| Kesoram Industries Limited | ||||||||
| Rating upgraded to 'CRISIL B/Stable' | ||||||||
| Rating Action | ||||||||
| ||||||||
| 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 Limited (KIL) to 'CRISIL B/Stable' from ‘CRISIL D’.
The rating has been upgraded driven by the repayment of all existing debt as per the settlement plan (the same was under default earlier) and track record of timely repayment of debt obligation since March 16, 2021. KIL repaid all the existing lenders through cash payment of Rs 1671 crore (including recoveries made by lenders) and through issue of 2.22 crore equity shares of KIL at Rs 65 each and 4.49 crore optionally convertible redeemable preference shares (OCRPS) at Rs 100 each for the balance amount. For making the above mentioned payments KIL had raised Rs 1603.5 crore and Rs 459.9 crore through private placement of NCDs and OCDs respectively on March 16, 2021.
Despite expected improvement in cash accruals over the medium term owing to healthy cement demand outlook and shift towards high margin PPC product, accruals would still be tightly matched against total funds needed to meet the debt obligations, working capital requirement and committed capital expenditure (capex).
Timely debt servicing of the NCDs/OCDs along with timely infusion of funds by promoters through rights issue, unsecured loans, other means; continuation of improved operating performance and improved liquidity are crucial for sustenance of KIL's credit risk profile.
The ratings continue to reflect the weak financial risk profile, stretched liquidity and exposure to cyclicality in the cement industry. These weaknesses are partially offset by the established market position in the cement industry and the long track record of the company. |
Analytical Approach
|
Key Rating Drivers & Detailed Description Weaknesses * Weak financial risk profile and stretched liquidity: Continued losses in past has eroded the networth of KIL. Debt protection metrics continue to remain weak, as reflected in interest coverage ratio of around 2 times in fiscal 2021. Despite successful restructuring in fiscal 2021, the leverage continues to remain high as majority of the debt raised was utilised to provide exit to the erstwhile lenders. The debt protection metrics are expected to remain modest due to the high leverage.
Monthly coupon payments on NCDs/OCDs along with high premium on redemption and tightly matched cash flows will continue to exert pressure on liquidity over the medium term. Further timely redemption of OCDs in August 2022 will be contingent on timely infusion of funds by the promoters along with sufficient internal cash accruals supported by sustained operating performance and, therefore, would be a key monitorable. Company’s cash and cash equivalent stood at Rs 105 crore as of March 31, 2021.
* Exposure to cyclicality in the cement industry: Cement players, including KIL, 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 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, thereby constraining the operating rate and the ability to pass on any rise in input costs.
Strengths * Established market position in the cement industry: KIL has aggregate cement grinding capacity of 10.75 million tonne per annum (MTPA) located 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. Moreover, benefits from the promoters' experience of over four decades, their strong understanding of the local market dynamics, and healthy relationships with customers and suppliers should continue to support the business.
* Long track record of the company: KIL has been operating for over 10 decades (incorporated on October 18, 1919, as Kesoram Cotton Mills Ltd) and is currently managed by Ms Manjushree Khaitan, daughter of Mr B K Birla after his demise in July 2019. |
Liquidity: Poor Company had a cash and equivalent balance of Rs 105 crore as of 31st March, 2021. However, liquidity is expected to remain stretched due to monthly coupon payments on NCDs/OCDs along with high premium on redemption and tightly matched cash flows would continue to exert pressure on liquidity over the medium term. Furthermore, in case internal accruals would be insufficient to service the debt repayments, timely support from promoters would be crucial for meeting the debt obligation and funding working capital requirements over the medium term. |
Outlook: Stable CRISIL Ratings believes KIL will continue to benefit from established market position in south and western region. |
Rating Sensitivity Factors Upward factors
Downward factors
|
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 located in Karnataka and Telangana.
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. Demerger of the tyre business is expected to improve KIL’s credit risk profile as the cement business has been consistently profitable while the tyre business has been a drag on the overall performance. |
Key Financial Indicators
*Based on quarterly results published |
Status of noncooperation with previous CRA KIL has not cooperated with Brickwork Ratings India Private Limited which has classified it as issuer not cooperative vide release dated March 13, 2021. The reason provided by Brickwork Ratings India Private Limited is unavailability of due diligence, unavailability of latest financials and latest developments of the company's business & financial risk profile and impact of COVID-19 on the same. |
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)
*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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Criteria Details
|