| NCL Industries Limited | ||||||
| Ratings upgraded to 'CRISIL A/FA+/Stable/CRISIL A1' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities and fixed-deposits of NCL Industries Ltd (NCL) to ‘CRISIL A/FA+/Stable/CRISIL A1’ from ‘CRISIL A-/FA/Positive/CRISIL A2+’.
The rating upgrade factors in better than expected performance in fiscal 2021 along with the expected sustenance of the same over the medium term and improved operating efficiencies due to savings on power costs. The ratings improvement also factors in the improved financial risk profile & liquidity. Revenue grew by 48% in fiscal 2021 to Rs 1386 crore despite the nation-wide lockdown imposed in Q1 of fiscal 2021. This was driven by healthy uptick in demand from infrastructure and housing segments in the subsequent quarters, resulting in significantly better operating rate and higher price realisations. The realisations are estimated to remain high over the medium term, owing to strong retail dealer network particularly in rural markets which should lead to revenues remaining at around Rs.1400-1500 crore for fiscal 2022 and ahead. Operating margins also increased sharply to 20.6% in fiscal 2021 (from 15% in the previous year) driven by lower input costs and higher realisations. However, increasing prices of coal, packing material and higher fuel/transportation costs could lead to moderation in operating margins by 200 to 300 bps in fiscal 2022. Nevertheless, commissioning of solar power and waste heat recovery units in the quarter ended June, 2021 should result in saving on the power cost by Rs 28-30 crore per annum from fiscal 2022 onwards. As a result, operating efficiencies should continue to remain moderate over the medium term.
Financial risk profile has also strengthened due to healthy operating performance, thereby improving networth, gearing and debt protection metrics. Net cash accrual increased to Rs 178 crore in fiscal 2021 from about Rs 71 crore in the previous fiscal. Moreover, despite the ongoing and planned debt funded capital expenditure, the financial risk profile and liquidity should remain healthy because of healthy net cash accruals.
The ratings also reflect NCL's established market position in South India, long track record of operations, its moderate operating efficiencies 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 wholly owned subsidiaries NCL Guangzheng Structures Ltd (NCL Guangzheng) and Tern Distilleries Pvt Ltd (TDPL). This is because both these entities are wholly-owned subsidiaries of NCL. However there are no major business activities in the subsidiaries 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 over 35 years and has installed clinker and cement capacities of 2.6 MTPA and 2.7 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 current 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 “NCLdoors”.
* Healthy financial risk profile: Net worth and gearing are healthy at around Rs 665 crore and 0.43 time, respectively as of March 31, 2021. Debt protection metrics are also healthy with interest coverage and net cash accrual to total debt ratios of 13.2 times and 0.62 time, respectively, for fiscal 2021. The company is currently undertaking debt funded capital expenditure of over Rs 250 crore to increase its cement capacity by 1 MTPA which is estimated 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 estimated to remain below 0.5 time over the medium term.
Moderate operating efficiencies: Operating margin improved significantly to 20.6% in fiscal 2021 (from 15% in the previous fiscal). Operating margin has remained moderate at 14-15% in the earlier years even during adverse business cycles. Working capital requirements have remained moderate with gross current assets of 83 days as of March 31, 2021 driven by moderate inventory and debtors. Return on capital employed was also healthy at 25.2% in fiscal 2021 and is estimated to remain comfortable at 16-18% level 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 unfavourable 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 accrual which is expected to be sufficient to meet the maturing repayment obligations and for funding the incremental working capital requirements and part of capex. Annual net cash accrual is projected at Rs 150-170 crore in fiscals 2022 and 2023 against which the repayments are expected to be about Rs 35-60 crore. Utilization of bank limits was minimal at less than 15% over the eight months ended June, 2021. |
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:
Downward Factors:
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About the Company 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 Ravi (Managing Director) currently overlooks the operations.
NCL Guangzheng was initially set-up as a 70:30 joint venture (JV) between NCL and China based Quingdao Xinguangzheng Steel Structure Co Ltd. However, the JV was terminated during fiscal 2021 and currently there are no operations in this company.
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. |
Key Financial Indicators
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Status of noncooperation with previous CRA NCL has not cooperated with CARE Ratings which has classified it as issuer not cooperative vide release dated August 24, 2021. 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. 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)
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Annexure - List of Entities Consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||
| Facility | Amount (Rs.Crore) | Rating |
| Cash Credit | 50 | CRISIL A/Stable |
| Cash Credit | 20 | CRISIL A/Stable |
| Cash Credit | 25 | CRISIL A/Stable |
| Cash Credit | 45 | CRISIL A/Stable |
| Letter of credit & Bank Guarantee | 25 | CRISIL A1 |
| Letter of credit & Bank Guarantee | 10 | CRISIL A1 |
| Proposed Long Term Bank Loan Facility | 7.4 | CRISIL A/Stable |
| Term Loan | 39 | CRISIL A/Stable |
| Term Loan | 32.21 | CRISIL A/Stable |
| Term Loan | 62.5 | CRISIL A/Stable |
| Term Loan | 35.29 | CRISIL A/Stable |
| Term Loan | 25 | CRISIL A/Stable |
| Term Loan | 19.6 | CRISIL A/Stable |
Criteria Details
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