Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A+/Stable/CRISIL A1’ ratings on the bank facilities, short-term debt programme and commercial paper programme of JSW Cement Limited (JSWCL).

 

The ratings continue to factor in the strong business risk profile of the company backed by sizeable capacity, geographical diversification in revenue and healthy financial risk profile. The ratings also factor in the support JSWCL receives from the JSW group and the financial flexibility it enjoys from being part of the group. These strengths are partially offset by the relatively higher receivables days, exposure to project-related risks, and susceptibility to volatility in input cost and realisations coupled with cyclicity in the cement industry.

 

Business risk profile of the company remains strong with total installed cement capacity reaching up to 20.6 million tonnes per annum (mtpa) as on September 30, 2024, through successful commissioning of brownfield capacities at its Vijaynagar (Karnataka) and Dolvi (Maharashtra) units in fiscal 2024. Company is expected to grow its installed capacity to 35 mtpa by fiscal 2028 through its planned greenfield and brownfield projects. These projects will enhance its geographical diversity and will further strengthen the business risk profile of the company.

 

JSWCL’s consolidated revenue increased by 17% year-on-year in fiscal 2024 to Rs 6,861 crore driven by 26% increase in volume with the commissioning of new capacities even as realisations de-grew. Earnings before interest, tax, depreciation and amortisation (Ebitda) per MT improved to Rs 891 in fiscal 2024 (against 787 in fiscal 2023) on the back of moderation in input prices. Going forward, the company is expected to continue its healthy growth trajectory on account of volume growth from ramp up of newly commissioned capacities.

 

As anticipated, the improvement in debt protection metrics remained range bound owing to sizeable capex being undertaken by the company. It is expected to undertake cumulative capex of Rs 6,500-7,500 crore over fiscals 2025-2028, to be funded via a mix of internal accruals and debt. CRISIL Ratings expects net debt to Ebitda ratio to remain range bound between 3.5-4.5 times and interest coverage ratio at more than 3 times over the medium term, supported by improvement in profitability and incremental contribution from new capacities.

 

CRISIL Ratings has taken note of the draft red herring prospectus (DRHP) filed by the company with the Securities and Exchange Board of India (SEBI), in August 2024. As per the DRHP, the issuance will involve fresh infusion of Rs 2,000 crore and offer for sale of Rs 2,000 crore. Although the company has plans to go public within the next 12 months, the exact time to market, final issue size, use of proceeds, and its subsequent impact on the credit profile of the company will remain a monitorable. 

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of JSWCL, including its subsidiaries and joint ventures (JVs) and has applied its group notch-up framework to factor in the support expected from the JSW group. CRISIL Ratings believes JSWCL will likely receive distress support from the JSW group for timely debt servicing, given the operational linkages between key group companies (specifically JSW Steel Ltd and JSW Energy Ltd), past instance of equity infusion by the JSW group, and the shared name and logo, which imply a high moral obligation on the group to support JSWCL, if required. JSWCL’s networth has been adjusted for intangible assets.

 

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:

Support from, and financial flexibility being part of, JSW group

The JSW group is a leading conglomerate with strong presence in steel, energy, cement, ports, and paints sectors. Its listed companies had a combined market capitalisation of over Rs 4.38 lakh crore as on October 11, 2024, and have healthy financial flexibility and ability to raise funds from lenders and capital markets as and when required. The rating of JSWCL is sensitive to the credit risk profile of the group. Weakening in the group’s credit risk profile or significant enhancement in debt in the promoter holding companies as against the market value of their investments in the operating companies will be a key rating sensitivity.

 

JSWCL was initially set up to utilise the slag being produced as a by-product by the group's flagship company, JSW Steel Ltd, to manufacture slag-based cement. JSWCL is majorly owned by Adarsh Advisory Services Pvt Ltd, which is fully owned by Sajjan Jindal Family Trust. Mr Parth Jindal, son of Mr Sajjan Jindal, is the managing director of the company. JSWCL receives operational support by way of supply of slag from JSW Steel Ltd, power from JSW Energy Ltd and port service from JSW Infrastructure Ltd. The group infused equity of Rs 535 crore in JSWCL in fiscal 2018 to support its expansion plans. The company also benefits from the group’s common logo and brand, adjacent premises with JSW Steel Ltd in Dolvi, Maharashtra, and Vijayanagar, Karnataka, and centralised coal procurement and logistics arrangement. CRISIL Ratings believes JSWCL will continue to receive operational and managerial support on an ongoing basis and financial support on need basis.

 

Increasing geographical diversification in revenue

JSWCL has established its market position in south, west and east India. The company set up its first grinding unit in 2009 in Vijayanagar and commissioned its first integrated plant in fiscal 2013 in Nandyal, Andhra Pradesh. It acquired a 0.6 mtpa grinding unit in Dolvi from JSW Steel Ltd in fiscal 2015, which helped increase its reach in Mumbai and Pune and enabled better operating profitability given the market scenario in western India. Its geographical presence improved further following expansion in Salboni, West Bengal, and Jajpur, Odisha, in fiscals 2018 and 2020, respectively, which helped the company gain foothold in the eastern markets. The company’s current cement capacity stands at 20.6 mtpa distributed between south (11.0 mtpa), east (5.1 mtpa) and west (4.5 mtpa). The company aims to strengthen its geographical reach further with cement capacity of 5 mtpa (through 2.5 mtpa unit in Nagaur, Rajasthan and 2.5 mtpa unit in Punjab) by fiscals 2027-2028. Combined with a planned brownfield addition in its Vijayanagar and Dolvi units, along with 1 mtpa addition in subsidiary Shiva Cement Ltd, it aims to grow its capacity to 35 mtpa by fiscal 2028. Additionally, the company also has long-term plans to set up cement capacities in Madhya Pradesh and Uttar Pradesh to establish presence in the central region.

