Rating Rationale
March 30, 2021 | Mumbai
KJS Cement(I) Limited
Ratings upgraded to 'CRISIL BBB/Stable/CRISIL A3+'
 
Rating Action
Total Bank Loan Facilities RatedRs.601.5 Crore
Long Term RatingCRISIL BBB/Stable (Upgraded from 'CRISIL BB+ / Stable')
Short Term RatingCRISIL A3+ (Upgraded from 'CRISIL A4+ ')
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on bank facilities of KJS Cement(I) Ltd (KJS) to ‘CRISIL BBB/Stable/CRISIL A3+’ from ‘CRISIL BB+/Stable/CRISIL A4+’.

 

The rating upgrade factors in sustenance of its healthy business risk profile leading to steady cash generation. The same has strengthened the overall liquidity profile of the company. The bank limit utilization over the last 4-5 months ending Feb 2021 have come down to less than 10% as compared to about 50% earlier and also the company has accumulated unencumbered liquid funds of about Rs.40 crores, despite making prepayment of 1 year’s repayment obligation towards its term loan.

CRISIL Ratings believes sustenance of the company’s business risk profile will continue to support the liquidity profile of the company going forward. 

 

The ratings continue to reflects KJS’s healthy business profile assisted by longstanding experience of the promoters in cement industry and fully integrated nature of its manufacturing unit. These rating strengths are, however, partially offset by exposure to risks relating to manufacturing unit at a single location, cyclicality in the cement industry, and commoditized nature of the product.

 

The Delhi high court came out with an order pertaining to recent litigation between KJS and Directorate General of GST Intelligence (DGGI) related to evasion of GST. The said order mentions that DGGI in their press release has mentioned the liability is to the tune of Rs.17 crores and KJS has already paid 25% of the liability. Further, KJS’s management has shared an undertaking to maintain Rs.25 crores of liquid funds in case of crystallization of the mentioned GST liability. However, CRISIL Ratings will continue to monitor the progress of this litigation and any incremental liability arising out of this will be a key rating sensitivity factor.

 

Furthermore, there has been IT raids in various business entities owned by the promoters of KJS. However, CRISIL Ratings believes the IT raids will not have any material bearing on the credit risk profile of the KJS as the company has carryforward losses and unabsorbed depreciation to the tune of Rs.510 crores as per audited financials of 31st March ,2020, hence, KJS do not have any tax liability over the medium term. However, CRISIL Ratings will closely monitor the developments related to both these events and any unfavorable outcome will be a key monitorable going forward. 

Analytical Approach

To arrive at the ratings, unsecured loans from promoters (around Rs 80 crore outstanding as on March 31, 2020) were considered as 75% equity and 25% debt. The loans are subordinated to external debt, bear interest rate lower than market rate, and are expected to remain in the business over the medium term.

Key Rating Drivers & Detailed Description

Strengths:

Sustenance of healthy business risk profile: KJS has been a relatively new entrant in the cement industry, and started commercial production from fiscal 2013. Over the short span of time, the company has been able to strengthen its brand recall and diversify its market presence by adding more dealers/distributors. Products are sold through the vast network of nearly 3,000 dealers/distributors, in and around 40 districts of Madhya Pradesh and Uttar Pradesh (mainly eastern and central). With strong dealer/distributor network and healthy brand recall in the said geographies, the company has been able to sustain around Rs 950-1100 crores over last two fiscals through fiscal 2020. Furthermore, amidst COVID-19, the company’s operation were impacted in the month of April & May 2020 and post that the company has been able to scale up its operation. The revenues for fiscal 2021 is expected to be in line with the last fiscal.


Healthy operational metrics: KJS’s business operations are almost fully integrated with limestone mine reserves of around 70 mMT (million metric tons) with adequate lease period, clinker capacity of around 2.25 mMTPA, cement capacity of 2.25 mMTPA  and captive power plant of 27 MW (megawatt). Fully integrated nature of operations, close proximity between limestone mines and the manufacturing unit, and favorable fuel supply agreement (FSAs) for raw material sourcing, have strengthened operational metrics. The company has been able to maintain healthy operating profitability of 19-20% over last two fiscals through fiscal 2020. The company has been able to sustain healthy operating profitability at similar level in current year also on account of lower fixed cost component.

