Rating Rationale
August 28, 2020 | Mumbai
Birla Corporation Limited
Ratings Reaffirmed 
 
Rating Action
Rs.280 Crore Non Convertible Debentures CRISIL AA/Stable (Reaffirmed)
Rs.300 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the debt programmes of Birla Corporation Limited (BCL).

Additionally, CRISIL has withdrawn its rating on the Rs.150 crore NCDs of BCL on receipt of confirmation of their redemption by the trustee. The rating is withdrawn in line with CRISIL's rating withdrawal policy.
 
The ratings reflects the company's established position in the cement industry, continued synergies from RCCPL Pvt Ltd (RCCPL; erstwhile Reliance Cement Company Pvt Ltd) and high financial flexibility.  These strengths are partially offset by its leveraged capital structure, exposure to funding and execution risks, susceptibility to input costs and cyclicality in the cement industry
 
For fiscal 2020, the operating income grew by 6% as operations were impacted by lockdown in the last 10 days of March. Operating performance in fiscal 2021 would be impacted following extension of lockdowns by various state governments as well as central government towards containment of COVID-19. Volume sales are expected to de-grow year on year, however, operating profitability is expected to remain healthy driven by lower costs and healthy realisations.
 
Despite the impact of the lockdowns at the end of the fiscal 2020, the company managed to sustain its financial risk profile. Net debt to EBITDA improved to 2.48 times in fiscal 2020 from 3.49 times in fiscal 2019 driven by healthy cash accruals. Debt protection metrics are expected to moderate in fiscal 2021 owing to increase in debt to fund the ongoing expansion plans. However, the financial risk profile would still remain within comfortable range driven by healthy liquidity.

Analytical Approach

To arrive at the ratings, CRISIL has combined the business and financial risk profiles of BCL and RCCPL (rated 'CRISIL A1+') among its other subsidiaries. RCCPL's acquisition was strategic for BCL, and therefore the latter is expected to extend financial, operational, and management support to RCCPL 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
BCL has a consolidated capacity of 15.58 MTPA, of which 10 MTPA is in BCL and 5.58 MTPA is in RCCPL. The company has its captive limestone mines, clinker capacities as well as captive power plants. The company's market position in Central India has strengthened post acquisition of RCCPL.
 
* Synergies from RCCPL transaction
The operating profitability has benefitted from the VAT incentives available to RCCPL and various synergies in logistics, power and fuel and selling and distribution expenses. Post the acquisition, the capacity utilisation of RCCPL has improved from 64% in fiscal 2017 to 89% in fiscal 2020. It has mineral concessions in Madhya Pradesh, Maharashtra, Rajasthan, and Himachal Pradesh for further expansion. RCCPL's 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.
 
BCLs ability to continuously reap synergistic benefits and thereby further improve its profitability over the medium term, will be a key monitorable.
 
* Healthy liquidity and financial flexibility
Financial flexibility continues to be comfortable, backed by liquidity, sizeable surplus land parcels, and support available from the MP Birla group. The company has cash and liquid surplus of Rs 932 crores as on March 31, 2020. In addition, BCL continues to enjoy flexibility and support from the promoter group.
 
Weakness
* Moderate debt protection metrics of the company: BCL has acquired RCCPL at a total consideration of Rs 4800 crore (including debt of Rs. 2400 crore). The company has paid total consideration of Rs. 2253 crore towards the transaction, which has been funded by debt and cash and liquid investment. This led to increase in debt and weakening of debt protection metrics.
 
The company's ongoing debt funded capex plan to set up a greenfield capacity at Mukutban will keep the leverage at consolidated levels high. Net Debt/EBITDA will remain in the range of 3-3.5 times over the medium term.
 
* Execution risks: The Company's ongoing capex to set up 3.9 MTPA of greenfield cement plant in Mukutban, Maharashtra (through RCCPL) has a total cost of around 2500 crs. The sizeable capex plan exposes the company to execution risks.
 
