Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A+/Stable/Crisil A1’ ratings on the bank facilities and the fixed deposit programme of The KCP Ltd (KCP; part of the KCP group).

 

The ratings continue to factor in the established track record of the KCP group in the cement segment in southern India and sugar segment in Vietnam, and its healthy financial risk profile. These strengths are partially offset by sub-par, albeit improving, operating performance of the cement and engineering segments, susceptibility to changing business cycles and the continued demand-supply mismatch in the cement market in south India.

 

The KCP group’s operating income in the cement segment increased 16% on-year in the first six months of fiscal 2026, after a decline of 22% in fiscal 2025, owing to recovery in realisations and volume. Accordingly, earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne increased to Rs 475 in the first half of fiscal 2026 from negative Rs 42 in the corresponding period of fiscal 2025. The profitability will be supported by cost efficiency measures through implementation of the waste heat recovery system (WHRS) and railway siding, and will increase beyond Rs 500 per tonne next fiscal onwards. Nonetheless, volume growth is expected to remain modest in low single digit in the absence of capacity addition.

 

In the sugar segment, the earnings before interest and tax (EBIT) margin remained healthy despite declining to 22% in the first half of fiscal 2026 from 26% in the corresponding period of fiscal 2025 owing to moderation in sugar prices due to excess global supply. The margin is likely to remain healthy over the medium term.

 

The company has a healthy financial risk profile and remains net cash positive. It is undertaking capital expenditure (capex) for implementation of WHRS and railway siding in the cement segment which will be partly debt-funded. Additionally, it is expanding its sugarcane crushing capacity in Vietnam by 4,000 tonne per day (TPD) and biomass plant capacity by 45 MW which is expected to be funded entirely through internal accrual. Despite the total expected capex of Rs 750-850 crore over fiscals 2026-2028, KCP will remain net cash positive over the medium term. Debt protection metrics should remain healthy, too. Liquidity is supported by consolidated cash and equivalents of Rs 1,089 crore as on September 30, 2025.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of KCP, KCP Vietnam Industries Ltd (KCP Vietnam) and the joint venture, Fives Cail KCP Ltd. All the companies, collectively referred to as the KCP group, are under a common management and have financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths 

Established track record in the cement and sugar businesses

The KCP group has been in the cement business for over six decades. The group has significant market footprint in Andhra Pradesh (AP) and Telangana which contribute ~80% to the overall sales. Healthy volume growth over the past few years led to increase in capacity utilisation to over 75% in fiscal 2024. While transitory impact of muted demand and weak pricing environment led to capacity utilisation declining to 63% in fiscal 2025, healthy medium-term demand outlook and completion of the railway siding should improve utilisation over the medium term.

 

The group has sugar crushing capacity of 11,000 TPD in Vietnam, housed under KCP Vietnam. This segment accounts for 40-45% of overall revenue. While sugar realisations declined in the first half of fiscal 2026 due to global oversupply, the group’s operating performance remained healthy aided by healthy demand, favourable government policy and healthy yields.

 

Healthy financial risk profile

The financial risk profile is supported by steady cash accrual, healthy capital structure and comfortable debt protection metrics. Adjusted gearing is projected to remain below 0.4 time as on March 31, 2026.

 

Gross debt is expected to increase with implementation of various capex plans, but the group is likely to remain net cash positive. Implementation of WHRS (16 MW) and railway siding entail capex of Rs 235 crore and Rs 140 crore, respectively. These projects are expected to be completed in fiscal 2026. The group is also undertaking capex of Rs 530 crore for capacity enhancement of 4,000 TPD in the sugar segment along with 75 MW biomass plant, which is expected to be commissioned during fiscal 2028 and will be funded entirely through internal accrual. Debt protection metrics should remain healthy with adjusted interest coverage and net cash accrual to adjusted debt ratio expected above 10.0 times and above 0.4 time, respectively, over the medium term.

Key Rating Drivers - Weaknesses 

Modest operating performance of the engineering segment

The engineering and capital goods industry remains highly vulnerable to economic cycles, given the linkages to capex plans of end-user segments, which could be adversely impacted by any slowdown in industrial growth. After EBIT loss over the previous few years, the engineering segment turned EBIT positive in fiscal 2025 backed by sales enhancement initiatives. The order book was ~Rs 120 crore as on September 30, 2025. Nonetheless, profitability may remain subdued amid intense competition. Further, the segment is inherently weak compared with the sugar and cement segments. However, the overall impact on the group’s financial risk profile is expected to be negligible, as contribution from this segment is low in terms of revenue and profitability.