 

Lean working capital cycle: Working capital cycle is managed efficiently, as reflected in gross current assets of 100-120 days over the last few fiscals, aided by low receivables of 8-10 days and moderate inventory of 55-65 days. The lean working capital cycle and absence of any major capital expenditure (capex) have led to positive cash flow from operation (CFO) over the last few fiscals.      

 

Weakness:

Manufacturing unit at single location: KJS has a manufacturing unit only at a single location, as against the large branded players such as Shree Cements Ltd (SCL; CRISIL AAA/Stable/CRISIL A1+), Nuvoco Vistas Corporation Ltd (NVCL; CRISIL AA/Negative/CRISIL A1+), and Deccan Cements Ltd (DCL; CRISIL A/Stable/CRISIL A1),which have units at multiple locations. Hence, KJS’ business performance will remain susceptible to demand-supply dynamics in key markets of MP and UP.


Exposure to intense competition and volatility in raw material prices: Cement players, including KJS, are susceptible to volatility in input cost due to operating leverage in the cost structure. Moreover, exposure to intense competition limits their pricing flexibility.


Exposure to risks related to the comoditised 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 of new facilities and the large number of players adding capacities during the peak of a cycle. This has led to unfavorable price cycles for the sector in the past. Cyclical downturns also result in slow offtake, constraining the operating rate and the ability of players to pass on any rise in input costs.

Liquidity: Adequate

Liquidity of the company is adequate. The bank limit utilization has been moderate averaging at around 33% over the 12 months through Feb 2021. Also, the company has covered 60-65% of its working capital requirement using its own funds. The company is expected to generate cash accruals of around Rs 110-120 crores over medium term which is around 3 times of the repayment obligation. The company has also created a debt service reserve account (DSRA) of around Rs 25 crore, equivalent to one quarter’s interest and repayment obligation. Furthermore, the company maintains unencumbered liquid funds to the tune of Rs 40 crores augmenting its liquidity profile. The company has not availed RBI approved moratorium pertaining to COVID-19 and has also not applied for one time restructuring (a scheme introduced by RBI for stress accounts).   

Outlook Stable

CRISIL Ratings believes KJS will continue to benefit from established market position in few districts of UP and MP, backed by its strong dealer/distributor network.

Rating Sensitivity factors

Upward factors:

  • Improvement in financial risk profile with gearing levels going below 1time and interest coverage going above 3 times.
  • Increase in cash accruals of more than Rs.130 crores.
  • Sustenance of lean working capital cycle, leading to improvement in financial flexibility.

 

Downward factors:

  • Significant debt-funded capex leading to gearing of above 2 times over the medium term and deterioration of debt protection metrics.
  • Lower-than-expected profitability leading to dip in interest coverage ratio to below 2 times.
  • Any material impact of the ongoing litigation pertaining to GST and IT on company’s business or financial flexibility

About the Company

KJS is a closely-held public limited company, manufacturing Pozzolana Portland Cement (PPC) and Ordinary Portland Cement (OPC). Starting from fiscal 2010, the company has set up an integrated cement manufacturing unit. However, the company started its commercial production in October 2012, and sells 100% of its cement under its own brand KJS in districts of MP and UP. The company’s product and plant have certifications from Bureau of Indian Standards – ISO 9001(2011) and OHSAS 18001 (2007).

 

Currently, the company has an integrated cement manufacturing plant in the Satna district of Madhya Pradesh, spread across nearly 200 acres. The company has its own limestone mine with reserves of around 70 million MT (mMT), clinker unit with current capacity of 2.5 mMTPA, grinding unit of 2.5mMTPA and captive power plant of 27 MW.

