Rating Rationale
August 28, 2020 | Mumbai
RCCPL Private Limited
Rating Reaffirmed 
 
Rating Action
Rs.100 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of RCCPL Private Limited (RCCPL).

The rating centrally factors in the company's strategic importance to Birla Corporation Ltd (BCL; rated 'CRISIL AA/Stable/CRISIL A1+') and the strong support it receives from BCL. The rating also reflects RCCPL's healthy operating efficiency and high financial flexibility. These strengths are partially offset by leveraged capital structure, average debt protection metrics, debt-funded capital expenditure (capex), and susceptibility to input costs and cyclicality in the cement industry.
 
For fiscal 2020, the operating income grew by 4% as operations were impacted by lockdown in the last 10 days of March. Operating performance in fiscal 2021 would be impacted following extension of lockdowns by various state governments as well as central government towards containment of COVID-19. Volume sales are expected to de-grow year on year, however, operating profitability is expected to remain healthy driven by lower costs and healthy realisations.
 
Despite the impact of the lockdowns at the end of the fiscal 2020, the company has managed to sustain its financial risk profile. Net debt to EBITDA improved to 3.77 times in fiscal 2020 from 4.10 times in fiscal 2019 driven by healthy operating profitability. Debt protection metrics are expected to moderate in fiscal 2021 owing to increase in debt to fund the ongoing expansion plans.

Analytical Approach

For arriving at the rating, CRISIL has applied its criteria for notch-up of rating based on parent support.

Key Rating Drivers & Detailed Description
Strengths
* Strong support from parent: BCL has high operational, managerial, and financial integration with its wholly owned subsidiary, RCCPL. Parent has consolidated its position in its key market of central India with the addition of RCCPL's assets, as the latter forms 36% of the combined capacity of 15.6 million tonne per annum (8.8 mtpa in central India). In addition, both companies now sell under the common brand, MP Birla, thereby further strengthening position.

RCCPL's assets are critical to BCL given that they are efficient (due to less vintage) and also carry tax incentives. Furthermore, with increasing capacity utilisation, RCCPL generated 49% of the consolidated operating profitability in fiscal 2020. It also benefits from parent's managerial support, as two of the six directors on RCCPL's board are from parent's board; the two companies also 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 RCCPL's term loans.
 
CRISIL believes RCCPL will remain strategically important to BCL, and thus will continue to receive strong management, operational, and financial support from 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 its plants, which also supports healthy operating margin. Post-acquisition by BCL, capacity utilisation improved to 91% in fiscal 2020 from 64% in fiscal 2017. EBITDA (earnings before interest, tax, depreciation, and amortisation) per tonne increased to Rs 1295/ton in fiscal 2020 from Rs 1,117/ton in fiscal 2019 for RCCPL driven by healthy realizations and lower power and fuel costs.
 
* High financial flexibility: Financial flexibility is comfortable as RCCPL is part of the MP Birla group. Liquidity is also backed by improving accrual and moderate fund-based utilisation. BCL on a consolidated basis has cash and liquid surplus of Rs 938 crore as on March 31, 2020, undrawn working capital limit, and a large land bank.
 
Weakness
* Average debt protection metrics and large debt funded capex: Overall Net debt to EBITDA ratio remained high at 3.87 times while interest coverage ratio was moderate at 3.16 times for fiscal 2020. Gearing was high at 2.22 times as on March 31, 2020. Furthermore, the group's ability to avail of tax incentives will be a key monitorable.

Capex of Rs 2500 crore for setting up a 3.9-mtpa greenfield capacity at Mukutban, Maharashtra, will be funded in a debt-equity ratio of 2:1. With implementation of the capex, improvement in gearing and debt protection metrics will be slower than anticipated. However, sufficient accrual, healthy liquidity, and moderate implementation risk continue to provide comfort over the medium term.  
 
* Execution risks: The Company is undergoing a capex to set up 3.9 MTPA of greenfield cement plant in Mukutban, Maharashtra at a total cost of Rs 2500 crores. The sizeable capex plan exposes the company to execution risks.

