Rating Rationale
September 29, 2018 | Mumbai
Deccan Cements Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.95 Crore
Long Term Rating CRISIL A/Stable (Reaffirmed)
Short Term Rating CRISIL A1 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of Deccan Cements Ltd (DCL) at 'CRISIL A/Stable/CRISIL A1'.
 
The ratings continue to reflect DCL's comfortable business risk profile, supported by an established market position in the South Indian cement market, and healthy operating efficiency. The ratings also factor in a comfortable financial risk profile, backed by a strong capital structure and robust debt protection metrics. These strengths are partially offset by exposure to intense competition, risks relating to volatile input costs, cyclicality in the cement industry, and the commodity nature of the product.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in South India: DCL is one of the leading cement players in South India, with a track record of over 30 years. Abundant availability of limestone in its mine, and captive power generation result in strong operational efficiency. Operating margin, as a result, remains moderate even during adverse business cycles. Moreover, the promoters' experience of over four decades in the cement manufacturing industry supports the business.
 
* Comfortable financial risk profile: Networth and gearing were strong at Rs 350.7 crore and 0.1 time, respectively, as on March 31, 2018. Debt protection metrics were robust, too, with interest coverage and net cash accrual to total debt ratios at 15.27 times and 1.54 times, respectively, in fiscal 2018.

Weakness
* Exposure to intense competition and risks related to volatility in raw material prices: Cement players, including DCL, are susceptible to volatility in input cost due to operating leverage in the cost structure. Moreover, exposure to intense competition limits the pricing flexibility.
 
* Exposure to risks related to the commoditised nature of products and cyclicality in the cement industry: Capacity additions in the commoditised cement industry tend to be sporadic because of long gestation periods associated with setting up new facilities, and the 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. Cyclical downturns in the industry result in slow sales, constraining the operating rate and ability to pass on any rise in input costs.
Outlook: Stable

CRISIL believes DCL will continue to benefit over the medium term from its healthy operating efficiency and financial risk profile, and the extensive experience of its promoters. The outlook may be revised to 'Positive' if sustained improvement in operating performance, driven by higher demand and increased capacity utilisation, and stable profitability and capital structure strengthen key credit metrics. The outlook may be revised to 'Negative' if the operating performance weakens, or any large capital expenditure results in contraction of substantial debt, weakening debt protection metrics.

About the Company

Promoted by Mr M B Raju and managed by Ms P Parvathi, DCL manufactures ordinary Portland, Portland Pozzolana, Portland slag cement, and specialty cement. Operations commenced in 1979. The manufacturing plant is in Bhavanipuram, Nalgonda (Telangana), and the installed capacity is 22.5 lakh tonne per annum. The company has an established presence in Telangana, Andhra Pradesh, Tamil Nadu, Kerala, and Karnataka. DCL is listed on the Bombay Stock Exchange and National Stock Exchange of India Ltd. 

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs. Cr. 571.98 558.94
Profit after tax Rs. Cr. 38.28 46.35
PAT margin % 6.7 8.3
Adjusted debt/adjusted networth Times 0.1 0.22
Interest coverage Times 15.3 15

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 Bank Guarantee NA NA NA 12 CRISIL A1
NA Cash Credit NA NA NA 63 CRISIL A/Stable
NA Letter of Credit NA NA NA 12 CRISIL A1
NA Proposed Long Term Bank Loan Facility NA NA NA 8 CRISIL A/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  71.00  CRISIL A/Stable      07-09-17  CRISIL A/Stable  04-05-16  CRISIL A/Stable    --  -- 
            28-08-17  CRISIL A/Stable           
Non Fund-based Bank Facilities  LT/ST  24.00  CRISIL A1      07-09-17  CRISIL A1  04-05-16  CRISIL A1    --  -- 
            28-08-17  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
Bank Guarantee 12 CRISIL A1 Bank Guarantee 12 CRISIL A1
Cash Credit 63 CRISIL A/Stable Cash Credit 63 CRISIL A/Stable
Letter of Credit 12 CRISIL A1 Letter of Credit 12 CRISIL A1
Proposed Long Term Bank Loan Facility 8 CRISIL A/Stable Proposed Long Term Bank Loan Facility 4.56 CRISIL A/Stable
-- 0 -- Term Loan 3.44 CRISIL A/Stable
Total 95 -- Total 95 --
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 Cement Industry
CRISILs Bank Loan Ratings

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