Rating Rationale
January 30, 2019 | Mumbai
Ambuja Cements Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.800 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.100 Crore Short Term Debt CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and short term debt programme of Ambuja Cements Ltd (Ambuja Cements).

The ratings continue to reflect Ambuja Cements' healthy market position in northern and western India, robust operating efficiency, and strong financial risk profile because of healthy cash flows. These strengths are partially offset by exposure to risks related to commoditised and cyclical nature of the cement industry. Any substantial debt-funded capital expenditure (capex) or acquisition, which may weaken the financial risk profile, will be a key rating sensitivity factor.

Analytical Approach

CRISIL has combined the business and financial risk profiles of Ambuja Cements and ACC Ltd (ACC; rated 'CRISIL AAA/Stable/CRISIL A1+'). This is because post the restructuring between ACC and Ambuja Cements, ACC has now become 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.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Healthy market position
Ambuja Cements had a total installed capacity of 29.65 million tonne per annum (mtpa) as on December 31, 2018, with capacity spread across North and Central (40%), West and South (37%), and East (23%) India. It has a large marketing infrastructure, pan-India presence, and strong operational linkages with ACC (33.41 mtpa capacity as on December 31, 2018)'the two companies together have about 14% share in the Indian cement market. Their nationwide presence shields operations from regional price volatility and demand-supply imbalances.

* Strong financial risk profile
Consolidated gearing was healthy (debt of Rs 30 crore and networth of Rs 25,838 crore as on June 30, 2018) and liquidity sufficient (Rs 5,042 crore). Strong cash flow and low debt levels translate into robust debt protection metrics. In the first nine months of 2018 (refers to calendar year, January 1 to December 31), net cash accrual was Rs 2,455 crore. Supported by healthy cash accrual and minimal reliance on debt, debt protection metrics are expected to remain strong over the medium term.

Ambuja Cements has acquired a majority stake in ACC from LafargeHolcim Ltd (LafargeHolcim; rated 'BBB/Negative/A-2'? by S&P Global) for Rs 3,500 crore and issued fresh shares to LafargeHolcim. Extent of outflow from the Indian operations of LafargeHolcim will be limited to dividend payout and will not impact the financial risk profile.

Weaknesses
* Susceptibility to risks relating to input cost, realisations, and cyclicality in the cement industry
Capacity addition in the cement industry tends to be sporadic because of long gestation period for setting up of 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. Moreover, profitability remains susceptible to volatility in prices of inputs, including raw material, power, fuel, and freight. Increase in pet coke prices over the past year has impacted the profitability of several cement players. Realisations and profitability are also affected by demand, supply, offtake, and other regional factors.
Liquidity

Under Ambuja Cement, liquidity is expected to remain robust. Debt is primarily interest-free loan from the state government. Ambuja Cement has announced capex of Rs 2,350 crore towards capacity additions and captive power plants. The company had cash surplus of Rs 2,857 crore as on June 30, 2018. Unutilised bank lines and healthy cash accrual will be sufficient to meet capex and working capital requirements.

Under ACC also, liquidity is expected to remain robust in the absence of external debt. Capex of Rs 3,000 crore over the medium term, towards capacity additions, will be entirely funded through internal accrual. Company had cash surplus of Rs 2,177 crore as on June 30, 2018. Unutilised bank lines and healthy cash accrual will be sufficient to meet the capex and working capital requirements.

Outlook: Stable

CRISIL believes Ambuja Cements will maintain its strong debt protection metrics over the medium term, supported by low debt levels.

Downside scenario
* Inorganic growth plan or larger-than-expected capex weakening financial risk profile
* LafargeHolcim utilising Ambuja Cements' financial resources to support group companies.

About the Company

Ambuja Cements is one of India's leading cement manufacturers. In January 2006, Holcim Ltd (Holcim) acquired 14.8% of Ambuja Cements' equity shares. 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 renamed LafargeHolcim. Post the proposed restructuring between ACC and Ambuja Cements becoming effective from August 12, 2016, ACC has now become a subsidiary of Ambuja Cements.

Key Financial Indicators*
Particulars Unit 2017 2016
Revenue Rs crore 23580 20345
Profit After Tax (PAT) Rs crore 1945 -1171^
PAT Margins % 8.2 -5.8
Adjusted debt/adjusted networth Times 0.00 0.00
Interest coverage Times 39.80 40.94
*Financials for the year ended December 31; Includes consolidated numbers of ACC Ltd post September 2016.
^Adjusted for amortisation of goodwill (Rs 2,592 crore) arising on amalgamation of Holcim (India) Pvt Ltd with Ambuja Cements

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs.Crore) Rating Assigned  with Outlook
NA Short Term Debt NA NA 7-365 days 100 CRISIL A1+
NA Cash Credit NA NA NA 100 CRISIL AAA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 700 CRISIL A1+

Annexure - Details of Consolidation
Name of the Company Type of Consolidation
ACC Limited Full consolidation
M.G.T Cements Private Limited Full consolidation
Chemical Limes Mundwa Private Limited Full consolidation
Dang Cement Industries Private Limited Full consolidation
Dirk India Private Limited Full consolidation
OneIndia BSC Private Limited Full consolidation
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Short Term Debt  ST  100.00  CRISIL A1+      25-01-18  CRISIL A1+  03-04-17  CRISIL A1+  02-09-16  CRISIL A1+  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  100.00  CRISIL AAA/Stable      25-01-18  CRISIL AAA/Stable  03-04-17  CRISIL AAA/Stable  02-09-16  CRISIL AAA/Stable  CRISIL AAA/Stable 
Non Fund-based Bank Facilities  LT/ST  700.00  CRISIL A1+      25-01-18  CRISIL A1+  03-04-17  CRISIL A1+    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 100 CRISIL AAA/Stable Cash Credit 100 CRISIL AAA/Stable
Letter of credit & Bank Guarantee 700 CRISIL A1+ Letter of credit & Bank Guarantee 700 CRISIL A1+
Total 800 -- Total 800 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Cement Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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