Rating Rationale
July 31, 2019 | Mumbai
The KCP Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.879.19 Crore
Long Term Rating CRISIL A-/Positive (Reaffirmed)
Short Term Rating CRISIL A2+ (Reaffirmed)
 
Rs.70 Crore Non Convertible Debentures CRISIL A-/Positive (Reaffirmed)
Rs.125 Crore Fixed Deposits FA/Positive (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities, non-convertible debentures, and fixed deposits of The KCP Limited (part of the KCP group) at 'CRISIL A-/FA/Positive/CRISIL A2+'.

Operating performance in fiscal 2019 was impacted by subdued performance in the cement segment driven by higher fuel and freight costs in line with the cement industry. Operating performance was also impacted due to higher material costs. However, sugar segment recorded a significant improvement in performance, providing cushion to the overall operating performance. Further, engineering and hotels segment also reported an improvement in its operating profitability. The overall business risk profile also benefits from diversity across segments. Over the medium term operating performance is expected to benefit from improving margins in the cement segment and continued strong performance in the sugar segment.

Despite the weaker operating performance in fiscal 2019, the financial risk profile remains strong. The ratio of net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) remained comfortable at around 2 times. Net debt to EBITDA is expected to improve further over the medium term, driven by an improvement operating performance of cement division, sustenance of healthy operating performance in sugar division and moderation in capex levels.

The group has also completed the expansion of 1.66 million tonnes per annum (mtpa) of its cement capacity. Completion of the capex mitigates the project risk associated with the expansion. Accordingly, capex levels are expected to decline to about Rs 65-70 crore in fiscal 2020 from Rs 120 crore in fiscal 2019.

The ratings continues to factor in the group's established track record in the cement segment in South India and the sugar sector in Vietnam, and healthy financial risk profile because of healthy gearing and debt protection metrics. These strengths are partially offset by sub-par performance of the engineering and hotel divisions, and susceptibility to business cycles and continuing demand-supply mismatch in the South Indian cement markets.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of The KCP Ltd, KCP Vietnam Industries Ltd (KCP Vietnam), and joint venture, Fives Cail KCP Ltd. This is because the three entities, collectively referred to as the KCP group, have common management and 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 & Detailed Description
Strengths
* Established track record in the cement and sugar businesses: The cement business witnessed volume growth of around 13% in fiscal 2019. Overall sales from this segment increased to Rs 1017 crore in fiscal 2019 from Rs 951 crore in fiscal 2018. Cement realisations declined in fiscal 2019 which coupled with cost pressures led to lower operating profit per ton of Rs 408 in fiscal 2019 as compared to Rs 693 per ton in fiscal 2018. The cement division is expected to benefit from moderating costs due to reducing fuel and freight costs.
 
Revenue from the sugar segment increased by 13% despite fall in realisations of 17% driven by growth in volume sales of over 30%. Realisations declined, in line with increase in global prices. The group will continue to benefit over the medium term from its steady revenue and profitability from the sugar division, and over the long term from its longstanding presence and expected improvement in demand outlook in the cement segment.
 
* Healthy financial risk profile: Financial risk profile is backed by steady cash accrual, healthy capital structure, and comfortable debt protection metrics. Gearing was comfortable at 0.61 time as on March 31, 2019.
 
Despite debt-funded capacity expansion, overall financial risk profile has remained stable due to healthy operating margin and cash accrual. Interest coverage and net cash accrual to debt ratios are expected to remain at over 5 times and 0.30 time, respectively, over the medium term.
 
Weaknesses
* Weak performance of engineering and hotel businesses: The engineering and capital goods industry is highly vulnerable to economic cycles on account of its linkages to the capex plans of customers, which are affected by slowdown in industrial growth. Despite healthy order book, profitability of engineering division is expected remain subdued due to high competitive intensity.
 
The company also has operations under the hospitality segment. Even though, the Hotel is in its initial stage of operations, with the commencement of operations only in April 2016, the Company has been able to gradually ramp-up its occupancy levels.
 
CRISIL believes, in both the aforementioned segments, while the performance is likely to gradually improve, high fixed cost will continue to weigh upon profitability over the medium term.
 
* Demand-supply mismatch in South India's cement industry: Robust demand growth of 18-20% in fiscal 2019 was driven by increased demand from AP/TL and resolution of sand mining ban and real estate rules in Tamil Nadu. Development of new capital city of AP-Amravati and cement intensive irrigation projects like Kaleshwaram and Polavaram aided demand growth. In the previous year demand has grown at moderate pace. Going forward also demand in South India is expected to grow at a moderate pace of 5-6.5%.
Liquidity

KCP enjoys healthy liquidity driven by expected cash accruals of more than Rs 180 crore per annum in fiscal 2020 and fiscal 2021 and cash and cash equivalents of over Rs 127 crore as on March 31, 2019 as against Rs 70-90 crore of long term debt repayment obligations. The working capital facilities of 156 crore were utilised at a moderate rate of 70% over the past 12 months. The company has capex of around Rs 60-70 crore per annum expected to finance through debt. Its bank lines are expected to meet its incremental working capital requirements.

Outlook: Positive

CRISIL believes the KCP group's business risk profile will continue to benefit over the medium term from established market position in the cement and sugar businesses. Further, debt levels are expected to reduce as majority of the debt funded capex has been completed. Financial risk profile is expected to steadily improve over the medium term.

Upside scenario
*Higher than expected cash generation, driven by better than expected performance in cement division and healthy performance in sugar segment
*Consistent improvement in adjusted gearing and debt protection metrics.

