Rating Rationale
September 10, 2018 | Mumbai
NCL Industries Limited
Rated amount enhanced
 
Rating Action
Total Bank Loan Facilities Rated Rs.275 Crore (Enhanced from Rs.140 Crore)
Long Term Rating CRISIL A-/Stable (Reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
 
Rs.60 Crore Fixed Deposits FA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A-/FA/Stable/CRISIL A2+' ratings on the bank facilities and fixed deposits of NCL Industries Limited (NCL).

CRISIL had upgraded its ratings on the bank facilities and fixed deposits of NCL to 'CRISIL A-/FA/Stable/CRISIL A2+' from ''CRISIL BBB+/FA-/Positive/CRISIL A2' on July 30, 2018 

The ratings continues to reflect NCL's established market position in South India, long track record of operations,and its moderate operating efficiencies. The ratings also factor in 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.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in South India: The Company is one of the leading cement players in South India, with a track record of over 30 years. Abundant availability of limestone in its captive mine results in strong operational efficiency and hence moderate operating margin even during adverse business cycles. Moreover, the promoters have an experience of over three decades in the cement manufacturing industry.
 
* Healthy financial risk profile: The net worth and gearing were healthy at Rs 461 crore and 0.5 times, respectively, as on March 31, 2018. An operating margin of above 15% and moderate reliance on debt have resulted in healthy debt protection metrics, as reflected in interest coverage and net cash accrual to total debt ratios of 4 times and 0.3 time, respectively, for fiscal 2018. Next round of refinancing of high cost debt in FY19, is expected to further strengthen the debt protection measures. 
 
Weakness
* Exposure to intense competition and to risks related to volatility in raw material prices: Cement players, including NCL, are susceptible to volatility in input cost due to operating leverage in the cost structure. Moreover, exposure to intense competition limits the pricing flexibility of players.
 
* Exposure to risks related to the commoditized nature of products and cyclicality in the cement industry: Capacity additions in the commoditized 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 in the industry result in slow offtake, constraining the operating rate and the ability of players to pass on any rise in input costs.

Outlook: Stable

CRISIL believes NCL's operating performance will remain stable driven by of better utilization new capacities and overall healthy demand outlook for the cement sector. Healthy up-tick in volume supported by improvement in demand, and pricing discipline in the southern market are expected to benefit the operating performance over the medium term. Moreover, healthy operating margin is expected to be supported by sale of cement boards.
 
Upside scenario
* Higher than anticipated ramp-up in capacity utilization of the new capacities which improves business risk profile
* Sustenance of operational efficiencies leading to higher cash accruals
 
Downside scenario
* Deterioration in business profile on back of slower than anticipated offtake in cement
* Deterioration in financial risk profile on account of profitability pressures
* Weakening of capital structure resulting from increased capital expenditure

About the Company

NCL, incorporated in 1979 and based at Hyderabad, manufactures different varieties of cement, cement particle boards and Ready-mix concrete. NCL is promoted by Late Sri.K.Ramachandra Raju and operations are managed by managing director, Mr. K Ravi.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs. Cr. 884 767
Profit After Tax (PAT) Rs. Cr. 49 55
PAT Margins % 5.6 7.1
Adjusted Debt/Adjusted Net worth Times 0.5 1.3
Interest coverage Times 4.4 3.7

Status of non cooperation with previous CRA
NCL has not cooperated with Credit Analysis & Research Ltd which has classified it as issuer not cooperativing on FD rating vide release dated June 4th, 2018. The reason provided by Credit Analysis & Research Ltd is non-furnishing of information for monitoring of ratings.

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)
ISIN Name of instrument Date of
allotment
Coupon
rate (%)
Maturity
date
Issue size
(Rs. cr.)
Rating assigned with outlook
NA Letter of credit &
Bank Guarantee
NA NA NA 50 CRISIL A2+
NA Cash Credit NA NA NA 90 CRISIL A-/Stable
NA Long Term Loan NA NA 31-Mar-25 135 CRISIL A-/Stable
NA Fixed Deposits NA NA NA 60 FA/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fixed Deposits  FD  60.00  FA/Stable  30-07-18  FA/Stable  15-11-17  FA-/Stable    --    --  -- 
        02-04-18  FA-/Positive               
Fund-based Bank Facilities  LT/ST  225.00  CRISIL A-/Stable  30-07-18  CRISIL A-/Stable  15-11-17  CRISIL BBB+/Stable    --    --  -- 
        02-04-18  CRISIL BBB+/Positive               
Non Fund-based Bank Facilities  LT/ST  50.00  CRISIL A2+  30-07-18  CRISIL A2+  15-11-17  CRISIL A2    --    --  -- 
        02-04-18  CRISIL A2               
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 90 CRISIL A-/Stable Cash Credit 90 CRISIL A-/Stable
Letter of credit & Bank Guarantee 50 CRISIL A2+ Letter of credit & Bank Guarantee 50 CRISIL A2+
Long Term Loan 135 CRISIL A-/Stable -- 0 --
Total 275 -- Total 140 --
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Cement Industry
CRISILs Bank Loan Ratings
Understanding CRISILs Ratings and Rating Scales

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