| Dalmia Cement (Bharat) Limited | ||||||
| Ratings Reaffirmed | ||||||
| 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 AA+/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper programme of Dalmia Cement (Bharat) Ltd (DCBL; a part of the Dalmia Bharat Ltd [DBL] group).
The ratings reflect the strong business risk profile of the DBL group, backed by its established and diversified market position across south, east, northeast and west regions, and cost-efficient operations. The ratings further factor in the strong financial risk profile of the group, evident from moderate leverage and strong liquidity. These strengths are partially offset by relatively lower return on capital employed (RoCE), and susceptibility to risks related to volatility in input costs and realisations as well as inherent cyclicality in the cement industry.
The group is estimated to incur various capital expenditure (capex) projects over medium term to augment its capacity to 75 million tonnes per annum (MTPA) (including 9.4 MTPA capacity to be acquired from Jaiprakash Associates Ltd (JAL) for consideration of Rs 5,600 crore) by fiscal 2027, in line with its aim to reach capacity of 110-130 MT by 2031. It will also invest in waste heat recovery system (WHRS), solar power capacities, and towards efficiency optimization projects. However, finer details of these additional expansion plans are yet to be announced.
CRISIL Ratings understands that capex will be funded through a mix of long-term debt and internal cash accrual, resulting in increase in leverage in the interim. However, the financial risk profile is expected to remain healthy with expectations of improvement in operating performance driven by incremental accruals from commissioning of new facilities and rise in sales volume, leading to increase in free cash flow. Any further large, debt-funded capex or acquisition, resulting in a significant rise in leverage and debt servicing will, thus, remain a key monitorable. |
Analytical Approach
Further, CRISIL Ratings has not consolidated the refractory business of the group that is housed under Dalmia Bharat Refractories Ltd (DBRL) and its subsidiaries. This is because DBRL ceased to be a subsidiary of DCBL or DBL and there is no cash flow fungibility and operating linkages between DBRL and the DBL group.
CRISIL Ratings has adjusted networth for amortisation of goodwill on account of acquisitions.
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: Strong market position With a track record of seven decades, the DBL group is the fourth-largest cement player (by capacity) in India, with operational capacity of 44.6 MTPA. The group has diversified presence, with capacities in the east (47% of total capacity) – Odisha, West Bengal, Jharkhand, and Bihar; south (34%) – Tamil Nadu, Andhra Pradesh, and Karnataka; northeast (13%) – Assam and Meghalaya; and west (6%) – Maharashtra. The group has outperformed the market, with revenue growing faster than overall cement demand over the past decade, resulting in gain in market share across key markets. The company is also marketing cement in the attractive central region through tolling arrangement with JAL. Further, acquisition of JAL’s assets under phases I and II comprising of 9.4 MTPA grinding capacity, 4.4 MTPA of clinker capacity and 280 megawatt (MW) of thermal power plant, which is expected to be completed by end of fiscal 2024 as articulated by the company, will further augment its market position.
Healthy operating profitability, led by 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 clinker 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. This efficiency along with lower fuel and input prices, resulted in Ebitda per tonne rising to Rs 1,332 in fiscal 2021 from Rs 1,057 in fiscal 2019.
During fiscal 2022, however, Ebitda per tonne fell to Rs 1,091 owing to steep rise in input costs across the industry led by high power and fuel (on account of higher coal and pet-coke prices) and logistics (higher diesel prices) costs. The downturn in profitability continued during fiscal 2023, wherein Ebitda further fell to Rs 886 per tonne due to sustained high coal and petcoke prices. However, with reduction in petcoke/coal prices, the operating performance improved from the latter half of fiscal 2023 aided by better realisation, backed by healthy demand from infrastructure and rural segments, which sustained in the first six months of fiscal 2024 as well. CRISIL Ratings estimates Ebitda per tonne to sustain over Rs 1,000 from fiscal 2024 onwards over medium term backed by healthy demand outlook and cost optimization measures being undertaken by the company.
Strong presence in the fast-growing eastern market with entry into central region to aid absorption of new capacities The group derives most of its volumes from the east market. The company is also entering central region where the markets are expected to see higher growth than those pan-India over the medium term. This should aid in better absorption of the incremental capacity in the regions.
Strong financial risk profile The financial risk profile remains strong, aided by healthy operating performance. Net debt to Ebitda ratio (excluding market value of investment in IEX Ltd) and adjusted gearing increased marginally in fiscal 2023 to around 1 time and 0.24 time from 0.64 time and 0.20 time respectively in fiscal 2022, owing to debt funded capex. Adjusted interest coverage ratio and net cash accrual to adjusted debt ratio increased to 13.2 times and 0.58 time respectively in fiscal 2023. As the company is undertaking capex towards both existing announced capex and acquisition, debt will remain at an elevated level.
The company also has investment of Rs 2,236 crore as on December 31, 2023 in IEX Ltd (holds 14.8% stake), which is expected to act as a buffer in case of liquidity constraints.
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. Further, various capital expenditure (capex) projects over medium term are being undertaken to augment its capacity to 75 million tonnes per annum (MTPA). This should lead to a significant increase in capital employed, and a resultant 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. Any marked deviation due to lower profitability and higher-than-expected debt funding or acquisition leading to higher debt servicing will be a key monitorable.
Susceptibility to risks related to volatility in input cost/ realisations, and cyclicality in cement sector Capacity addition in the cement industry tends to be sporadic because of the long gestation period for setting up a facility and numerous 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 exposed to volatility in input prices, including raw material, power, fuel, and freight. Increase in pet coke and coal prices in the second half of fiscal 2022 and during fiscal 2023 impacted profitability of all cement players severely. Realisations and profitability are also impacted by demand, supply, offtake, and regional factors. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company DCBL is the fourth-largest cement manufacturer in the country, with an installed capacity of 44.6 MT. The company has presence across the east (capacity of 21.1 MTPA), south (15.0 MTPA), northeast (5.6 MTPA) and west (2.9 MTPA) markets. It also has captive thermal power plants of 212 MW, captive solar power plants of 100 MW and a WHRS of 70 MW.
The DBL group’s total investment in IEX Ltd is valued at Rs 1,760 crore as on September 30, 2023. The group has categorised these investments as non-core and classified them under current assets in the balance sheet. All the group entities have common management and treasury operations.
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Key Financial Indicators of DCBL (consolidated; CRISIL Ratings-adjusted numbers)
Key financials of DBL (parent company; consolidated and CRISIL Ratings-adjusted numbers)
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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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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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