| Shree Cement Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of Shree Cement Limited (SCL).
For fiscal 2021, the sales volume increased around 10% (year-on-year) in the domestic market, despite adverse impact of the Covid-19 pandemic in the first quarter of the fiscal. Operating earnings before interest, tax, depreciation and amortisation (Operating EBITDA) margin improved to around 30%, aided by softer input cost and better realisations, as reflected in the healthy EBITDA per tonne of around Rs 1,470 for domestic operations. Notwithstanding the impact of the second wave of the ongoing pandemic, sales volume is likely to grow 6-8% in fiscal 2022 owing to the low base of fiscal 2021 and expected pick-up in infrastructure demand. While the EBITDA margin could moderate marginally because of rising input cost, better realisations would partly offset this.
Domestic cement capacity was 43.4 million tonne per annum (mtpa) as on March 31, 2021. The ongoing capital expenditure (capex) in Patas, Maharashtra, is expected to be commissioned in the second quarter of fiscal 2022, while the clinker unit in Raipur, Chhattisgarh, should be commissioned in fiscal 2023; commencement of operation in these units will further strengthen the market position. Capex of Rs 5,500- 6,000 crore has been planned to further increase the domestic capacity to around 57 mtpa over the next three years. This capex will be funded through the surplus in cash accrual and liquidity.
The financial risk profile continues to be robust, indicated by gearing of 0.14 time as on March 31, 2021, supported by healthy liquidity surplus of above Rs 8,900 crore
The ratings continue to reflect the healthy business risk profile of SCL, backed by its established market position in northern India, increasing presence in eastern India and entry in the southern market along with cost-efficient operations. The ratings also factor in a strong financial risk profile. These strengths are partially offset by susceptibility to risk of volatility in input cost and in realisation, commoditised and cyclical nature of the cement industry. Any substantial, debt-funded capex or acquisition, which may weaken the financial risk profile, will be a key rating sensitivity factor. |
Analytical Approach Business and financial risk profiles of SCL and its subsidiaries have been consolidated for this rating action as these entities have significant business and financial linkages and are under a common management. All these entities are collectively referred to herein as SCL.
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:
SCL, which started operations in 1979 at its first greenfield cement plant in Beawar (Rajasthan), is the third-largest cement group in India; its domestic operational capacity was 43.4 mtpa as on March 31, 2021. From 100% of its capacity in North India until 2014, SCL has diversified over the past three years, with capacities now in Rajasthan, Uttarakhand, Bihar, Chhattisgarh, Haryana, Uttar Pradesh, Karnataka and Odisha. The company further diversified its presence in the global market by acquiring UCC, a cement company based in Ras-Al-Khaimah, UAE. SCL adopts a multi-brand strategy (comprising brands such as Shree Jung Rodhak, Bangur, Bangur power, Roofon and Rockstrong), which allows it to cater to different segments. Increased scale and improved geographical access to central and eastern India and entry in the southern market will further enhance its market position. UCC’s plant is in close proximity to the Saqr port in Ras-Al-Khaimah, which provides direct access to export markets in the Arabian Gulf, the Middle East and East Africa. Thus, SCL remains less vulnerable to the vagaries of a single regional market.
SCL is among the most efficient players in the cement industry. Its operating efficiency arises from its sharp focus on operations, low power consumption and majority sale of blended cement, resulting in reduced consumption of energy and raw material per tonne of cement. Also, selling expense is modest because of proximity to end-user markets and use of split-grinding units. SCL had total power generation capacity of 742 megawatt (MW; including 211 MW of waste heat recovery plant) as on March 31, 2021. Flexibility in the power plants (to switch to grid or to shut down plant based on merchant tariff) and ability to operate with multiple fuels results in cost-competitive generation in a dynamic scenario. Operating profit per tonne of cement remains one of the highest in the industry.
The financial risk profile should remain supported by strong cash accrual of over Rs 3,000 crore expected in fiscal 2022 and liquidity surplus of more than Rs 8,900 crore as on March 31, 2021. Gearing was 0.14 time (based on gross debt) as on March 31, 2021. Major portion of the proposed capex of Rs 5,500-6,000 crore will be funded through cash accrual.
Weaknesses
Capacity addition in the cement industry tends to be sporadic because of long gestation period for setting up the facility and the numerous players adding capacity during the peak of a cycle. This led to unfavourable price cycles for the sector in the past. Moreover, profitability remains exposed to volatility in prices of inputs, including raw material, power, fuel and freight. Increase in pet coke prices in fiscal 2019 impacted profitability of several cement players. Realisations and profitability are also affected by demand, supply, offtake and other regional factors. |
Liquidity: Superior Liquidity remains robust, aided by sufficient cash accrual, the surplus cash and cash equivalent, and liquid investments of above Rs 8,900 crore as on March 31, 2021. Cash accrual is projected at over Rs 3,000 crore per annum over the medium term, sufficient to cover the working capital and capex requirements. |
Outlook: Stable SCL will continue to benefit from its healthy market position and geographically diversified presence in India. Healthy revenue growth and profitability will lead to adequate cash accrual and cash surplus, ensuring that the financial risk profile remains strong. |
Downward Factors
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About the Company SCL was incorporated in 1979 by the Kolkata-based BG Bangur group for setting up a greenfield cement plant in Beawar, with capacity of 0.6 mtpa of Portland cement. SCL is the flagship company of the BG Bangur group and had domestic cement capacity of 43.4 mtpa as on March 31, 2021.
In July 2018, SCL acquired 97.61% stake in UCC, which had clinker capacity of 3.3 mtpa and cement capacity of 4.0 mtpa (presently 3.3 mtpa and 4.8 mtpa respectively). UCC deals with a variety of cement including ordinary Portland cement, sulphate-resisting cement and oil-well cement. |
Key Financial Indicators
*Based on provisional financials | ||||||||||||||||||||||||
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)
*Fund-based limit consists of cash credit/working capital demand loan/buyer's credit/short-term loan |
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 various bank facilities | ||||||||||||||||||||||||||||||
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Criteria Details
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