Rating Rationale
March 20, 2020 | Mumbai
Shree Cement Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.1900 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
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).
 
The ratings reflect the company's healthy business risk profile backed by its established market position in northern India, and its cost-efficient operations. Increasing presence in eastern India, and entry in southern as well as western India, shall further strengthen the business risk profile. As on December 31, 2019, SCL had domestic cement capacity of 40.4 million tonne per annum (mtpa). The company has a capex plan of Rs 10,500 crore to increase its capacity to 56 mtpa over the next three years. The capex will be funded largely through internal accrual and equity infusion of Rs 2400 crore (done through QIP during Q3 FY 2020). Therefore, the financial risk profile would remain strong despite the large capex. 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 acquired assets (Union Cement Company or UCC) and upcoming units. Any substantial debt-funded capex or acquisition, which may weaken the financial risk profile, will be a key rating sensitivity factor.

Analytical Approach

CRISIL has combined the business and financial risk profiles of SCL and its subsidiaries as these entities have significant business and financial linkages and are under 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 40.4 mtpa as on December 31, 2019. 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 and Karnataka. Moreover, UCC's acquisition diversified SCL's presence outside India. The company adopts a multi-brand (Shree Jung Rodhak, Bangur, Bangur power, Roofon and Rockstrong) strategy which allows it to cater to different segments. Increased scale and improved geographical access to central, eastern India and entry in southern market will further strengthen its healthy market position. UCC's plant is located in close proximity to Ras Al Khaimah's Saqr Port, which provides direct access to the export markets in the Arabian Gulf, the Middle East and East Africa. SCL 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 742 megawatt (MW; including 211 MW of waste heat recovery plant) as on December 31, 2019. 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 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.
 
* 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 0.29 time (based on gross debt) as on March 31, 2019. Major portion of the proposed capex of Rs 10,500 crore will be funded mainly through internal accrual and equity infusion. CRISIL believes SCL will maintain its strong financial risk profile, supported by strong cash accruals of over Rs 3000 crore expected in fiscal 2020 and cash and liquidity of more than Rs 1200 crore as on September 30, 2019.
 
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 in fiscal 2019 had impacted profitability of several cement players. Realisations and profitability are also affected by demand, supply, offtake, and other regional factors.
Liquidity Superior

Liquidity should remain strong, aided by sufficient net cash accrual, the surplus cash and cash equivalent, and liquid investments. Expected net cash accrual of over Rs 3000 crore per annum should suffice to cover the working capital and capex requirement in the medium term. Moreover, the company has surplus liquid investments of more than Rs 1200 crore as on September 30, 2019.

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.

Rating Sensitivity factors
Downward Factors
* Inorganic growth plan or larger-than-expected capex in an adverse operating environment, affecting financial risk profile
* Decline in operating performance leading to increase in net debt to EBITDA to over 0.5 time on a sustainable basis.
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 40.4 mtpa as on December 31, 2019.
 
In July 2018, SCL acquired 97.61% stake in Ras-Al-Khaimah, UAE-based cement company, Union Cement Company (UCC). UCC has a clinker capacity of 3.30 million tonnes per annum (MTPA) and cement capacity of 4.00 MTPA and it deals with a variety of cement including ordinary portland cement, sulphate resisting cement and oil-well cement.
 
For the 9 months ended December 2019, the company reported a PAT of Rs 982 crore on operating income of Rs 8,686 crore, as against a PAT of Rs 630 crore on operating income of Rs 8,437 crore for the same period of previous fiscal.

Key Financial Indicators
As on/for the period ended March 31 2019 2018
Revenue Rs Crore 13128 9846
Profit after tax Rs Crore 1015 1384
PAT Margins % 7.7 14.1
Adjusted Debt/Adjusted Net worth Times 0.29 0.38
Interest Coverage Times 21.04 22.20
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)
IN 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+
*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
Type of Consolidation Extent of consolidation Rationale for consolidation
Raipur Handling and Infrastructure Pvt. Ltd Full consolidation These entities have significant business and financial linkages and are under common management
Shree Enterprises Management Limited Full consolidation
Shree Global FZE Full consolidation
Shree Global Pte Ltd Full consolidation
Shree International Holding Limited Full consolidation
Union Cement Company Full consolidation
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
Non Convertible Debentures  LT    --    --  31-01-19  Withdrawn  16-01-18  CRISIL AAA/Stable  05-12-17  CRISIL AAA/Stable  -- 
Fund-based Bank Facilities  LT/ST  1100.00  CRISIL AAA/Stable      31-01-19  CRISIL AAA/Stable  16-01-18  CRISIL AAA/Stable  05-12-17  CRISIL AAA/Stable  CRISIL AAA/Stable 
Non Fund-based Bank Facilities  LT/ST  800.00  CRISIL A1+      31-01-19  CRISIL A1+  16-01-18  CRISIL A1+  05-12-17  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

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

 Manish Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
B:+91 124 672 2000
manish.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