Rating Rationale
December 05, 2017 | Mumbai
Shree Cement Limited
'CRISIL AAA/Stable' assigned to NCD 
 
Rating Action
Total Bank Loan Facilities Rated Rs.1900 Crore (Enhanced from Rs.1400 Crore)
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.500 Crore Non Convertible Debentures CRISIL AAA/Stable (Assigned)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned its 'CRISIL AAA/Stable' rating to Rs.500 Crore non-convertible debenture (NCD) issue of Shree Cement Limited (SCL), and has reaffirmed the outstanding ratings on the company's bank facilities at 'CRISIL AAA/Stable/CRISIL A1+'

The ratings reflect the company's healthy business risk profile backed by its established market position in northern India, its cost-efficient operations, and strong financial risk profile. Increasing presence in eastern India, and proposed entry in southern India, will strengthen the business risk profile. As on March 31, 2017, SCL had cement capacity of 29.3 million tonne per annum (mtpa). The aggregate capacity is set to increase by 12.2 mtpa to 41.5 mtpa at the end of the ongoing brownfield capital expenditure (capex) in Bihar (0.9 mtpa) and Rajasthan (2.8 mtpa), and greenfield capex in Bihar (5.5 mtpa) and Karnataka (3 mtpa). The capex will be funded largely through internal accrual. These strengths are partially offset by susceptibility to risks relating to input cost and realisations, and cyclicality in the cement industry. CRISIL will continue to monitor revenue and profitability from the upcoming units. Any substantial debt-funded capex or acquisition, which may weaken the financial risk profile, will be a key rating sensitivity factor.

Key Rating Drivers & Detailed Description
Strengths
* Healthy market position
SCL, which started operations at its first greenfield cement plant in Beawar in 1979, is the third largest cement group in India, with operational capacity of 29.3 mtpa as on March 31, 2017. From 100% of its capacity in North India until 2014, SCL has diversified over the past three years, with capacity now in Rajasthan, Uttarakhand, Bihar, Chhattisgarh, Haryana, and Uttar Pradesh. Moreover, along with expansion in existing locations, the company is undertaking greenfield expansion of 3 mtpa cement in Karnataka (expected to be commissioned by December 2018) to enter South India. The company adopts a multi-brand (Shree Jung Rodhak, Bangur, and Rockstrong) strategy which allows it to cater to different segments. Increased scale and improved geographical access to central and eastern India and plan to enter the southern market will drive its healthy market position. Also, it is now less vulnerable to the vagaries of a single regional market.

* Robust operating profitability, led by cost efficiency
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 low because of proximity to end-user markets and use of split-grinding units. SCL had total power generation capacity of 607 megawatt (MW; including 102 MW of waste heat recovery plant) as on March 31, 2017. Flexibility in its power plants (to switch to grid or to shut down plant based on merchant tariff) and ability to operate with multiple fuels (imported coal or petroleum [pet] coke) helps keep generation cost competitive in a dynamic scenario. SCL's operating profit per tonne of cement remains one of the highest in the industry. Operating margin was healthy at 30% in fiscals 2017 and 2016.

* Strong financial risk profile, driven by robust cash flow
SCL has a strong financial risk profile, backed by healthy gearing and debt protection metrics. Gearing was 0.2 time (based on gross debt) as on March 31, 2017. Of the proposed capex of Rs 4300 crore to increase cement and power generation capacity, Rs 1100 crore was incurred as on March 31, 2017, and the rest will be incurred over fiscals 2018 and 2019, funded mainly through internal accrual. CRISIL believes SCL will maintain its strong financial risk profile, supported by strong cash accrual and cash and marketable securities of about Rs 4300 crore, as on March 31, 2017.

Weakness
* Susceptibility to risks relating to input cost, realisations, and cyclicality in the cement industry
Capacity addition in the cement industry tends to be sporadic because of long gestation period for setting up of facility and the large number of players adding capacity during the peak of a cycle. This has led to unfavourable price cycles for the sector in the past. Moreover, profitability remains susceptible to volatility in prices of inputs, including raw material, power, fuel, and freight. Increase in pet coke prices over the past year has impacted profitability of several cement players. Realisations and profitability are also affected by demand, supply, offtake, and other regional factors.
Outlook: Stable

CRISIL believes 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.

Downside scenario
* Inorganic growth plan or larger-than-expected capex in an adverse operating environment, affecting financial risk profile.

About the Company

SCL was promoted in 1979 by the Kolkata-based BG Bangur group, for setting up a greenfield cement plant in Beawar (Rajasthan), with capacity of 0.6 mtpa of portland cement. SCL is the flagship company of the BG Bangur group and had cement capacity of 29.3 mtpa as on March 31, 2017. The company will expand its capacity to 41.5 mtpa by fiscal 2019. It has power generation capacity of 607 MW.

Key Financial Indicators
Particulars Unit 2017 2016
Revenue Rs crore 8601 6137
Profit After Tax (PAT) Rs crore 1339 1143
PAT Margins % 15.6 18.6
Adjusted debt/adjusted networth Times 0.17 0.13
Interest coverage Times 22.01 27.47

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 crore)		 Rating assigned with outlook
NA Debentures^ NA NA NA 500 CRISIL AAA/Stable
NA Fund-Based Facilities$* NA NA NA 1100 CRISIL AAA/Stable
NA Non-Fund Based Limits$** NA NA NA 800 CRISIL A1+
^Yet to be issued
$Fund-based and non-fund-based limits are fully interchangeable
*Fund-based limits consists of cash credit/working capital demand loan/buyer's credit/short-term loan
**Non-fund-based limits consist of letter of credit & bank guarantee/standby letter of credit/letter of undertaking
Annexure - Rating History for last 3 Years
  Current 2017 (History) 2016  2015  2014  Start of 2014
Instrument Type Quantum Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  500  CRISIL AAA/Stable    --    --  15-09-15  Withdrawal  28-04-14  CRISIL AA+/Positive  CRISIL AA+/Stable 
                29-05-15  CRISIL AAA/Stable       
Fund-based Bank Facilities  LT/ST  1100  CRISIL AAA/Stable    No Rating Change    No Rating Change  15-09-15  CRISIL AAA/Stable    --  -- 
Non Fund-based Bank Facilities  LT/ST  800  CRISIL A1+    No Rating Change    No Rating Change  15-09-15  CRISIL A1+    --  -- 
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities$* 1100 CRISIL AAA/Stable Fund-Based Facilities$* 800 CRISIL AAA/Stable
Non-Fund Based Limit$** 800 CRISIL A1+ Non-Fund Based Limit$** 600 CRISIL A1+
Total 1900 -- Total 1400 --
$Fund-based and non-fund-based limits are fully interchangeable
*Fund-based limits consists of cash credit/working capital demand loan/buyer's credit/short-term loan
**Non-fund-based limits consist of letter of credit & bank guarantee/standby letter of credit/letter of undertaking
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Cement Industry
CRISILs Criteria for rating short term debt

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