Rating Rationale
December 28, 2017 | Mumbai
DCM Shriram Limited
'CRISIL A1+' assigned to CP 
Rating Action
Rs.800 Crore Commercial Paper CRISIL A1+ (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL A1+' rating to the commercial paper of DCM Shriram Limited. The rating reflects the healthy and diversified business risk profile, underscored by strong operating efficiencies in the chlor-alkali segment and a healthy profitability in the sugar segment. The rating also factors in the strong financial risk profile, marked by comfortable debt metrics, healthy capital structure and ample liquidity, supported by unutilised bank limits. These strengths are partially offset by risks related to volatility in the sugar, chlor alkali and plastics segments, and exposure to risks related to regulatory changes in the sugar and fertiliser industries.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of DCM Shriram Ltd and its associate and subsidiary companies, considering the operational, managerial, financial linkages between them.

Key Rating Drivers & Detailed Description
* Healthy and diversified business risk profile driven by strong operating efficiencies in chlor-alkali segment and healthy profitability in sugar segment:
Chlor alkali (caustic soda and chlorine) manufacturing is a part of the chlor-vinyl segment of DCM Shriram Ltd, along with poly-vinyl chloride (PVC) resins. The company is amongst the top three domestic manufacturers of caustic soda, with a total capacity of 1,343 tons per day (tpd) situated at Kota (Rajasthan) and Bharuch (Gujarat). Both these capacities have been operating at 90-100% capacity utilisation. Sustained price realisations, controlled power cost due to captive power plants, and large scale of operations, have ensured a healthy operating margin over the past decade. Given the plans to augment capacity, and the large economies of scale, the company will maintain its market position and operating efficiency over the medium term. Further, company's ongoing plans to increase chlorine consumption through downstream projects will also support the operating margins going forward.
Steady prices, higher cane production in Uttar Pradesh (UP), leading to more than 90% capacity utilisation in the sugar season, and improving recovery rates have made the sugar business more profitable in fiscal 2017. The ongoing capital expenditure (capex) to add 150 kilo litres per day (KLD) distillery unit by January 2018, will give the benefit of full-integration, thus providing some stability to the margins going forward. Given the cyclicality of the business, while profitability will moderate, it should remain healthy over the near term.
The overall business risk profile also benefits from the small, albeit diversified presence across agri related businesses (including Shriram Farm Solutions, Fertiliser, Bioseeds and Hariyali Kisan Bazaar), cement and Fenesta windows.
* Strong financial risk profile:
Financial risk profile is underpinned by comfortable debt protection metrics, healthy capital structure and ample liquidity. Sustained profitability has improved interest cover and net cash accrual to total debt (NCATD) ratios to 11.0 times and 0.5 time, respectively, in fiscal 2017, from 6.1 times and 0.3 time in fiscal 2016. Prudent funding of capacity expansions undertaken so far, has kept gearing below 1 time for the four years ended March 31, 2017. Capital structure should remain comfortable even going forward, as bulk of the scheduled capex will be funded through internal accrual. Liquidity is comfortable with cash and cash equivalents of Rs 225 crore as on March 31, 2017, and large unutilised bank limit (average utilisation of Rs 870 crore of fund-based limit, at 30% over 12 months through October 2017). CRISIL will continue to monitor any larger than expected debt-funded capital expenditure (capex) or acquisition, which may adversely impact financial risk profile.
* Volatility in sugar, chlor alkali and plastics business
Sugar prices are largely market driven, and dependent on production during the sugar season (October 1 to April 30) and prevalent inventory levels. Higher production, which adds to the sugar inventory, may lead to a steep fall in prices, and impact profitability severely, as cost of production is relatively stickier. Dependence on monsoons has also made the sugar industry cyclical, as monsoons have a bearing on cane production and recovery rate of cane, thus impacting domestic sugar production. Chlor alkali and plastics business is also susceptible to exchange rate fluctuations, import duty levels and crude oil price movements and may impact the profitability in these segments.
* Exposure to risks related to regulatory nature of sugar and fertiliser industries:
Both sugar and fertilizer businesses are highly regulated. In sugar, Government of India (GoI) is empowered to fix the price paid to cane growers annually (Fair and Remunerative Price, [F&RP]; earlier the statutory minimum price). In some of the state, such as UP, sugarcane pricing is controlled through the State Advised Price (SAP). A large gap between SAP and F&RP, can expose UP based mills to threat of imports from other states, though at present this difference is small. Further, a high SAP, drives up the cost of production, which these mills have been able to offset to an extent, through use of better cane variety thereby improving recovery rates.
In the fertiliser segment, the government has periodically tightened energy consumption norms for urea players, without a price increase, in line with its attempt to reduce subsidy outflow. This has impacted profits of those urea players, who have been unable to meet these norms. The next revision in norms, expected in fiscal 2019, can further strain profitability. Additionally, delay in disbursement of subsidy has led to higher reliance on short-term working capital debt, leading to high interest cost.
About the Company

DCM Shriram Ltd is a diversified business group, with the promoters holding 63.8% stake, and the balance held by institutional investors and public. The company is present across the chloro-vinyl (chlor alkali and plastics), sugar and agri inputs (farm solutions: traded agri products and pesticides, urea and bioseed) businesses. Trading of di-ammonium phosphate (DAP) and muriate of potash (MOP) products was discontinued during fiscal 2017. The company is also engaged into Fenesta building system and cement. It also had a rural retail chain of agri products by the name of Hariyali Kisan Bazaar, the operations of which were rationalised in fiscal 2013, due to continuous losses; operations are expected to be fully closed down in the medium term. The company operates its chlor alkali, plastics, urea, and cement businesses in Kota, and the chlor alkali operations in Bharuch, and has captive power plants at both these locations. It has four sugar mills in central UP, with a bioseed division at Hyderabad.

Key Financial Indicators*
Particulars Unit 2017 2016
Revenue Rs crore 5,788 5,780
Profit after tax Rs crore 552 300
PAT margin % 9.6 5.2
Adjusted debt/adjusted networth Times 0.4 0.5
Interest coverage Times 11.0 6.1
*as per CRISIL adjusted numbers

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 Commercial paper NA NA 7-365 days 800.0 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  800  CRISIL A1+    --    --    --    --  -- 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
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 Chemical Industry
Rating Criteria for Fertiliser Industry
Rating Criteria for Sugar Industry
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt

For further information contact:
Media Relations
Analytical Contacts
Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000

Jyoti Parmar
Media Relations
CRISIL Limited
D: +91 22 3342 1835
B: +91 22 3342 3000

Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023

Nitesh Jain
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3329

Saurabh Khandelwal
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 124 672 2116
Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
For Analytical queries:


Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.

About CRISIL Limited

CRISIL is an agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers.

We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.

For more information, visit www.crisil.com 


About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.


CRISIL respects your privacy. We use your contact information, such as your name, address, and email id, to fulfil your request and service your account and to provide you with additional information from CRISIL and other parts of S&P Global Inc. and its subsidiaries (collectively, the “Company) you may find of interest.

For further information, or to let us know your preferences with respect to receiving marketing materials, please visit www.crisil.com/privacy. You can view the Company’s Customer Privacy at https://www.spglobal.com/privacy

Last updated: April 2016


This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: http://www.crisil.com/ratings/highlightedpolicy.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL