Rating Rationale
September 15, 2020 | Mumbai
Dalmia Bharat Limited
'CRISIL AA+/Stable/CRISIL A1+' assigned to bank debt and CP
 
Rating Action
Total Bank Loan Facilities Rated Rs.100 Crore
Long Term Rating CRISIL AA+/Stable (Assigned)
Short Term Rating CRISIL A1+ (Assigned)
 
Rs.200 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 AA+/Stable/CRISIL A1+' ratings to the bank facilities and commercial paper of Dalmia Bharat Limited (DBL; part of DBL group). The DBL group includes DBL (holding company of the group), Dalmia Cement (Bharat) Limited (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 Limited (DPL; non-operational company holding group's investment in Indian Energy Exchange Ltd [IEX])
 
The ratings 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 its 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, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths:
* Strong financial flexibility and financial risk profile
DBL group has strong financial flexibility arising from its 100% owned subsidiaries, DCBL and DPL. CRISIL expects time 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 issuance of commercial paper to retire some of its existing higher cost debt.
 
The group's financial risk profile has improved significantly over the past five fiscals. Gearing improved to 0.9 time as on March 31, 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 1.6 times from 3.9 times, led by a strong operating performance. Interest coverage 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 a further improvement in the financial risk profile, with NCAAD ratio and adjusted interest coverage expected to improve to 38% and 6.5 times, respectively, by fiscal 2022.
 
* Healthy market position
With a track record of seven decades, the DBL group is the fourth-largest cement player by capacity in India with an 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 a healthy demand outlook for 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.
 
* Robust operating profitability, led by cost efficiency
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 will help absorb the expected increase in fixed cost per tonne due to low volume in fiscal 2021 and maintain Ebitda per tonne over Rs 1,000 in fiscal 2021. 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.
 
* Strong presence in the eastern market to partially offset loss in volume owing to the Covid-19 lockdown
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.
 
Weaknesses:
* Moderate return on capital
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 due to lower profitability and higher-than-expected debt funded capex/acquisition will remain a key monitorable.
 
* Susceptibility to risks relating to volatility in input cost and realisations, and cyclicality in the cement industry:
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 2,674 crore (adjusted for misappropriated mutual fund units) as on March 31, 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:
* Healthy ramp-up of ongoing capex plans while maintaining the profitability levels resulting in marked improvement in return on capital
* Stable profitability and declining debt levels, resulting in marked improvement in the interest coverage beyond 7-8 times on a sustained basis
 
Downward factors:
* Delayed recovery in demand
* Any substantial debt-funded capex or acquisition or decline in profitability, weakening the interest coverage below 5 times on a sustained basis.
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 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). These shares were valued at around Rs 1,080 crore, as per closing price of IEX, as on June 30, 2020.
 
All the group entities have common management and treasury operations.

Key Financial Indicators of Dalmia Bharat Ltd (standalone; CRISIL-adjusted numbers):
As on / for the period ended March 31 Unit 2020 2019
Revenue Rs crore 151 164
PAT Rs crore 135 101
PAT margin % 88.2 61.6
Adjusted debt/adjusted networth Times -- --
Interest coverage Times 47.3 65.5
 
Key Financial Indicators of Dalmia Bharat Ltd (consolidated; CRISIL-adjusted numbers):
As on / for the period ended March 31 Unit 2020 2019
Revenue Rs crore 9,675 9,484
PAT Rs crore 237 349
PAT margin % 2.4 3.7
Adjusted debt/adjusted networth Times 0.9 0.96
Interest coverage Times 5.2 4.2

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 crore)
Complexity level Rating assigned
with outlook
NA Commercial Paper NA NA 7-365 days 200 Simple CRISIL A1+
NA Proposed Term Loan NA NA NA 50 NA CRISIL AA+/Stable
NA Proposed Short Term Bank Loan Facility NA NA NA 20 NA CRISIL A1+
NA Overdraft NA NA NA 5 NA CRISIL A1+
NA Bank Guarantee NA NA NA 25 NA CRISIL A1+
 
Annexure - List of entities consolidated
Name of the entity Extent of consolidation Rationale for consolidation
Dalmia Bharat Ltd (holding company for the cement business) Full Common management,
business and financial linkages
Dalmia Cement (Bharat) Ltd Full
Dalmia Power Ltd Full
Subsidiaries of Dalmia Cement (Bharat) Ltd
Bangaru Kamakshi Amman Agro Farms Pvt Ltd Full Similar business with common
management, operating and
financial linkages
Calcom Cement India Ltd Full
D.I. Properties Ltd Full
Dalmia Minerals & Properties Ltd Full
Geetee Estates Ltd Full
Golden Hills Resorts Pvt Ltd Full
Hemshila Properties Ltd Full
Ishita Properties Ltd Full
Rajputana Properties Pvt Ltd Full
Jayevijay Agro Farms Pvt Ltd Full
Shri Rangam Properties Ltd Full
Dalmia Bharat Refractories Ltd (formerly known as
Sri Dhandauthapani Mines & Minerals Ltd)
Full
Sri Madhusudana Mines & Properties Ltd Full
Sri Shanmugha Mines & Minerals Ltd Full
Sri Swaminatha Mines & Minerals Ltd Full
Sri Subramanya Mines & Minerals Ltd Full
Sri Trivikrama Mines & Properties Ltd Full
Alsthom Industries Ltd Full
Chandrasekara Agro Farms Pvt Ltd Full
OCL Global Ltd Full
Dalmia DSP Ltd (with effect from July 10, 2018) Full
Hopco Industries Ltd (with effect from December 21, 2018) Full
Stepdown subsidiaries of Dalmia Cement (Bharat) Ltd
Cosmos Cements Ltd (subsidiary of Dalmia Minerals & Properties Ltd) Full Similar business with
common management,
operating and financial linkages
Sutnga Mines Pvt Ltd (subsidiary of Dalmia Minerals & Properties Ltd) Full
OCL China Ltd (subsidiary of OCL Global Ltd) Full
Vinay Cements Ltd (subsidiary of Calcom Cement India Ltd) Full
RCL Cements Ltd (subsidiary of Vinay Cements Ltd) Full
SCL Cements Ltd (subsidiary of Vinay Cements Ltd) Full
Dalmia OCL Ltd (subsidiary of Dalmia
Bharat Refractories Ltd; with effect from October 7, 2019)
Full
Joint ventures (JVs) of Dalmia Cement (Bharat) Ltd
Khappa Coal Company Pvt Ltd Proportionate JVs of Dalmia
Cement (Bharat) Ltd
Radhikapur (West) Coal Mining Pvt Ltd Proportionate
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  200.00  CRISIL A1+    --    --    --    --  -- 
Fund-based Bank Facilities  LT/ST  75.00  CRISIL AA+/Stable/ CRISIL A1+    --    --    --    --  -- 
Non Fund-based Bank Facilities  LT/ST  25.00  CRISIL A1+    --    --    --    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Proposed Term Loan 50 CRISIL AA+/Stable -- 0 --
Proposed Short Term Bank Loan Facility 20 CRISIL A1+ -- 0 --
Bank Guarantee 25 CRISIL A1+ -- 0 --
Overdraft 5 CRISIL A1+ -- 0 --
Total 100 -- Total 0 --
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
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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