| Birla Corporation Limited | ||
| Rating reaffirmed at '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 A1+’ rating on the commercial paper programme of Birla Corporation Ltd (BCL).
For first nine months of fiscal 2023, the consolidated operating income increased by around 20% year-on-year, owing to rise in sales volume (11.29 million tonne against 9.97 million tonne) as well as higher realisations. However, the earnings before interest, tax, depreciation, and amortisation (Ebitda) margin moderated to around 8%, due to steep rise in cost of power, fuel and freight, as reflected in the lower Ebitda per tonne of around Rs 441 for nine months of FY23 vs Rs 836 for nine months of FY22. Profit margins are, however, expected to recover from Q4FY23 as input costs (especially coal and petcoke prices) have started to abate of late.
Debt protection metrics moderated further in fiscal 2023, owing to weak operating profitability which was further impacted by negative contribution from the Mukutban plant, which commissioned during April 2022 and is yet to stabilise. Net leverage (net debt to Ebitda ratio) is expected to remain high for FY23 due to higher debt and lower Ebitda levels. The debt metrics are expected to start improving, as the debt funded capex will start contributing to revenue and profitability from fiscal 2024. Notwithstanding the moderation in leverage ratios, the financial risk profile remains comfortable for the rating, driven by healthy liquidity and ability of BCL to raise funds at short notice and at competitive rates.
The rating continues to reflect the company's established position in the cement industry, continued synergies with RCCPL Pvt Ltd (RCCPL, rated ‘CRISIL A1+’), and high financial flexibility. These strengths are partially offset by a leveraged capital structure, susceptibility to fluctuations in input costs and cyclicality in the cement industry. |
Analytical Approach To arrive at the rating, CRISIL Ratings has combined the business and financial risk profiles of BCL, RCCPL and other subsidiaries. The acquisition of RCCPL was strategic for BCL, and therefore the latter is expected to extend financial, operational, and management support to RCCPL as and when required.
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: * Established position in the cement industry The consolidated capacity now stands at 20 million tonne per annum (MTPA), of which 10.2 MTPA is in BCL and 9.8 MTPA in RCCPL post commissioning of the additional 3.9 MTPA greenfield Mukutban plant in April 2022. The company has its captive limestone mines, clinker capacities as well as captive power plants and has commissioned WHRS capacity of 10.6 MW in fiscal 2023. The market position shall strengthen with the ramp up in production from the Mukutban plant.
* Synergies from RCCPL transaction Operating profitability has benefitted from the VAT (value-added tax) incentives available to RCCPL and various synergies in logistics, power and fuel, and selling and distribution expenses. Post the acquisition, the capacity utilisation in RCCPL has improved to 106% in fiscal 2022 from 64% in fiscal 2017. It has mineral concessions in Madhya Pradesh, Maharashtra and Himachal Pradesh for further expansion. Its cement plants are relatively new and enjoy various tax incentives. Given BCL's presence in the central region, the acquisition has resulted in sizeable synergies. The Mukutban plant will also enjoy SGST incentives which shall aid margins.
The ability to continuously reap synergistic benefits and thereby further improve profitability over the medium term, will be a key monitorable.
* Healthy liquidity and financial flexibility Financial flexibility is backed by liquidity, sizeable freehold land parcels, and support available from the MP Birla group. The company had cash, cash equivalents and investments of around Rs 739 crore as on December 31, 2022.
Weaknesses * Moderate debt protection metrics: BCL had acquired RCCPL at a total consideration of Rs 4,800 crore (including debt of Rs 2,400 crore). The company paid total consideration of Rs 2,253 crore towards the transaction, which had been funded by debt, cash, and liquid investment. This led to an increase in debt and weakening of debt protection metrics.
The recently commissioned debt-funded project at Mukutban, Maharashtra, will keep the consolidated leverage high. The net debt/Ebitda ratio is expected to remain in the range of 2-3 times over the medium term
* Input costs related risk and cyclicality in cement industry Profitability is susceptible to volatility in the costs of inputs such as material, power, fuel and freight. Also, any change in government policies could impact the operating margin. For instance, in fiscal 2018, the operating profit was impacted by issues such as a ban on sand mining in Rajasthan and Uttar Pradesh, a ban on usage of pet coke in Rajasthan and shortage of railway rakes. The operating margin in nine months fiscal 2023 was impacted by higher cost of coal/pet coke and diesel. |
Liquidity: Strong Cash accrual is estimated at more than Rs 800 crore in fiscal 2024, as against long-term debt repayment obligation of Rs 484 crore. The cash and equivalents stood at around Rs 739 crore as on December 31, 2022, and the fund-based working capital facilities of Rs 700 crore were moderately utilized. The bank lines are expected to meet incremental working capital requirement. |
Rating Sensitivity factors Downward factors: * Weaker-than-expected operating performance, or higher-than-expected debt resulting from capex or acquisitions, leading to higher consolidated net debt to Ebitda ratio of more than 4 times on a sustainable basis * Moderation in the business risk profile, driven by sustained disruption in demand. * Significant weakening of financial flexibility |
About the Company BCL is the flagship company of the MP Birla group. The company was originally incorporated as Birla Jute Manufacturing Company Ltd in 1919 and was renamed in 1998 to reflect its diversified operations. Under the chairmanship of Mr. Madhav Prasad Birla (Mr. M P Birla), the company diversified into manufacturing cement, polyvinyl chloride (PVC) goods, and automotive trim parts. As on date, cement is the largest contributor to revenue (over 90%) with the remaining coming from jute and other products. BCL has Eight cement plants across four states: Rajasthan, Uttar Pradesh, Madhya Pradesh, and West Bengal And Maharashtra
After Mr. M P Birla passed away, the group was being run by his wife, Ms. Priyamvada Birla, who passed away in 2004. Ms. Birla had appointed Mr. R S Lodha and his son Mr. Harsh V Lodha as her successors through a will. Currently, the ownership is being contested by members of the Birla family against Mr. Harsh V Lodha, the current chairman, in the court of law.
On August 22, 2016, BCL acquired the entire equity of Reliance Infrastructure (R-infra) in RCCPL, the then wholly owned subsidiary of R-Infra, for an enterprise value of Rs 4,800 crore. The acquisition has strengthened the company's position in central India. RCCPL at present has an aggregate operational cement manufacturing capacity of 9.8 MTPA. It has four plants, including integrated plants at Maihar in Madhya Pradesh and Mukutban in Maharashtra, and satellite grinding units at Kundanganj in Uttar Pradesh and Butibori in Maharashtra.
For first nine months of fiscal 2023, the consolidated operating income increased by around 20% year-on-year, owing to rise in sales volume (11.29 million tonne against 9.97 million tonne) as well as higher realisations. However, the earnings before interest, tax, depreciation, and amortisation (Ebitda) margin moderated to around 8%, due to steep rise in cost of power, fuel and freight, as reflected in the lower Ebitda per tonne of around Rs 441 for nine months of FY23 vs Rs 836 for nine months of FY22. |
Key Financial Indicators^ (Consolidated)
^as per CRISIL analytical adjustment |
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
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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