At a consolidated level, cash accrual of over Rs 5000 crore is expected per fiscal over the medium term. Accordingly, cash accrual and expected equity infusion would comfortably cover the capex requirement. This, coupled with robust cash balance, will ensure healthy liquidity. |
Outlook: Stable CRISIL Ratings believes ACC will maintain its strong financial risk profile over the medium term, supported by healthy cash accrual and low reliance on debt. |
Rating Sensitivity factors Downward factors
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About the Company ACC is the oldest cement company in India, with total installed capacity of 36.0 MTPA as of December 2022. The company also manufactures ready-mix concrete and has 50 plants across the country.
Ambuja is one of India’s leading cement manufacturers with an installed capacity of 31.45 MTPA as of December 2022. In January 2006, Holcim acquired a 14.8% stake in Ambuja. Following an open offer in April 2006, Holcim assumed management control of the company. Post restructuring between ACC and Ambuja, effective from August 12, 2016, ACC became a subsidiary of Ambuja.
On May 15, 2022, the Adani group and Holcim Ltd executed a share purchase agreement for purchase of the latter’s entire stake in Ambuja and ACC for a total consideration of Rs 50,181 crore (~$6.3 billion). This enabled entry of the Adani group into the cement business at second position in India, with a significant scale and strong brands. Subsequently, the board was reconstituted in September 2022 upon completion of the transaction. |
Key Financial Indicators* (ACC Ltd – consolidated)
*as per CRISIL Ratings-analytical adjustment #as per unaudited results for 12-months ended December 31, 2022
Key financial Indicators* (Ambuja Cements Ltd – consolidated)^
*as per CRISIL analytical adjustment ^Financials for the year ended December 31; includes consolidated numbers of ACC #as per unaudited results for 12-months ended December 31, 2022
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
*Subsidiaries of Ambuja Cements | ^ JV/Associate of Ambuja Cements |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 28-Apr-2023 in line with the lender-wise facility details as on 20-Aug-2021 received from the rated entity.
Criteria Details
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