* Input costs related risk and cyclicality in cement industry
The profitability is susceptible to volatility in input costs, such as material, power, fuel and freight costs in line with the industry. For instance, in fiscal 2018, the operating profits were impacted by issues such as ban on sand mining in Rajasthan and Uttar Pradesh, ban on usage of pet coke in Rajasthan and shortage of railway rakes. Operating margins in fiscal 2019 were impacted by higher cost of pet coke and diesel.
Liquidity Strong

BCL enjoys strong liquidity driven by expected cash accruals of more than Rs 500 crore in fiscal 2021 and cash and cash equivalents of over Rs 932 crore as on March 31, 2020 as against Rs 529 crore of long term debt repayment obligations in fiscal 2021. The working capital facilities of 710 crore were minimally utilised. The company has capex plan of around Rs 3400 crore over fiscal 2019 to fiscal 2022 majority in RCCPL which is expected to be financed through debt of Rs. 2400 crores (out of which more than Rs 1050 crore of capex has been completed till fiscal 2020). Its bank lines are expected to meet its incremental working capital requirements.

Outlook: Stable

CRISIL believes the company will continue to benefit from high financial flexibility and a healthy business risk profile over the medium term.

Rating Sensitivity Factors
Upward Factors
* Reduction in debt levels, leading to improved consolidated net debt to EBITDA of below 2 times on a sustainable basis
* Substantial improvement in business performance, driven by healthy growth in both the standalone operations as well as synergies from RCCPL
* Significant improvement in operating margins resulting in higher cash accruals.

Downward Factors
* Weaker than expected operating performance, or higher debt resulting from capex or acquisitions, leading to higher consolidated net debt to EBITDA of more than 3.5 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 the company's revenue (over 90%) with the remaining coming from jute and other products. BCL has seven cement plants across four states: Rajasthan, Uttar Pradesh, Madhya Pradesh, and West Bengal.
 
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 Reliance Infrastructure's (R-infra) entire equity in RCCPL, the then wholly owned subsidiary of R-Infra, for an enterprise value (EV) of Rs 4800 crore. The acquisition has strengthened the company's position in central India. RCCPL has an aggregate operational cement manufacturing capacity of 5.58 million tonne per annum (mtpa). It has three plants, including an integrated plant at Maihar in Madhya Pradesh, and grinding units at Kundanganj in Uttar Pradesh and Butibori in Maharashtra.

For the first quarter of fiscal 2021, PAT was Rs 66 crore on Revenue of Rs 1,222 crore as compared to PAT of Rs 141 crores on Revenue of Rs 1,884 crores in first quarter of fiscal 2020.

Key Financial Indicators
Particulars Unit 2020* 2019
Revenue Rs.Crore 6916 6549
Profit After Tax (PAT) Rs.Crore 505 254
PAT Margin  % 7.3 3.9
Adjusted debt/Adjusted networth Times 1.11 1.17
Interest coverage Times 3.7 2.73
*Provisional financials from quarterly results

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Cr) Complexity Levels Rating assigned with outlook
NA Commercial paper NA NA NA 300 Simple CRISIL A1+
INE340A07068  Non Convertible Debentures 13-Oct-2010 9.05% 13-Oct-2020 130 Simple CRISIL AA/Stable
 
Annexure - Details of Rating Withdrawn
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Cr) Complexity Level
INE340A07050 Non-convertible debentures 29-Mar-2010 9.10% 29-Mar-2020 150 Simple
 
Annexure - List of Entities Consolidated
Company Name Extent of Consolidation Rationale for Consolidation
RCCPL Pvt Ltd, Birla Jute Supply Company Limited, Talavadi Cements Limited, Lok Cement Limited, Budge Budge Floorcoverings Ltd, Birla Cement (Assam) Ltd., and M. P. Birla Group Services Pvt. Ltd Full Consolidation Birla Corp holds majority shares in these companies along with having full management control
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  300.00  CRISIL A1+      30-08-19  CRISIL A1+  29-08-18  CRISIL A1+    --  -- 
Non Convertible Debentures  LT  130.00
28-08-20  		CRISIL AA/Stable      30-08-19  CRISIL AA/Stable  29-08-18  CRISIL AA/Negative  31-08-17  CRISIL AA/Negative  CRISIL AA/Negative 
Short Term Debt (Including Commercial Paper)  ST                  31-08-17  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
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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