Key Financial Indicators

As on / for the period ended March 31

 

2020

2019

Operating income

Rs crore

949.36

1079.11

Reported profit after tax

Rs crore

30.86

58.87

PAT margin

%

3.3

5.5

Adjusted Debt/Adjusted Networth

Times

1.6

1.88

Interest coverage

Times

2.0

2.5

 

Status of non cooperation with previous CRA: 

KJS has not cooperated with India Ratings and Research Private Limited, which has classified it as 'non-cooperative' vide release dated June 16, 2020. The reason provided by the credit rating agency is non-furnishing of information and lack of management cooperation for monitoring of ratings.

 

KJS has not cooperated with Acuite Ratings and Research Limited, which has classified it as 'non-cooperative' vide release dated May 26, 2021. The reason provided by the credit rating agency is non-furnishing of information and lack of management cooperation for monitoring of ratings

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)

ISIN

Name of instrument

Date of

allotment

Coupon rate (%)

Maturity date

Issue size (Rs crore)

Complexity level

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

30.0

NA

CRISIL BBB/Stable

NA

Funded Interest Term Loan

NA

NA

Mar, 2038

93.58

NA

CRISIL BBB/Stable

NA

Long Term Loan

NA

NA

Mar, 2038

457.45

NA

CRISIL BBB/Stable

NA

Bank Guarantee

NA

NA

NA

5.0

NA

CRISIL A3+

NA

Letter of credit

NA

NA

NA

15.0

NA

CRISIL A3+

NA

Proposed Long term bank loan facility

NA

NA

NA

0.47

NA

CRISIL BBB/Stable

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 581.5 CRISIL BBB/Stable   -- 23-12-20 CRISIL BB+/Stable 13-09-19 CRISIL BBB/Stable   -- --
      --   -- 29-06-20 CRISIL BB+ /Stable(Issuer Not Cooperating)*   --   -- --
Non-Fund Based Facilities ST 20.0 CRISIL A3+   -- 23-12-20 CRISIL A4+ 13-09-19 CRISIL A3+   -- --
      --   -- 29-06-20 CRISIL A4+ (Issuer Not Cooperating)*   --   -- --
All amounts are in Rs.Cr.
* - Issuer did not cooperate; based on best-available information
 
Annexure - Details of Bank Lenders & Facilities
Facility Name of Lender Amount (Rs.Crore) Rating
Bank Guarantee Punjab National Bank 5 CRISIL A3+
Cash Credit Punjab National Bank 30 CRISIL BBB/Stable
Funded Interest Term Loan Bank of India 15.05 CRISIL BBB/Stable
Funded Interest Term Loan Bank of Maharashtra 7.82 CRISIL BBB/Stable
Funded Interest Term Loan Indian Overseas Bank 14 CRISIL BBB/Stable
Funded Interest Term Loan Phoenix ARC Private Limited 9.65 CRISIL BBB/Stable
Funded Interest Term Loan Punjab National Bank 23.52 CRISIL BBB/Stable
Funded Interest Term Loan UCO Bank 12.12 CRISIL BBB/Stable
Funded Interest Term Loan United Bank of India 11.42 CRISIL BBB/Stable
Letter of Credit Punjab National Bank 15 CRISIL A3+
Long Term Loan Bank of India 73.14 CRISIL BBB/Stable
Long Term Loan Bank of Maharashtra 38.16 CRISIL BBB/Stable
Long Term Loan Indian Overseas Bank 68.4 CRISIL BBB/Stable
Long Term Loan Phoenix ARC Private Limited 47.14 CRISIL BBB/Stable
Long Term Loan Punjab National Bank 117.01 CRISIL BBB/Stable
Long Term Loan UCO Bank 58.87 CRISIL BBB/Stable
Long Term Loan United Bank of India 54.73 CRISIL BBB/Stable
Proposed Long Term Bank Loan Facility Not Applicable 0.47 CRISIL BBB/Stable

This Annexure has been updated on 8-Sep-2021 in line with the lender-wise facility details as on 26-Aug-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Cement Industry
CRISILs Criteria for rating short term debt
The Rating Process
CRISILs Bank Loan Ratings

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