| Dalmia Bharat Limited | ||||||
| Ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of Dalmia Bharat Limited (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) and its subsidiaries, and Dalmia Power Ltd (DPL; non-operational company holding a part of the group’s investment in Indian Energy Exchange Ltd [IEX]).
The ratings continue to reflect the group’s healthy business risk profile backed by its established and diversified market position across south, east, west and north-east India, and its cost-efficient operations. The ratings further take into account the healthy financial risk profile of the group, evident from low leverage and strong liquidity. These strengths are partially offset by relatively lower return on capital employed (RoCE) and susceptibility to risks relating to input cost and realisations, and cyclicality in the cement industry.
The group is undertaking capital expenditure (capex) of around Rs 10,000 crore over fiscals 2022-2024, to increase over grinding capacity to 48.4 million tonne per annum (mtpa) and clinker capacity to 23.4 mtpa by end of fiscal 2024, along with investments in waste heat recovery system (WHRS) and solar power capacities, and capex for improving cost efficiencies and regular maintenance. CRISIL Ratings understands this will be funded through a mix of debt and internal accrual. However, it is likely to result only in a moderate rise in leverage, given the expectations of stable operating performance and healthy accrual levels. Any significant debt-funded capex or acquisition beyond the announced capex or any deterioration in accrual levels will remain a key monitorable. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of DBL, DCBL and its subsidiaries, and DPL, as the entities, collectively referred to as the DBL group, have common management and strong business and financial linkages.
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:
With a track record of seven decades, the DBL group is the fourth-largest cement player (by capacity) in India with operational capacity of 35.9 mtpa as on January 31, 2022. The group has diversified presence, with capacities in east (47%) – Odisha, West Bengal, Jharkhand and Bihar; south (33% of total capacity) – Tamil Nadu, Andhra Pradesh and Karnataka; north-east (12%) – Assam and Meghalaya; and west (8%) – Maharashtra. The group has outperformed the market, with revenue growing faster than overall cement demand over the past eight fiscals, resulting in gain in market share across key markets.
It is setting up another 12.5 mtpa in grinding capacity across all its existing regions (6.9 mtpa brownfield and 5.5 mtpa greenfield) by end of fiscal 2024, which should further consolidate its market presence. This will be supported by increase in clinker capacity by 4.4 mtpa to 23.4 mtpa and addition of 127 megawatt (MW) of captive power in the form WHRS and solar power capacities, which should lower power costs.
Operating performance was strong over the past six fiscals, with earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne consistently above Rs 1,000. This was driven by improvement in utilisation to 72% in fiscal 2021 from 51% in fiscal 2016, healthy realisations led by pick-up in demand and strong brand, focus on premium segments, and relatively stable operating cost led by various measures boosting overall cost efficiency.
Some of the measures undertaken by the group in the recent past to improve efficiency include: a) increasing the share of blended cement in overall mix, resulting in reduced consumption of energy and raw material per tonne of cement; b) lowering lead distances, with most cement units located close to raw material sources and major cement markets; and c) switching to multi-fuel kilns, which helped in managing overall fuel cost optimally. These efficiencies, along with lower fuel and input prices, resulted in EBITDA per tonne rising to Rs 1,369 in fiscal 2021 from Rs 1,057 in fiscal 2019.
During the first nine months of fiscal 2022, however, EBITDA per tonne fell to Rs 1,117 owing to steep rise in input costs led by power and fuel (on account of higher coal and pet-coke prices) and logistics (higher diesel prices). However, with expected improvement in demand and realisations, EBITDA per tonne is expected to remain above Rs 1,200 in fiscals 2022 and 2023.
The group derived around 64% of its volumes from the east and north-east markets in fiscal 2021. These markets are expected see higher growth compared to pan-India level over the medium term. This should aid in better absorption of the incremental capacity in the region.
The financial risk profile of the group has improved significantly in fiscal 2021, aided by strong operating performance. The company reduced gross debt by nearly Rs 2,223 crore to Rs 3,737 crore as on March 31, 2021. As a result, gearing declined to 0.4 time as on March 31, 2021, from 0.9 time as on March 31, 2020, and the net debt to EBITDA ratio reduced to 0.1 time from 1.9 times. Interest coverage ratio improved to 9.9 times in fiscal 2021 from 5.5 times in fiscal 2020, and net cash accrual to adjusted debt ratio rose to 68% from 28%. As the company is undertaking capex of around Rs 10,000 crore, debt levels are expected to inch up. However, given the expectation of a stable operating performance, net debt to EBITDA level is expected remain lower than 1 time.
DBL has strong financial flexibility arising from its 100% owned subsidiaries - DCBL and DPL. CRISIL Ratings expects timely infusion of funds by its subsidiaries for meeting any debt obligation, considering common management and treasury operations across group entities.
Weaknesses:
The group has undergone a few restructurings, resulting in recognition of intangibles. Furthermore, it is undertaking capex of around Rs 10,000 crore over the next three fiscals. This is likely to lead to a significant increase in capital employed and result in rise in depreciation and amortisation expense, which in turn will lead to subdued return on capital. With the completion of ongoing capex, CRISIL Ratings expects return on capital to gradually improve with scaling up of assets and stable profitability levels. Any marked deviation due to lower profitability levels and higher-than-expected debt funding or acquisition will be 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 large number of players adding capacities during the peak of a cycle. This has led to unfavourable price cycles for the sector in the past. Moreover, profitability remains susceptible to volatility in input prices, including raw material, power, fuel and freight. Increase in pet coke, coal and diesel prices during the first nine months of fiscal 2022 had impacted profitability of several cement players. Realisations and profitability are also affected by demand, supply, offtake and other regional factors. |
Liquidity: Strong Financial flexibility remains strong, with cash balance and liquid investments of Rs 1,878 crore as on December 31, 2021. This is further supported by its investment in IEX Ltd, which is valued at Rs 3,365 crore as on December 31, 2021. Utilisation of around Rs 700 crore of fund-based working capital limits remained minimal over the past 12 months. Expected net cash accrual of over Rs 2,000 crore in fiscal 2022 and surplus liquidity should suffice to cover debt obligation and incremental capex. |
Outlook: Stable CRISIL Ratings believes the DBL group will continue to benefit from its healthy market position, robust operating efficiency and strong liquidity. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company 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). At a standalone level, it derives revenue from providing management services to group companies. As on date, there is no outstanding commercial paper issued by DBL.
DCBL is the fourth-largest cement manufacturer in the country, with installed capacity of 35.9 mtpa as on January 31, 2022. The company has presence across the east (capacity of 16.8 mtpa), south (12 mtpa), north-east (4.2 mtpa) and west (2.9 mtpa) markets. It also has captive thermal power plants of 228 MW, captive solar power plants of 8 MW and WHRS of 21.9 MW. DPL is a non-operational company. Its assets mainly include a part of the group’s investment in equity shares of IEX Ltd (listed entity). All the group entities have common management and treasury operations |
Key Financial Indicators (consolidated and CRISIL-adjusted numbers):
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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 Bank Lenders & Facilities | |||||||||||||||
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Criteria Details
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