Rating Rationale
July 04, 2023 | Mumbai
NCL Industries Limited
Ratings reaffirmed at 'CRISIL A / Stable / CRISIL A1 '; Rated amount enhanced for Fixed Deposits
 
Rating Action
Total Bank Loan Facilities RatedRs.561 Crore
Long Term RatingCRISIL A/Stable (Reaffirmed)
Short Term RatingCRISIL A1 (Reaffirmed)
 
Rs.100 Crore (Enhanced from Rs.75 Crore) Fixed DepositsCRISIL A/Stable (Reaffirmed)
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 reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities and fixed deposits programme of NCL Industries Limited (NCL).

 

The ratings reflect NCL's established market position in South India, long track record of operations and healthy financial risk profile. These rating strengths are, however, partially offset by risks relating to volatile input costs, cyclicality in cement industry, and commodity nature of the product.

Analytical Approach

For arriving at the ratings CRISIL Ratings has considered the consolidated financials of NCL and its subsidiaries Tern Distilleries Pvt Ltd (TDPL). Also, NCL has started a Joint Venture NCL Buildtek & NCL Industries JV along with its group company NCL Buildtek Ltd.  However, there are no major business activities in the JV. On April 2023, company acquired Vishwamber Cements Ltd (VCL) and it will become wholly owned subsidiary of NCL Industries Limited (NCL) in fiscal 2024.

 

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:

Established market position in South India: NCL is an established player in the cement industry with a long track record of more than 4 decades and has installed clinker and cement capacities of 2.6 million tonnes per annum (MTPA) and 3 MTPA respectively. Abundant availability of limestone in its captive mines along with availability of captive power of 23.5 MW (Solar – 8 MW, Hydel – 7.5 MW and waste heat recovery – 8 MW) adequate to meet 30-35% of its requirement and advantageous location results in moderate operating efficiency. Further the company has diversified its product profile by venturing into other building material such as ready-mix concrete, cement bonded particle boards and doors. The products are marketed under the brands “Nagarjuna Cement”, “Nagarjuna RMC”, “Bison Panels” and “NCL doors”.

 

Healthy financial risk profile: Net worth and gearing were healthy at around Rs 769.86 crore and 0.38 time, respectively as of March 31, 2023. Debt protection metrics were also comfortable with interest coverage and net cash accrual to total debt ratios of 5.64 times and 0.27 time, respectively, for fiscal 2023. The company is expected to undertake additional debt funded capital expenditure of over Rs 150 crore to increase its cement capacity by 0.7 MTPA which is expected to take about 18 months’ time after receiving the required approvals. Despite the planned debt funded capital expenditure, financial risk profile is expected to remain comfortable with gearing expected to remain below 0.5 time over the medium term.

 

Weaknesses:

Exposure to intense competition and to risks related to volatility in raw material prices: Cement players, including NCL, are susceptible to fluctuations in the prices of coal/petcoke, various raw material (other than limestone which is captively available), packing material and diesel. Against this, exposure to intense competition and limited product differentiation limits the pricing flexibility of players.

 

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

Liquidity: Adequate

Liquidity is expected to be adequate because of healthy net cash accruals which are expected to be over Rs 134-170 which are sufficient against term debt obligation of Rs 55-65 crore over the medium term.  Average Bank limit utilisation was moderate at around 47% percent for the twelve months ended May 2023

Outlook: Stable

CRISIL Ratings believes that NCL will continue to be benefit from its established market position and extensive experience of its promoter.

Rating Sensitivity factors

Upward Factors:

* Higher price realisations along with sustained healthy operating rates of over 95-97% and an improvement in operating margin to around 13.5-14% resulting in healthy net cash accrual of over Rs 160 crore.

* Further strengthening of financial risk profile along with improvement in return on capital employed to over 15%

 

Downward Factors:

* Sharp decline in realisations or operating rates impacting the revenue and profitability margins with operating margin dropping to below 9%

* Higher than expected debt funding for the future capex or any large debt funded acquisition or any large cash outflow in the form of dividends/share buy-back weakening the financial risk profile & liquidity

About the Group

NCL, incorporated in 1979 by Late Sri K Ramachandra Raju, manufactures different varieties of cement, cement bonded particle boards, Ready-mix concrete and Doors. Mr K Gautam (Managing Director) currently overlooks the operations. NCL acquired TDPL in fiscal 2021 and it intends to set-up a greenfield cement unit in the land owned by that company in Visakhapatnam, Andhra Pradesh. Currently there are no operations in the subsidiary. On April 2023, company acquired Vishwamber Cements Ltd (VCL) for a total consideration of Rs. 16.23 crores . VCL will become wholly owned subsidiary of NCL Industries Limited (NCL) in fiscal 2024. VCL is not currently operational and has not established any cement plants. VCL was acquired with an objective to convert the limestone mines covering an area of 322 acres under its lease into captive mines of NCL for captive consumption of limestones.