* Exposure to risk related to input costs and cyclicality in the cement industry: Profitability is susceptible to volatility in costs of inputs such as material, power, fuel, and freight. Operating profit was also affected in fiscal 2019 by high pet coke and diesel prices.
Liquidity Strong

RCCPL has strong liquidity driven by expected cash accruals of more than Rs 300 crore in fiscal 2021 as against Rs 179 crore of long term debt repayment obligations. The working capital facilities of 400 crore were minimally utilised. The company has capex of around Rs 3400 crore over fiscal 2019 to fiscal 2022 expected to be financed through debt of Rs. 2400 crores (out of which more than Rs 1050 crore of capex has been completed till fiscal 2020). Its bank lines are expected to meet its incremental working capital requirements.

Rating Sensitivity Factors
Downward Factors
* Weaker than expected operating performance, or higher 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.
* Decline in credit rating of BCL by one or more notch. Change in shareholding or support philosophy of BCL towards RCCPL.

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 2400 crore). The name has been changed to RCCPL Private Limited from Reliance Cement Company Private Limited w.e.f. 1st August 2018.
 
RCCPL has three units: an integrated plant in Maihar, Madhya Pradesh; and grinding units in Kundanganj, Uttar Pradesh, and Butibori, Maharashtra. Total capacity is 5.58 mtpa.
 
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 mtpa.

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs.Crore 2648 2560
Profit After Tax (PAT) Rs.Crore 139 138
PAT Margin % 5.3 5.4
Adjusted debt/adjusted networth Times 2.22 2.13
Interest coverage Times 3.16 2.71

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL 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. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
 ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs.Cr)		 Complexity Levels Rating assigned with outlook
NA Commercial Paper NA NA NA 100 Simple CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  100.00  CRISIL A1+      30-08-19  CRISIL A1+  29-08-18  CRISIL A1+  06-09-17  CRISIL A1+  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating Criteria for Cement Industry
CRISILs Bank Loan Ratings
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
Understanding CRISILs Ratings and Rating Scales

For further information contact:
Media Relations
 Analytical Contacts
 Customer Service Helpdesk
Saman Khan
Media Relations
CRISIL Limited
D: +91 22 3342 3895
B: +91 22 3342 3000
saman.khan@crisil.com

Naireen Ahmed
Media Relations
CRISIL Limited
D: +91 22 3342 1818
B: +91 22 3342 3000
naireen.ahmed@crisil.com

 Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023
Sachin.Gupta@crisil.com

Nitesh Jain
Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3329
nitesh.jain@crisil.com

Ankit Jain
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3259
Ankit.Jain1@crisil.com 		Timings: 10.00 am to 7.00 pm
Toll free Number:1800 267 1301

For a copy of Rationales / Rating Reports:
CRISILratingdesk@crisil.com
 
For Analytical queries:
ratingsinvestordesk@crisil.com

 

Note for Media:
This rating rationale is transmitted to you for the sole purpose of dissemination through your newspaper / magazine / agency. The rating rationale may be used by you in full or in part without changing the meaning or context thereof but with due credit to CRISIL. However, CRISIL alone has the sole right of distribution (whether directly or indirectly) of its rationales for consideration or otherwise through any media including websites, portals etc.


About CRISIL Limited

CRISIL is a leading agile and innovative, global analytics company driven by its mission of making markets function better. We are India’s foremost provider of ratings, data, research, analytics and solutions. A strong track record of growth, culture of innovation and global footprint sets us apart. We have delivered independent opinions, actionable insights, and efficient solutions to over 1,00,000 customers.
 
We are majority owned by S&P Global Inc., a leading provider of transparent and independent ratings, benchmarks, analytics and data to the capital and commodity markets worldwide.
 
