| Ambuja Cements Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 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 and short-term debt programme of Ambuja Cements Limited (Ambuja Cements).
CRISIL Ratings notes the announcement on May 15, 2022 by Holcim Ltd (Holcim), ultimate parent of Ambuja Cements, to divest its entire shareholding in Ambuja Cements as well as ACC Ltd (ACC; 'CRISIL AAA/Stable/CRISIL A1+') by signing a binding share purchase agreement with India’s Gautam Adani-led Adani group for a total consideration of Rs 50,181 crore. Holcim holds 63.11% shares in Ambuja Cements and 54.53% shares in ACC (50.05% through Ambuja Cements and 4.48% directly). Subsequently, the Adani group via its acquisition vehicle -- Endeavour Trade and Investment Ltd -- made an open offer for acquisition of additional 26% stake in each of Ambuja Cements and ACC. At full subscription, the size of the open offer would be Rs 31,140 crore. CRISIL Ratings is monitoring the progress and further developments with respect to this transaction.
The ratings continue to reflect the company’s healthy market position in north and west India, robust operating efficiency and strong financial risk profile because of healthy cash flows. These strengths are partially offset by susceptibility to the commoditised and cyclical nature of the cement industry. Any substantial leveraging of the balance sheet or change in financial policies, which may weaken the financial risk profile, will be a key rating sensitivity factor.
For the three months ending March 2022, the standalone sales volume increased around 3.4% (year-on-year) driven by healthy demand over the high base of the corresponding quarter of the previous year. For the same comparative period, the earnings before interest, tax, depreciation and amortisation (Ebitda) margin declined to 20.5% from 27.3% primarily due to a steep rise in fuel prices. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Ambuja Cements and ACC Ltd (ACC; 'CRISIL AAA/Stable/CRISIL A1+'). This is because, post the restructuring between ACC and Ambuja Cements, ACC became a subsidiary of Ambuja Cements. Moreover, both companies have a common line of business, and have entered into master supply agreement, which helps them operate symbiotically, optimising each other's plant capacities and spare inventories, and thus, benefit from operational and financial synergies.
|
Key Rating Drivers & Detailed Description Strengths:
Ambuja Cements had an installed capacity of 31.45 million tonne per annum (MTPA) as on March 31, 2022, spread across north and central (around 41%), west (around 36%) and east (around 23%) India. It has a large marketing infrastructure, pan-India presence and strong operational linkages with ACC (36.0 MTPA as on March 31, 2022). The companies together have 12-13% capacity share in the Indian cement market. Their nation-wide presence shields operations from regional price volatility and demand-supply imbalances.
Consolidated gearing remained healthy. Also, strong cash flow and low debt levels translate into robust debt protection metrics. Reported networth of more than Rs 25,000 crore and cash and equivalents of Rs 11,359 crore at a consolidated level as on December 31, 2021 lends strength to the balance sheet.
Weakness:
|
Liquidity: Superior On a standalone basis, cash and equivalent stood at Rs 3,985 crore as on December 31, 2021. The company has announced a several capital expenditure (capex) to be spent over 2-3 years towards capacity addition, captive power plant, plant maintenance and other infrastructure developments. Unutilised bank lines and healthy cash accrual will sufficiently cover capex and working capital requirement.
Under ACC, liquidity remains robust in the absence of external debt. Expected capex of around Rs 3,500 crore over the medium term, towards capacity addition and efficiency capex, is likely to be funded through internal accrual. Cash and equivalent stood at Rs 7,570 crore as on December 31, 2021.Unutilised bank limits and healthy cash accrual will be sufficient to meet capex and working capital requirement. |
Outlook: Stable CRISIL Ratings believes Ambuja Cements 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
|
About the Company Ambuja Cements is one of India's leading cement manufacturers. In January 2006, Holcim acquired a 14.8% stake in Ambuja Cements. Following an open offer in April 2006, Holcim assumed management control of the company. Globally, Holcim and Lafarge SA announced their merger in April 2014. Completed in July 2015, the merged entity was named LafargeHolcim and later Holcim. Post the proposed restructuring between ACC and Ambuja Cements, effective August 12, 2016, ACC became a subsidiary of Ambuja Cements.
For the three months ended March 31, 2022, Ambuja Cements’ consolidated profit after tax (PAT) was Rs 856 crore on operating income of Rs 7,900 crore, compared with Rs 1,228 crore and Rs 7,715 crore for the corresponding period of the previous year.
On a standalone basis, for the three months ended March 31, 2022, Ambuja Cements reported a PAT of Rs 495 crore on operating income of Rs 3,925 crore, compared with Rs 665 crore and Rs 3,621 crore for the corresponding period last year. |
Key Financial Indicators* (Consolidated)
*as per CRISIL analytical adjustment ^Financials for the year ended December 31; includes consolidated numbers of ACC Ltd |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Interchangeable with bank guarantee / letter of credit #Fully interchangeable with bank guarantee ^Upto Rs 80 crore interchangeable with bank guarantee |
Annexure – List of entities consolidated
*Subsidiaries of ACC Ltd| ^Associates of ACC Ltd #ceased to be a subsidiary w.e.f. 18th November 2020. |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
#Fully interchangeable with bank guarantee
^Upto Rs 80 crore interchangeable with bank guarantee
Criteria Details
|