| Shree Digvijay Cement Co. Limited | ||||||
| Ratings reaffirmed at 'CRISIL A/Stable/CRISIL A1' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1' ratings on the bank facilities of Shree Digvijay Cement Co. Limited (SDCCL).
Operating income grew around 16% during fiscal 2023, driven by higher sales realisation (up by 12%) and volumes (up by 2%). Profitability, as measured by earnings before interest, tax, depreciation and amortisation (EBIDTA) in value, moderated in fiscal 2023 to Rs 118.56 crore, against Rs 101.85 crore in fiscal 2022, owing to a rise in input costs. In the first nine months of fiscal 2024, operating income increased 18% against 11.78% in the first nine months of fiscal 2023 owing to a rise in volumes and realisation. Capital expenditure (capex) incurred in fiscal 2023 for capacity expansion to 1.5 million tonne per annum (MTPA) from 1.2 MTPA helped improve realisations. The EBIDTA value also improved to Rs 97.67 crore in the first nine months of fiscal 2024 against Rs 62.41 crore in the first nine months of fiscal 2023.
In fiscals 2024 and 2025, volume is expected to grow due to demand from the infrastructure segment and brownfield capex to be undertaken for setting up 3.0 million tonne cement grinding capacity (from existing 1.5 million tonne). However, timely commencement and stabilisation of commercial operations, within budgeted cost, will remain a key monitorable.
The financial risk profile was healthy in fiscal 2023, as expected, with low total outside liabilities to adjusted networth (TOLANW) ratio at 0.46 time against 0.51 time in fiscal 2022. In fiscal 2025, the company is expecting to raise debt to fund capex. The ratio is expected to remain at similar levels during fiscal 2024 and thereafter improve over the medium term as contribution to revenue and profitability from the expansion would meaningfully accrue from the last quarter of fiscal 2025.
Furthermore, the rating continues to reflect SDCCL’s established market position in the cement industry, comfortable operating efficiencies, and healthy financial risk profile even though debt-funded capex is planned. These strengths are partially offset by large working capital requirement, exposure to intense competition and risks related to volatility in raw material prices, susceptibility to risks related to the commoditised nature of products and cyclicality in the cement industry. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has taken a consolidated approach for SDCCL and its wholly owned subsidiary, SDCCL Logistics Ltd.
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:
On the group level, revenue grew 16% on-year to Rs 724 crore in fiscal 2023 backed by marginal increase in volume and improved average sales realisation. The demand scenario continued to remain strong in the first nine months of fiscal 2024 and the average realisation and operating margin continued to remain high even in the first nine months. The group estimates revenue of Rs 574 crore and operating margin of 18% during this time.
There is abundant availability of limestone in its captive mines along with waste heat recovery (WHR) system of 4.5 MW, which is adequate to meet 25-30% of its requirement. The company also has hybrid power contract for capacity of 8.10 MW hybrid wind and solar power with Continuum Energy. Hence, the WHR system along with hybrid power contracts would constitute over 65% of the power needs of the company.
SDCCL announced brownfield capex for setting up 3.0 million tonne cement grinding capacity (from existing capacity of 1.5 million tonne). The overall project cost is estimated at Rs 250 crore and is to be funded through debt of 50% and balance through internal accrual. The capacity is expected to be commissioned in the fourth quarter of fiscal 2025. Given the size of the project, the company is exposed to execution risks and its ability to ramp up expanded capacity. Hence, timely commencement of commercial operations, within budgeted cost, will remain a key monitorable. However, SDCCL’s past track record of successfully completing various capacity addition projects provides comfort.
Although 50% of the capex will be debt-funded, the capital structure is expected to remain comfortable due to healthy accrual and scheduled debt repayment.
Weaknesses:
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 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: Strong Liquidity is strong with a healthy cushion between net cash accrual and term debt obligation. Bank limit utilisation was low at 16% on average for the 12 months through December 2023. SDCCL has healthy liquid funds of around Rs 112 crore (in the form of unencumbered cash and bank balance and fixed deposits) as on March 31, 2023, and steady cash accrual. The excess net cash accrual will be deployed predominantly to fund incremental working capital requirement and capex for capacity expansion. The current ratio was healthy at over 2.07 times as on March 31, 2023. Low gearing and healthy networth support the company’s financial flexibility in case of any adverse conditions or downturn in the business. |
Outlook: Stable CRISIL Ratings believes SDCCL will continue to benefit from its established market position in western India and healthy financial risk profile. |
Rating Sensitivity factors Upwards factors:
Downward factors:
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About the Group Incorporated in November 1944, SDCCL manufactures cement at the coastal township of Digvijaygram (Sikka) in Jamnagar district of Gujarat. The company has an installed capacity of 1.5 MTPA. The company is listed on the NSE and BSE. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
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
| Current | 2024 (History) | 2023 | 2022 | 2021 | Start of 2021 | |||||||
| Instrument | Type | Outstanding Amount | Rating | Date | Rating | Date | Rating | Date | Rating | Date | Rating | Rating |
| Fund Based Facilities | LT | 15 | CRISIL A/Stable | -- | -- | 09-11-2022 | CRISIL A/Stable | -- | -- | |||
| Non-Fund Based Facilities | ST | 85 | CRISIL A1 | -- | -- | 09-11-2022 | CRISIL A1 | -- | -- | |||
All amounts are in Rs.Cr.
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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