For more information, visit www.crisil.com 

Connect with us: TWITTER | LINKEDIN | YOUTUBE | FACEBOOK

About CRISIL Ratings
CRISIL Ratings is part of CRISIL Limited (“CRISIL”). We pioneered the concept of credit rating in India in 1987. CRISIL is registered in India as a credit rating agency with the Securities and Exchange Board of India (“SEBI”). With a tradition of independence, analytical rigour and innovation, CRISIL sets the standards in the credit rating business. We rate the entire range of debt instruments, such as, bank loans, certificates of deposit, commercial paper, non-convertible / convertible / partially convertible bonds and debentures, perpetual bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured debt instruments. We have rated over 24,500 large and mid-scale corporates and financial institutions. CRISIL has also instituted several innovations in India in the rating business, including rating municipal bonds, partially guaranteed instruments and microfinance institutions. We also pioneered a globally unique rating service for Micro, Small and Medium Enterprises (MSMEs) and significantly extended the accessibility to rating services to a wider market. Over 1,10,000 MSMEs have been rated by us.

CRISIL PRIVACY
 
CRISIL respects your privacy. We may use your contact information, such as your name, address, and email id to fulfil your request and service your account and to provide you with additional information from CRISIL.For further information on CRISIL’s privacy policy please visit www.crisil.com.

DISCLAIMER

This disclaimer forms part of and applies to each credit rating report and/or credit rating rationale that we provide (each a “Report”). For the avoidance of doubt, the term “Report” includes the information, ratings and other content forming part of the Report. The Report is intended for the jurisdiction of India only. This Report does not constitute an offer of services. Without limiting the generality of the foregoing, nothing in the Report is to be construed as CRISIL providing or intending to provide any services in jurisdictions where CRISIL does not have the necessary licenses and/or registration to carry out its business activities referred to above. Access or use of this Report does not create a client relationship between CRISIL and the user.

We are not aware that any user intends to rely on the Report or of the manner in which a user intends to use the Report. In preparing our Report we have not taken into consideration the objectives or particular needs of any particular user. It is made abundantly clear that the Report is not intended to and does not constitute an investment advice. The Report is not an offer to sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind or otherwise enter into any deal or transaction with the entity to which the Report pertains. The Report should not be the sole or primary basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in the US).

Ratings from CRISIL Rating are statements of opinion as of the date they are expressed and not statements of fact or recommendations to purchase, hold, or sell any securities / instruments or to make any investment decisions. Any opinions expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their issue. CRISIL assumes no obligation to update its opinions following publication in any form or format although CRISIL may disseminate its opinions and analysis. CRISIL rating contained in the Report is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment or other business decisions. The recipients of the Report should rely on their own judgment and take their own professional advice before acting on the Report in any way.CRISIL or its associates may have other commercial transactions with the company/entity.

Neither CRISIL nor its affiliates, third party providers, as well as their directors, officers, shareholders, employees or agents (collectively, “CRISIL Parties”) guarantee the accuracy, completeness or adequacy of the Report, and no CRISIL Party shall have any liability for any errors, omissions, or interruptions therein, regardless of the cause, or for the results obtained from the use of any part of the Report. EACH CRISIL PARTY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Party be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the Report even if advised of the possibility of such damages.

CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or underwriters of the instruments, facilities, securities or from obligors. CRISIL’s public ratings and analysis as are required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations, if any) are made available on its web sites, www.crisil.com (free of charge). Reports with more detail and additional information may be available for subscription at a fee – more details about CRISIL ratings are available here: www.crisilratings.com.

CRISIL and its affiliates do not act as a fiduciary. While CRISIL has obtained information from sources it believes to be reliable, CRISIL does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives and / or relies in its Reports. CRISIL keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of the respective activity. As a result, certain business units of CRISIL may have information that is not available to other CRISIL business units. CRISIL has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process. CRISIL has in place a ratings code of conduct and policies for analytical firewalls and for managing conflict of interest. For details please refer to: https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html

CRISIL’s rating criteria are generally available without charge to the public on the CRISIL public web site, www.crisil.com. For latest rating information on any instrument of any company rated by CRISIL you may contact CRISIL RATING DESK at CRISILratingdesk@crisil.com, or at (0091) 1800 267 1301.

This Report should not be reproduced or redistributed to any other person or in any form without a prior written consent of CRISIL.

All rights reserved @ CRISIL