 

Healthy operating efficiency

Operating efficiency of the company arises from sale of portland slag cement (PSC; having high blending ratio of slag) and ground granulated blast furnace slag (GGBS) in south and west India, which leads to lower power, fuel and raw material consumption per tonne of cement. Proximity of grinding facilities to raw material sources as well as markets reduces freight cost.

 

Profitability improved in fiscal 2024 as expected, with consolidated Ebitda per tonne improving to Rs 891 from Rs 781 owing to moderation in input costs. The company is expected to generate accruals of more than Rs 900 crore per annum over the medium term.

 

Healthy financial risk profile

During fiscal 2024, the movement in financial risk profile was on expected lines, with high debt-funded capex incurred by the company to expand its cement capacity. Gearing was similar at 1.4 times as on March 31, 2024, as against 1.3 times as on March 31, 2023, while net debt to Ebitda improved to around 4.5 times in fiscal 2024 against 5.6 times during fiscal 2023. Even with sizeable capex plans to the tune of Rs 6,500-7,500 crore, the net debt to Ebitda ratio is expected to remain range bound between 3.5-4.5 times over the medium term, with higher accruals from new capacities.

 

Weaknesses:

Relatively higher receivable days: A higher proportion of institutional sales and sales push to increase utilisation of the increased capacity have led to increased working capital intensity as seen in receivables of ~50-60 days in the past three years. The debtor days are expected to remain relatively higher owing to continued sales to institutional customers given the product mix and sales push with increase in capacity.

 

Substantial capacity expansion plan: JSWCL is undergoing aggressive capacity additions, wherein overall cement grinding capacity is expected to increase to 35 mtpa by fiscal 2028 from 20.6 mtpa in September 2024. Additionally, the company plans to add clinker capacity of 3.3 mtpa in Nagaur, Rajasthan by the end of fiscal 2027. The expansion would entail a capex to the tune of Rs 6,500-7,500 crore over fiscals 2025-2028, to be funded through a mix of equity infusion, debt and internal accruals. Given the size of capex relative to existing operations, JSWCL is exposed to risks related to project execution and ability to ramp-up new capacities. Timely commencement of commercial operations, within budgeted cost, will remain a key monitorable.

 

Susceptibility 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 numerous players adding capacity during the peak of a cycle. This has led to unfavourable price cycles for the sector in the past. Profitability is susceptible to volatility in input prices, including raw material, power, fuel and freight. Realisations and profitability are also affected by demand, supply, offtake and regional factors. The company is also vulnerable to fluctuations in fuel and cement prices.

Liquidity: Strong

Cash and equivalent stood at Rs 306 crore as on March 31, 2024, along with moderately utilised fund based working capital limits. The company is expected generate cash accrual of more than Rs 900 crore in fiscal 2025 and maintain cash and equivalent of over Rs 50 crore over the medium term. Furthermore, as part of the JSW group, JSWCL has adequate financial flexibility to raise funds to service debt obligations in a timely manner.

Outlook: Stable

CRISIL Ratings believes JSWCL will continue to benefit from healthy operating efficiency, increasing geographical presence with operationalisation of new capacities and overall healthy demand outlook for the cement sector.

Rating Sensitivity Factors

Upward factors

• Net debt to Ebitda ratio sustains below 3.5 times driven by sharp and sustained improvement in profitability or accelerated deleveraging or combination of both.
• Significant improvement in liquidity driven by reduced working capital intensity
• Significant improvement in the credit risk profile of the JSW group

 

Downward factors

• Net debt to Ebitda ratio remaining above 4.5 times on a sustained basis over the medium term due to lower-than-expected profitability or higher debt availed or a combination of both.
• Significant weakening in the credit risk profile of the JSW group or change in support philosophy of the group towards JSWCL.
• Weakening liquidity due to higher working capital intensity or capital structure constrained by increased capex or cost or time overruns in capacity expansion.
• Additional investments or loans extended to group companies or unrelated businesses from JSWCL’s cash flows.

About the Company

JSWCL was incorporated in 2006, and its first unit of 0.6 mtpa grinding capacity in Vijayanagar was commissioned in fiscal 2009. Presently JSWCL has cement manufacturing capacity of 20.6 mtpa spread across south (11.0 mtpa), west (4.5 mtpa) and east (5.1 mtpa) India. It manufactures various grades of cements such as PSC (Portland Slag Cement), OPC (ordinary portland cement), CHD (Concreel HD), GGBS (ground granulated blast furnace slag) and CPC (composite cement).

Any other information: Not Applicable