Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil A1+' rating on the commercial paper programme of RCCPL Pvt Ltd (RCCPL).

 

During fiscal 2024, the operating income grew around 16%, mainly owing to the increase in sales volume. The earnings before interest, tax, depreciation, and amortisation (Ebitda) per tonne improved to Rs 1,118 for the period (from Rs 761 for fiscal 2023), driven by ramp up of Mukutban unit along with benefit of incentives, and moderation in input costs. Operating performance weakened marginally during first half of fiscal 2025 with Ebitda per ton moderating to Rs 820 compared to Rs 871 for the corresponding period of the previous fiscal, impacted by subdued realisations across the industry. However, with expected recovery in demand and price hikes undertaken, the operating performance is expected to improve from second half of fiscal 2025 and will also be supported by internal cost efficiency measures implemented by the company. The company’s sales volume is expected to grow at a healthy double-digit rate in FY25 and FY26 with further ramp up of the Mukutban plant to over 70% utilization (from 59% in fiscal 2024). Although profitability is expected to remain moderated for this fiscal, healthy improvement is expected fiscal 2026 onwards with Ebitda per ton upwards of Rs 900.

 

With low profitability in fiscal 2025, debt protection metrics are expected to moderate but improve from fiscal 2026 onwards. With staggered capex plans of the company and the expected improvement in profitability, the debt protection metrics are expected to remain comfortable. Crisil Ratings also derives comfort from the capex prudence exhibited by the company in the past and expects it to continue in a scenario of weaker than expected performance. Under RCCPL, the leverage as measured by net debt to Ebitda is expected to remain below 3 times on a steady state basis over the medium term.

 

The rating centrally factors in strategic importance of RCCPL to Birla Corporation Ltd (BCL; ‘Crisil A1+') and the strong support it receives from BCL. The rating also reflects RCCPL's healthy operating efficiency. These strengths are partially offset by leveraged capital structure, average debt protection metrics, debt-funded capex and susceptibility to input costs and cyclicality in the cement industry.

Analytical Approach

Crisil Ratings has applied its criteria for notch-up of rating based on parent support.

Key Rating Drivers & Detailed Description

Strengths:

• Strong support from the parent: BCL has high operational, managerial and financial integration with its wholly owned subsidiary, RCCPL. The parent has consolidated its position in its key market of central India with the addition of RCCPL's assets, as the latter forms ~50% of the combined capacity of 20 million tonne per annum (mtpa). Both companies sell under the common brand, MP Birla, thereby further strengthening the market position.

 

RCCPL's assets are critical to BCL given that they are efficient (due to less vintage) and carry tax incentives. It also benefits from the parent's managerial support, as fours directors (including chairman and MD) on the board of RCCPL are from the parent's board; further, the two companies have common chairman and managing director. BCL has also extended financial support through infusion of compulsorily redeemable preference shares and corporate guarantee for some of the term loans of RCCPL in the past.

 

Crisil Ratings believes RCCPL is likely to remain strategically important to BCL and thus will continue receiving strong management, operational and financial support from the parent. However, the rating of RCCPL will remain sensitive to the credit rating of BCL.

 

• Healthy operating performance: RCCPL has sizeable mineral reserves with captive limestone mines, coal mine and assured supply of fly ash. The company also has significant tax incentives in all the plants, which also supports healthy operating margin. Post-acquisition by BCL, capacity utilisation of RCCPL excluding Mukutban improved to more than 100% in fiscal 2023 from 64% in fiscal 2017. Utilisation at RCCPL stood at 84% in fiscal 2024, and is expected to remain strong over the medium term. Operating performance is expected to benefit further with the stabilisation of the integrated Mukutban plant.

 

• High financial flexibility: Financial flexibility is comfortable for RCCPL being a wholly owned subsidiary of BCL which is a part of the MP Birla group. Liquidity is also backed by improving cash accrual and moderate utilization of fund-based limits.

 

BCL, on a consolidated basis, has cash and investments of more than Rs 700 crore as on September 30, 2024, marginally utilised working capital limits and a large freehold land bank. The company has demonstrated ability to raise funds at competitive interest rates.

 

Weaknesses:

• Average debt protection metrics owing to large debt-funded capex: Net debt to ebitda improved to 3.0 times in fiscal 2024 compared to 5.9 times in fiscal 2022 owing to ramp up at Mukutban plant and improved profitability. With lower profitability in fiscal 2025, net debt to EBITDA ratio is expected to moderate, but will improve fiscal 2026 onwards. Company is expected to incur capex of Rs 900-1,000 crore over fiscal 2025 and 2026. Nonetheless, healthy expected accruals will limit the debt addition and the net debt to Ebitda is expected to remain below 3 times on a steady state basis over the medium term. Crisil Ratings also derives comfort from the capex prudence exhibited by the company in the past and expects it to continue in a scenario of weaker than expected performance.  The extent of profitability improvement going forward and the ability of the company to ramp up recently commissioned and upcoming facilities will remain monitorable.

 

• Exposure to risk related to input costs and cyclicality in the cement industry: Profitability is susceptible to volatility in the costs of inputs such as material, power, fuel and freight. Also, any change in government policies could impact the operating margin. For instance, the operating margin in fiscal 2022 and 2023 was impacted by higher cost of coal/pet coke and diesel.

Liquidity: Strong

Cash accrual is estimated at around Rs 500-550 crore in fiscal 2025 and increase to ~650 crore in fiscal 2026, which should be sufficient to meet its long-term debt repayment obligations of Rs 336 crore in fiscal 2025 and Rs 450 crore in fiscal 2026, and also part fund the capex. The fund-based working capital facility of Rs 265 crore was moderately utilised. Bank lines are expected to comfortably meet the incremental working capital requirement

Rating sensitivity factors

Downward factors:

• Decline in credit rating of BCL by one or more notch. Change in shareholding or support philosophy of BCL towards RCCPL
• Weaker than expected operating performance, or higher than expected debt resulting from capex or acquisitions, leading to higher consolidated net debt to EBITDA of more than 5.5 times on a sustainable basis
• Moderation in the business risk profile driven by sustained disruption in demand.

About the Company

RCCPL was incorporated in 2007 as a wholly owned subsidiary of Reliance Infrastructure Ltd. On August 22, 2016, BCL acquired 100% stake of RCCPL for an enterprise valuation of Rs 4,800 crore (including debt of Rs 2,400 crore). The name has been changed to RCCPL from Reliance Cement Company Pvt Ltd on August 01, 2018.

 
RCCPL has four plants with combined grinding capacity of 9.8 mtpa. It has an integrated plant at Maihar (Madhya Pradesh) and one grinding unit each at Kundanganj (UP) and Butibori (Maharashtra). The mining lease at Mukutban (Maharashtra) has enabled the company in setting up an integrated unit of 3.9 MTPA capacity which commissioned in April 2022.

 
BCL, the flagship company of the MP Birla group, has cement plants in Rajasthan, Uttar Pradesh, Madhya Pradesh and West Bengal with total capacity of 10.2 mtpa.

Key Financial Indicators^

Particulars	Unit	2024	2023
Revenue	Rs crore	4376	3773
Profit after tax (PAT)	Rs crore	250	22
PAT margin	%	5.7	0.6
Adjusted debt/adjusted networth	Times	1.5	1.9
Interest coverage	Times	3.5	2.2

^As per Crisil Ratings’ analytical adjustment

Any other information: Not Applicable