Rating Rationale
January 31, 2019 | Mumbai
Shree Cement Limited
Ratings Reaffirmed; NCD Withdrawn
 
Rating Action
Total Bank Loan Facilities Rated Rs.1900 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.500 Crore Non Convertible Debentures CRISIL AAA/Stable (Withdrawn)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of Shree Cement Limited (SCL). CRISIL has also withdrawn its rating on the non-convertible debentures of Rs 500 crore at the company's request as there is no amount outstanding against the instruments. This is in line with CRISIL's policy on withdrawal of ratings.
 
The ratings continue to reflect a healthy business risk profile, backed by an established market position in northern India, increasing presence in eastern India, and entry in southern India, and cost-efficient operations. The ratings also factor in a strong financial risk profile. These strengths are partially offset by susceptibility to risks relating to volatility in input cost and in realisations, and cyclicality in the cement industry.

Analytical Approach

CRISIL has combined the business and financial risk profiles of SCL and its subsidiaries as all these entities have significant business and financial linkages and are under a common management. All these companies are herein referred to 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:
* Healthy market position
SCL, which started operations at its first greenfield cement plant in Beawar, Rajasthan, in 1979, is the third-largest cement group in India, with operational capacity of 37.9 million tonnes per annum (mtpa) as on December 31, 2018. From 100% of its capacity being in northern India until 2014, the company has diversified across Rajasthan, Uttarakhand, Bihar, Chhattisgarh, Haryana, Uttar Pradesh, and Karnataka. Moreover, the acquisition of Union Cement Company (UCC) in Ras Al Khaimah, United Arab Emirates, diversified the presence outside 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 will consolidate the healthy market position. UCC's plant is close to Ras Al Khaimah's Saqr Port, which provides direct access to markets in the Arabian Gulf, the Middle-East, and East Africa. The company is now less vulnerable to the vagaries of a single regional market.
 
* Robust operating profitability, led by cost efficiency
The company is among the efficient players in the cement industry. Its operating efficiency arises from a sharp focus on operations, low power consumption, and mainly 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. The company had total power generation capacity of 639.7 megawatt (MW; including 147 MW of waste heat recovery plant) as on December 31, 2018. Flexibility (to switch to grid or to shut down the plant based on merchant tariff) and ability to operate with multiple fuels (imported coal or petroleum [pet] coke) helps keep generation cost competitive. The operating profit per tonne of cement remains one of the highest in the industry.
 
* Strong financial risk profile, driven by robust cash flow
The gearing and debt protection metrics are healthy. The gearing was 0.4 time (based on gross debt) as on September 30, 2018. Acquisition of UCC for Rs 2,100 crore was funded through internal cash accrual. A major portion of the proposed capital expenditure (capex) of Rs 1,500 crore will be funded through internal cash accrual. The strong financial risk profile is likely to be maintained, supported by healthy cash accrual and cash and marketable securities of about Rs 2,500 crore as on December 31, 2018.
 
Weakness:
* Susceptibility to risks relating to volatility in input cost and realisations, and cyclicality in the cement industry:
Capacity addition in the cement industry tends to be sporadic because of the long gestation period for setting up facilities 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 in past had impacted profitability of several cement players. Realisations and profitability are also affected by demand, supply, offtake, and other regional factors.
Liquidity

Liquidity should remain strong, aided by sufficient net cash accrual, surplus cash and cash equivalents, and liquid investments. Expected net cash accrual of around Rs 2,000 crore per fiscal should suffice to cover the working capital and capex requirement in the medium term. Surplus liquid investments were about Rs 2,500 crore as on December 31, 2018.

Outlook: Stable

CRISIL believes SCL will continue to benefit from a strong 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, adversely impacting the 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, with capacity of 0.6 mtpa of portland cement. SCL is the flagship company of the BG Bangur group and had cement capacity of 37.9 mtpa as on December 31, 2018. The company will expand its capacity to 47.4 mtpa by fiscal 2021. It has power generation capacity of 639.7 MW.
 
In July 2018, SCL acquired 97.61% stake in UCC. UCC has a clinker capacity of 3.30 mtpa and cement capacity of 4.00 MTPA and it deals with a variety of types of cement including ordinary portland cement, sulphate resisting cement and oil-well cement.

Key Financial Indicators*
Particulars Unit 2018 2017
Revenue Rs crore 9846 8601
Profit After Tax (PAT) Rs crore 1384 1339
PAT Margins % 14.1 15.6
Adjusted debt/adjusted networth Times 0.38 0.17
Interest coverage Times 21.04 22.20
*CRISIL adjusted 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)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity
Date		 Issue Size
(Rs. Cr)		 Rating Assigned
with Outlook
NA Fund-Based Facilities$* NA NA NA 1100 CRISIL AAA/Stable
NA Non-Fund Based Limit$** NA NA NA 800 CRISIL A1+
NA Debentures NA NA NA 500 Withdrawn
$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 - List of entities consolidated
  Name of the Company Type of Consolidation
1 Raipur Handling and Infrastructure Pvt. Ltd Full consolidation
2 Shree Enterprises Management Limited Full consolidation
3 Shree Global FZE Full consolidation
4 Shree Global Pte Ltd Full consolidation
5 Shree International Holding Limited Full consolidation
6 Union Cement Company Full consolidation
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  0.00
30-01-19  		Withdrawal      16-01-18  CRISIL AAA/Stable  05-12-17  CRISIL AAA/Stable    --  -- 
Fund-based Bank Facilities  LT/ST  1100.00  CRISIL AAA/Stable      16-01-18  CRISIL AAA/Stable  05-12-17  CRISIL AAA/Stable  02-09-16  CRISIL AAA/Stable  CRISIL AAA/Stable 
Non Fund-based Bank Facilities  LT/ST  800.00  CRISIL A1+      16-01-18  CRISIL A1+  05-12-17  CRISIL A1+  02-09-16  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities$* 1100 CRISIL AAA/Stable Fund-Based Facilities$* 1100 CRISIL AAA/Stable
Non-Fund Based Limit$** 800 CRISIL A1+ Non-Fund Based Limit$** 800 CRISIL A1+
Total 1900 -- Total 1900 --
$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 Consolidation
CRISILs Criteria for rating short term debt

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