Downside scenario
* Deterioration in business risk profile on the back of slower than expected recovery in the cement segment or slowdown in the sugar segment.
* Weakening in financial risk profile, either due to higher than expected capex or weaker than expected operating performance.

About the Group

The KCP group was founded in 1941 by Mr V Ramakrishna, a first-generation entrepreneur who began operations by setting up a sugar unit. Cement division commenced operations in 1958 and currently has two units, one each in Guntur (capacity of 0.825 mtpa) and Muktyala (3.52 mtpa); Andhra Pradesh. The heavy engineering division, set up in 1955 at Tiruvottiyur in Chennai, undertakes casting, fabrication, and machining of heavy equipment for core industries (sugar, cement, steel, and power).

Key Financial Indicators
Particulars Units 2019  2018 
Revenue Rs. Cr. 1,656 1,467
Profit After Tax (PAT) Rs. Cr. 110 112
PAT Margin % 6.6 7.6
Adjusted Debt/Adjusted Net worth Times 0.61 0.63
Interest coverage Times 6.09 6.17

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 Term Loan NA NA Dec-2022 31.27 CRISIL A-/Positive
NA Term Loan NA NA Feb-2022 25.55 CRISIL A-/Positive
NA Term Loan NA NA Sept-2019 0.81 CRISIL A-/Positive
NA Term Loan NA NA Mar-2021 22.40 CRISIL A-/Positive
NA Term Loan NA NA Oct-2020 14.00 CRISIL A-/Positive
NA Term Loan NA NA Oct-2024 3.38 CRISIL A-/Positive
NA Term Loan NA NA Mar-2025 262.98 CRISIL A-/Positive
NA Term Loan NA NA Dec-2026 59.0 CRISIL A-/Positive
NA Non-Convertible debenture# NA NA NA 70.00 CRISIL A-/Positive
NA Cash Credit NA NA NA 116.00 CRISIL A-/Positive
NA Letter of credit & Bank Guarantee NA NA NA 135.00 CRISIL A2+
NA Fund-Based
Facilities*
NA NA NA 75.00 CRISIL A-/Positive
NA Proposed Cash Credit NA NA NA 45.00 CRISIL A-/Positive
NA Proposed Letter of Credit & Bank Guarantee NA NA NA 15.00 CRISIL A2+
NA Short Term Loan NA NA NA 20.00 CRISIL A2+
NA Proposed Long term bank loan facility NA NA NA 53.80 CRISIL A-/Positive
NA Fixed Deposits NA NA NA 125.00 FA/Positive
*Interchangable with non fund based facility
#Yet to be issued
 
Annexure - List of Entities Consolidated
Full Consolidation - KCP Vietnam Industries Ltd
Equity Method -  Fives Cail KCP Ltd.
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
Fixed Deposits  FD  125.00  FA/Positive      27-07-18  FA/Positive  31-07-17  FA/Stable  05-07-16  FA/Stable  FA-/Stable 
                    04-04-16  FA-/Positive   
Non Convertible Debentures  LT  0.00   CRISIL A-/Positive      27-07-18  CRISIL A-/Positive  31-07-17  CRISIL A-/Stable  05-07-16  CRISIL A-/Stable  CRISIL BBB+/Stable 
                    04-04-16  CRISIL BBB+/Positive   
Fund-based Bank Facilities  LT/ST  729.19  CRISIL A-/Positive/ CRISIL A2+      27-07-18  CRISIL A-/Positive/ CRISIL A2+  31-07-17  CRISIL A-/Stable/ CRISIL A2+  05-07-16  CRISIL A-/Stable/ CRISIL A2+  CRISIL BBB+/Stable/ CRISIL A2 
                    04-04-16  CRISIL BBB+/Positive/ CRISIL A2   
Non Fund-based Bank Facilities  LT/ST  150.00  CRISIL A2+      27-07-18  CRISIL A2+  31-07-17  CRISIL A2+  05-07-16  CRISIL A2+  CRISIL A2 
                    04-04-16  CRISIL A2   
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
Cash Credit 116 CRISIL A-/Positive Cash Credit 101 CRISIL A-/Positive
Fund-Based Facilities* 75 CRISIL A-/Positive Letter of credit & Bank Guarantee 94.5 CRISIL A2+
Letter of credit & Bank Guarantee 135 CRISIL A2+ Proposed Long Term Bank Loan Facility 386.97 CRISIL A-/Positive
Proposed Cash Credit Limit 45 CRISIL A-/Positive Proposed Term Loan 35 CRISIL A-/Positive
Proposed Letter of Credit & Bank Guarantee 15 CRISIL A2+ Short Term Loan 20 CRISIL A2+
Proposed Long Term Bank Loan Facility 53.8 CRISIL A-/Positive Term Loan 241.72 CRISIL A-/Positive
Term Loan 419.39 CRISIL A-/Positive -- 0 --
Short Term Loan 20 CRISIL A2+ -- 0 --
Total 879.19 -- Total 879.19 --
*Interchangable with non fund based facility
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
Rating Criteria for Engineering Sector
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

Vinay Rajani
Media Relations
CRISIL Limited
D: +91 22 3342 1835
M: +91 91 676 42913
B: +91 22 3342 3000
vinay.rajani@ext-crisil.com

Sachin Gupta
Senior Director - CRISIL Ratings
CRISIL Limited
D:+91 22 3342 3023
Sachin.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