| Dalmia Bharat Limited | ||||||
| Rated amount enhanced | ||||||
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| 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 bank facilities and commercial paper programme of Dalmia Bharat Ltd (DBL; part of the DBL group). The DBL group includes DBL (holding company of the group), Dalmia Cement (Bharat) Ltd (DCBL; operating company of the group with entire cement business housed under it; rated ‘CRISIL AA+/Stable/CRISIL A1+’) and its subsidiaries, and Dalmia Power Ltd (DPL; non-operational company holding the group’s investment in Indian Energy Exchange Ltd [IEX])
The ratings continue to reflect the group’s strong financial flexibility arising from DBL’s 100% ownership of its subsidiaries, DCBL and DPL. The ratings also factor in the expectation of timely infusion of funds by DCBL and DPL for meeting DBL’s debt obligation, considering the common management and treasury operations across group entities.
The ratings consider the healthy business risk profile of the DBL group, backed by its established and diversified market position across south, east and north-east India, and cost-efficient operations. The ratings also take into account the healthy financial risk profile of the group, as indicated by modest leverage and strong liquidity. These strengths are partially offset by low return on capital employed (RoCE) and susceptibility to risks relating to volatility in input cost and realisations and to cyclicality in the cement industry. |
Analytical Approach CRISIL has combined the business and financial risk profiles of DBL, DCBL and its subsidiaries, and DPL, as all the entities, collectively referred to as the DBL group, are under a common management and have strong business and financial linkages.
Please refer Annexure: List of entities consolidated, for details of the entities considered and their analytical treatment for consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The DBL group has strong financial flexibility arising from its 100% owned subsidiaries - DCBL and DPL. CRISIL expects timely infusion of funds by its subsidiaries, for meeting any debt obligation, considering the common management and treasury operations across group entities. The group intends to use proceeds from the issuance of commercial paper to retire some of its existing high-cost debt.
The group’s financial risk profile has improved significantly over the past five fiscals. Gearing improved to 0.5 time as on September 30, 2020, from 3.6 times as on March 31, 2016, and the ratio of net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) to nearly 1 time from 3.9 times, led by strong operating performance. Interest coverage ratio improved from 2.5 times in fiscal 2016 to 5.2 times in fiscal 2020 and net cash accrual to adjusted debt (NCAAD) ratio from 10% to 28%. A large portion of the ongoing capital expenditure (capex) of around Rs 4,000 crore (Rs 1,850 crore spent in fiscal 2020), over fiscals 2021 and 2022, will be funded mainly through internal accrual. This, coupled with healthy cash accrual, will lead to further improvement in the financial risk profile, with NCAAD and adjusted interest coverage ratios expected to improve to 38% and 6.5 times, respectively, by fiscal 2022.
With a track record of seven decades, the DBL group is the fourth largest cement player, by capacity, in India with operational capacity of 26.5 million tonne per annum (mtpa) as on March 31, 2020. It has diversified its presence over the past decade with capacities now in the south (46% of total capacity in Tamil Nadu, Andhra Pradesh and Karnataka); the east (39% in Odisha, West Bengal, Jharkhand and Bihar); and north-east (15% in Assam and Meghalaya). It has outperformed the market, with revenue growing faster than overall cement demand over the past eight years, resulting in market share gains across its key markets.
It is setting up a 7.8 MTPA cement capacity in the eastern market (5.3 mtpa brownfield, 2.5 mtpa greenfield), which should consolidate its position there as the eastern region has healthy demand outlook over the medium term. The group also plans to expand its presence in the western market through the acquisition of a 3-mtpa cement plant of Murli Industries Ltd (Murli), and expects revenue generation from the plant from fiscal 2022 onwards.
The DBL group has seen strong operating performance over the past five fiscals, with Ebitda per tonne consistently above Rs 1,000. This is because of improvement in capacity utilisation to 73% in fiscal 2020 from 51% in fiscal 2016, stable realisations led by strong brand position and focus on premium segments, and stable operating cost led by measures boosting overall cost efficiency.
Some of the measures taken in recent years to improve efficiency are: a) increase in the share of blended cement in the overall mix, resulting in reduced consumption of energy and raw material per tonne of cement; b) lower lead distances with most of the cement units strategically located close to raw material sources and major cement markets; and c) switch to multi-fuel kilns that has helped optimise overall fuel cost. These efficiencies, coupled with lower fuel and input prices, resulted in Ebitda per tonne rising to Rs 1,551 in the first half of fiscal 2021 from Rs 1,239 in the first half of fiscal 2020, despite lower volumes. Furthermore, with expected improvement in demand and stable realisations, Ebitda per tonne is expected to remain stable at more than Rs 1,100 in fiscals 2022 and 2023.
The group derives around 50% volume from the east and north-east markets. These markets are expected to witness lower volume decline of 9-11% compared to the pan-India market decline of 12-14% in fiscal 2021, led by rural demand. Furthermore, the region is expected to see healthy growth of 14-16% in fiscal 2022, resulting in sufficient absorption of the group’s new capacity.
Weakness:
The group has undergone a few restructurings in the past, resulting in recognition of intangibles. This has led to a significant increase in capital employed and a resultant rise in the amortisation expense, which has led to a subdued return on capital. With the completion of the ongoing capex, CRISIL expects return on capital to improve, driven by optimum utilisation of assets and stable profitability. Any marked deviation on account of lower profitability and higher-than-expected, debt-funded capex or acquisition will remain a key monitorable.
Capacity addition in the cement industry tends to be sporadic because of the long gestation period for setting up a facility and the large number of players adding capacity during the peak of a cycle. This has led to unfavourable price cycles for the sector. Moreover, profitability remains susceptible to volatility in input prices, including raw material, power, fuel and freight. Increase in pet coke prices in fiscal 2019 had impacted profitability of several cement players. Realisations and profitability are also affected by demand, supply, offtake and regional factors. |
Liquidity; Strong Financial flexibility remains strong, with cash balance and liquid investments of Rs 2,859 crore (adjusted for misappropriated mutual fund units) as on September 30, 2020. Expected net cash accrual of over Rs 1,600 crore per annum and surplus liquidity should suffice to cover debt obligation over the medium term. |
Outlook Stable CRISIL believes the DBL group will continue to benefit from its healthy market position, robust operating efficiency and strong liquidity. |
Rating Sensitivity Factors Upward Factors
Downwad Factors
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About the Group DBL is the listed holding company of the cement business of the Dalmia Bharat group. It owns 100% of DCBL which is the main operating company and houses the group’s entire cement business. DBL also owns 100% in DPL (a non-operational company) which holds the group’s investment in IEX Ltd. At a standalone level, it derives revenue from providing management services to group companies. DBL did not have any external debt as on March 31, 2020.
DCBL is the fourth largest cement manufacturer in the country, with an installed capacity of 26.5 mtpa. The company has presence across southern (capacity of 12.1 mtpa), eastern (10.4 mtpa) and north-eastern (4 mtpa) India. This is supported by captive thermal power plants of 178 megawatt (MW), captive solar power plants of 8 MW and a waste heat recovery system (WHRS) plant of 9.2 MW.
DPL is a non-operational company. Its assets mainly include the group’s investment in equity shares of IEX Ltd (listed entity).
All the group entities have common management and treasury operations |
Key financials of Dalmia Bharat Ltd (Standalone; CRISIL-adjusted numbers):
Key financials of Dalmia Bharat Ltd (consolidated; CRISIL-adjusted numbers):
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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)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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