Key Financial Indicators

As on / for the period ended March 31   2023 2022
Operating income Rs crore 1,610 1,633
Reported profit after tax Rs crore 44 94
PAT margins % 2.75 5.77
Adjusted Debt/Adjusted Net worth Times 0.38 0.45
Interest coverage Times 5.64 8.35

Status of non cooperation with previous CRA:

NCL has not cooperated with CARE Ratings which has classified it as issuer not cooperative vide release dated June 04, 2018. The reason provided by CARE Ratings is non-furnishing of information by NCL 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 and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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 
levels
Rating assigned
with outlook
NA Cash Credit NA NA NA 180 NA CRISIL A/Stable
NA Fixed Deposits NA NA NA 100 Simple CRISIL A/Stable
NA Letter of Credit & Bank Guarantee NA NA NA 45 NA CRISIL A1
NA Proposed Term Loan  NA NA NA 108.5 NA CRISIL A/Stable
NA Term Loan NA NA Jun-27 54.4 NA CRISIL A/Stable
NA Term Loan NA NA Oct-24 9.7 NA CRISIL A/Stable
NA Term Loan NA NA Oct-24 10.6 NA CRISIL A/Stable
NA Term Loan NA NA Mar-28 30.9 NA CRISIL A/Stable
NA Term Loan NA NA Mar-26 31.7 NA CRISIL A/Stable
NA Term Loan NA NA Mar-26 15.2 NA CRISIL A/Stable
NA Term Loan NA NA Mar-28 75 NA CRISIL A/Stable

Annexure – List of entities consolidated

Names of entities consolidated Extent of consolidation  Rationale for consolidation 
NCL Industries Limited Full Parent
Tern Distilleries Pvt Ltd Full 100% subsidiary of NCL
NCL Buildtek and NCL Industries JV Proportionate Same line of business with operational linkages
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 516.0 CRISIL A/Stable 21-04-23 CRISIL A/Stable 20-09-22 CRISIL A/Stable 24-09-21 CRISIL A/Stable 19-03-20 CRISIL A-/Stable CRISIL A-/Stable
      --   -- 12-09-22 CRISIL A/Stable 13-09-21 CRISIL A/Stable   -- --
      --   -- 22-06-22 CRISIL A/Stable 03-06-21 CRISIL A-/Positive   -- --
      --   --   -- 06-01-21 CRISIL A-/Positive   -- --
Non-Fund Based Facilities ST 45.0 CRISIL A1 21-04-23 CRISIL A1 20-09-22 CRISIL A1 24-09-21 CRISIL A1 19-03-20 CRISIL A2+ CRISIL A2+
      --   -- 12-09-22 CRISIL A1 13-09-21 CRISIL A1   -- --
      --   -- 22-06-22 CRISIL A1 03-06-21 CRISIL A2+   -- --
      --   --   -- 06-01-21 CRISIL A2+   -- --
Fixed Deposits LT 100.0 CRISIL A/Stable 21-04-23 CRISIL A/Stable 20-09-22 CRISIL A/Stable 24-09-21 F A+/Stable 19-03-20 F A/Stable F A/Stable
      --   -- 12-09-22 CRISIL A/Stable 13-09-21 F A+/Stable   -- --
      --   -- 22-06-22 CRISIL A/Stable 03-06-21 F A/Positive   -- --
      --   --   -- 06-01-21 F A/Positive   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 25 HDFC Bank Limited CRISIL A/Stable
Cash Credit 20 Kotak Mahindra Bank Limited CRISIL A/Stable
Cash Credit 50 Axis Bank Limited CRISIL A/Stable
Cash Credit 20 State Bank of India CRISIL A/Stable
Cash Credit 65 Bank of Baroda CRISIL A/Stable
Letter of credit & Bank Guarantee 10 Bank of Baroda CRISIL A1
Letter of credit & Bank Guarantee 25 State Bank of India CRISIL A1
Letter of credit & Bank Guarantee 10 Axis Bank Limited CRISIL A1
Proposed Term Loan 108.5 Not Applicable CRISIL A/Stable
Term Loan 9.7 HDFC Bank Limited CRISIL A/Stable
Term Loan 31.7 Axis Bank Limited CRISIL A/Stable
Term Loan 15.2 HDFC Bank Limited CRISIL A/Stable
Term Loan 10.6 Axis Bank Limited CRISIL A/Stable
Term Loan 54.4 Axis Bank Limited CRISIL A/Stable
Term Loan 30.9 Axis Bank Limited CRISIL A/Stable
Term Loan 75 Kotak Mahindra Bank Limited CRISIL A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Cement Industry
CRISILs criteria for rating fixed deposit programmes
Understanding CRISILs Ratings and Rating Scales
CRISILs Criteria for Consolidation

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