| Kesoram Industries Limited | ||||||||
| Rating upgraded to 'CRISIL BB+ / Stable' | ||||||||
| 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 upgraded its rating on the optionally convertible debentures (OCDs) and non-convertible debentures (NCDs) of Kesoram Industries Ltd (KIL) to 'CRISIL BB+/Stable' from ‘CRISIL B/Stable’.
The upgrade reflects CRISIL Ratings’ expectation of a significant improvement in KIL’s financial risk profile driven by equity raise of Rs 400 crore through rights issue and sustainable improvement in operating performance over the medium term.
KIL has reported earnings before interest tax depreciation and amortization (EBITDA) of Rs 320 crore during first half of fiscal 2022 against Rs 178 crore during the corresponding period of previous fiscal. CRISIL Ratings expects the improved operating performance of KIL to sustain over the medium term. Furthermore, proceeds from rights issue would enable KIL to prepay OCDs aggregating Rs 459.90 crore by March 2022, originally scheduled to be repaid in August 2022, resulting in accelerated deleveraging.
The ratings reflect KIL’s established market position in the cement industry and improved operating performance. These strengths are partially offset by modest yet improving financial risk profile, exposure to refinancing risk and exposure to cyclicality in the cement industry.
CRISIL Ratings has noted KIL’s plan to refinance its high-cost debt with board approving fund raising upto Rs 2,500 crore. KIL’s financial risk profile can further improve if refinancing improves its interest coverage and debt service coverage ratios on a sustainable basis. |
Analytical Approach
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Key Rating Drivers & Detailed Description Strengths * Established market position in the cement industry: The company has aggregate cement grinding capacity of 10.75 million tonne per annum (mtpa) in Karnataka and Telangana, with key markets being the southern and western regions. Furthermore, abundant availability of limestone at the captive mine and captive power generation results in operational efficiency. Benefits from the promoters' experience of over four decades, their strong understanding of local market dynamics, and healthy relationships with customers and suppliers should continue to support the business.
* Improved operating performance: Operating performance has improved significantly, with around 58% year-on-year increase in sales volume to 3.47 mtpa during the first-half of fiscal 2022. Profitability also improved, with Ebitda per tonne at Rs 922 in the first-half of fiscal 2022 vis-à-vis Rs 806 in the first-half of fiscal 2021 following improved realisations and better cost control. Higher volumes and improved EBITDA per tonne has resulted in absolute EBITDA growing by around 80% y-o-y during first half of fiscal 2022.
Weaknesses * Modest yet improving financial risk profile, exposure to refinancing risk: KIL’s financial risk profile is marked by high gearing and modest debt protection metrics, even though fund raising through rights issue is expected to improve the networth by end of fiscal 2022. Gearing (total debt/adjusted networth) is expected to remain above 7 times as on March 31, 2022 even after factoring prepayment of OCDs worth Rs 459.90 crore which is originally scheduled to be repaid in August 2022, while interest coverage ratio (accrual basis) is expected to remain below 1.5 times for fiscal 2022.
Further the debt raised by KIL has backend repayment, step up coupons along with high premium at time of redemption. Sizeable debt with increasing coupon increases the refinancing risk over time. However, CRISIL Ratings has noted KIL plans to refinance existing debt over next 6-9 months which would improve interest coverage and debt service coverage ratios on a sustainable basis.
* Exposure to cyclicality in the cement industry: Cement players are susceptible to volatility in input cost due to operating leverage in the cost structure. Furthermore, intense competition may continue to constrain scalability, pricing power and profitability. Capacity additions in the commoditised cement industry tend to be sporadic because of long gestation periods associated with setting up new facilities, and many 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, thereby constraining operating rate and ability to pass on any rise in input costs. |
Liquidity Adequate Unencumbered cash and equivalent of around Rs 116 crore as of September 30, 2021 along with cash accruals to be generated and proceeds from balance rights issue (Rs 200 crore expected by January 2022) would be adequate to meet KILs working capital requirement, prepayment of OCD worth Rs 459.90 crore by March 2022, originally scheduled to be repaid in August 2022, and routine capex requirement. Further there are no major repayment obligation over the medium term apart from OCD prepayment planned. In absence of any working capital lines, efficient management of working capital cycle remains crucial. |
Outlook Stable The company will continue to benefit from its established market position in southern and western India. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company KIL, part of the B K Birla group of companies, is a diversified conglomerate that manufactures cement and rayon. Cement manufacturing is the primary business of the company. KIL’s cement units have an aggregate capacity of 10.75 mtpa and are in Karnataka and Telangana. Post demise of Mr B K Birla the company is managed by Ms Manjushree Khaitan who is currently chairman of the company.
Earlier, during fiscal 2020, the National Company Law Tribunal has approved demerger of the tyre business of KIL on November 08, 2019, and the scheme became effective from December 04, 2019, with appointed date being January 01, 2019.
For the six months ended September 30, 2021, KIL reported a profit after tax (PAT) of Rs 17 crore and operating income of Rs 1,638 crore, against Rs 50 crore and Rs 996 crore, respectively, for the corresponding period previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*These instruments are yet to be placed # Payable on a monthly basis & 9.10% for 1-18 months, 11.30% for 19-36 months and 13.10% 37th month onwards till maturity and redemption premium to maintain the overall XIRR of 20.75% |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
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