 

Susceptibility to fluctuation in input cost and realisations, change in business cycles and the cement demand-supply mismatch in south India

Capacity addition in the cement industry tends to be sporadic because of the long gestation period for setting up a facility and as numerous players tend to make capacity additions during the peak of a cycle. This has led to unfavourable price cycles for the sector in the past. Decline in cement prices across the industry during fiscal 2025 impacted the profitability of cement players.

 

Realisations and profitability are also affected by the prevailing demand-supply scenario, offtake and regional factors. Plus, operating profitability is susceptible to volatility in input prices, including raw material, power, fuel and freight. Southern India is further characterised by oversupply of cement, due to large deposits of limestone, a key raw material, vis-à-vis demand, which has an adverse impact on realisations.

Liquidity Strong

Expected cash accrual of around Rs 300 crore annually in fiscals 2026-2027 will sufficiently cover debt obligation of Rs 26 crore in fiscal 2026 and Rs 15 crore in fiscal 2027. Consolidated cash and equivalents were healthy around Rs 1,089 crore as on September 30, 2025. Utilisation of fund-based working capital limit averaged 52% during the six months through October 2025.

ESG Profile

Environment, social and governance (ESG) profile 

KCP’s ESG profile supports its healthy credit risk profile. The cement sector has a significant impact on the environment, owing to higher emissions, waste generation and water consumption. This is because of the energy intensive cement manufacturing process and high dependence on natural resources such as limestone and coal, which are key raw materials. The sector has a significant social impact given that operations could negatively impact the local community and may involve health hazards. KCP has focused on mitigating its environmental and social risk by undertaking various measures.

 

Highlights:

• To reduce greenhouse gas emissions, KCP is implementing a WHRS project of 16 MW in its cement production facility in Muktyala, AP, which is to be commissioned in fiscal 2026. This is an addition to the existing WHRS facility in its cement production unit in Macherla, AP.
• KCP maintained nil lost time injury frequency rate (LTIFR) and fatalities in its workforce in fiscal 2025.
• Through its corporate social responsibility (CSR) initiatives, the company focuses on areas such as education, health, skill development, livelihood, and women and youth empowerment.
• The governance structure is characterised by 50% of the board members being independent directors, with key statutory committees (auditing, stakeholder relationship, and nomination and remuneration committees) being majorly independent and adequate financial disclosures.

 

There is growing importance of ESG among investors and lenders. KCP’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given access to domestic capital markets.

Outlook Stable

The KCP group will continue to sustain its operating performance and healthy financial risk profile, backed by its strong market position in the cement segment in south India and the sugar segment in Vietnam.

Rating sensitivity factors

Upward factors

• Higher-than-expected cash generation, driven by better-than-expected performance in cement division and healthy performance in sugar segment
• Sizeable increase in scale of business such that operating performance improves and result in Ebitda margin of over 20% on a sustained basis

 

Downward factors

• Deterioration in business risk profile owing to slowdown in either cement segment or sugar segment leading to Ebitda margin of less than 10% on a sustained basis.
• Weakening in financial risk profile resulting in net debt to Ebitda sustaining above 3.5 times either on account of lower profitability or due to debt funded capex/acquisition in existing or new business.

About the Company

The KCP group was founded in 1941 by Mr V Ramakrishna, a first-generation entrepreneur, who began operations by setting up a sugar unit.

 

The cement division commenced operations in 1958, and has two units in AP, one each at Macherla (capacity of 0.825 million tonne per annum [MTPA]) and Muktyala (3.52 MTPA), and one packaging plant at Arakkonam (0.3 MTPA) in Tamil Nadu.

 

The heavy engineering division was set up in 1955 at Tiruvottiyur in Chennai. This division undertakes casting, fabrication and machining of heavy equipment for core industries (sugar, cement, steel and power).

 

KCP Vietnam, which commenced operations in 1999, has sugar crushing capacity of 11,000 TPD.

 

The KCP group also has a 127-room four-star hotel in Hyderabad named Mercure, which began operations in April 2016.

 

For the first half of fiscal 2026, the group reported operating income and profit after tax of Rs 1,278 crore and Rs 137 crore, compared with Rs 1,293 crore and Rs 151 crore, respectively, for the corresponding period of the previous fiscal.

Any other information: Not applicable