Rating Rationale
December 21, 2018 | Mumbai
The Ramco Cements Limited
Rating reaffirmed
 
Rating Action
Rs.825 Crore Commercial Paper Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of The Ramco Cements Limited (TRCL).
 
On December 14, 2018, TRCL announced the setting up of 3.15 MTPA greenfield cement plant at Kurnool district in Andhra Pradesh. TRCL has acquired a substantial portion of the land for the plant and has obtained the environment clearance as well as the required mining lease. The company expects to commission the plant within 15 months of receipt of requisite statutory approvals. The total capex for the above plant is expected to be Rs 1,500 crores as is expected to be commissioned by fiscal 2022.
 
Apart from the above capex, TRCL has plans of setting up of split grinding units at Vizag, Kolaghat, Odisha and a clinker line at Jayanthipuram, entailing an additional capex spend of Rs 1,930 crores. These existing capex plans are expected to be completed in fiscal 2020.
 
CRISIL believes that TRCL's credit profile will not be materially impacted by the incremental capex plans of the company due to its healthy accruals and robust balance sheet. The total capex of Rs 3,430 crores is expected to be funded largely by accruals with net debt to EBITDA levels expected to remain below 2.0 times over the next three fiscals through 2021.
 
The rating continues to reflect a strong market position in South India, healthy operating efficiency, and robust financial risk profile. These strengths are partially offset by moderate capacity utilisation, and exposure to project related risks along with volatility in input costs and cyclicality in the cement industry.

Analytical Approach

For arriving at its ratings, CRISIL has consolidated the business and financial risk profiles of TRCL, its 1 subsidiary and 6 associates, as they all have strong operational and financial linkages. CRISIL has also treated the corporate guarantees given by TRCL to its affiliates as part of the company's debt.
 
Please refer Annexure - Details of consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Strong market position in South India: The company has a combined manufacturing capacity of around 16.7 million tonne per annum (mtpa) as on March 31, 2018, spread across Tamil Nadu, Karnataka, Andhra Pradesh, and West Bengal. It has an established market presence in South India (74% of overall sales in fiscal 2018), and strong brand recognition in the region, with the key markets being Tamil Nadu and Kerala. Furthermore, 0.95 mtpa capacity in Kolaghat, West Bengal, and 0.95 mtpa capacity in Vizag, Andhra Pradesh, service the eastern market, which contributed 23% of overall sales in fiscal 2018.
 
The company also has capital expenditure (capex) plans to set up additional 2.95 mtpa of grinding units at Vizag, Kolaghat, and Odisha to further reduce dependence on the southern market and thereby diversify the revenue stream. Besides, the clinker capacity at the Jayanthipuram plant, Andhra Pradesh, is proposed to be increased by 1.50 mtpa. The company is also setting up a 3.15 MTPA greenfield unit at Kurnool, Andhra Pradesh.
 
The company is likely to maintain its strong brand image in the southern market with steady cash accrual, while gradually establishing itself in the new markets over the medium term.
 
* Healthy operating efficiency: The company is among the most efficient players in the cement industry in India. Its operating efficiency arises from sharp focus on operations supported by presence of captive power plants, which meet its entire power requirement; setting up of split grinding units near markets, which help in better management of freight cost; and continuous investment to increase operating efficiencies. Even though the operating profit per tonne was impacted by increase in power and fuel and freight costs in fiscal 2018 and first half of fiscal 2019, it remained healthy at Rs 1,205/tonne and Rs 1,000/tonne respectively. Operating profitability is expected to improve in the second half of current fiscal with easing of cost pressures.
 
High operating efficiency and a healthy operating margin are likely to continue over the medium term, thereby enabling the company to retain cost leadership in the Indian cement industry.
 
* Robust financial risk profile
The financial risk profile has been strong, with moderate cash accrual, healthy gearing, and adequate debt protection metrics.

The gearing was low at 0.32 time (based on gross debt) as on March 31, 2018. Net cash accrual to adjusted debt and adjusted interest coverage ratios were 0.59 time and 19 times, respectively, in fiscal 2018. Cash accrual of over Rs 800 crore per fiscal is projected over the medium term, sufficient to service debt repayment of Rs 120-200 crore per fiscal. A capex of Rs 2,000 crore is planned over fiscals 2019 and 2020, which will be predominantly funded through cash accrual. Despite this, the financial risk profile is likely to remain strong over the medium term, aided by healthy profitability, sufficient cash accrual and low reliance on debt. Implementation of any major debt-funded capex may constrain the financial risk profile, and will thus remain a key monitorable.
 
TRCL is the flagship company of the Ramco group, which has a lineage of over 80 years, and solid relationships with the lending community and capital markets. This is also reflected in the fine interest rates enjoyed by TRCL.
 
Weakness
* Moderate capacity utilisation
Capacity utilisation was 56% in fiscal 2018 and 61% in first half of fiscal 2019 (including integrated and grinding capacities). Utilisation has improved over the past three fiscals aided by higher sales to eastern India. With satellite grinding units being set up to service the eastern market, improvement in utilisation is a key monitorable.
 
Capacity additions by other players in the eastern market, combined with moderate growth in cement demand in the southern market, may result in a slowdown in sales, bringing down the operating rate and constraining the ability to pass on any rise in input costs to customers. While profitability may be restricted in a weak operating environment, the strong capital structure and healthy liquidity should support debt protection metrics.
 
* Exposure to project related risks along with volatility in input costs and cyclicality in the cement industry
The company is implementing capex plans to set up additional 6.1 MTPA capacity and hence, will remain exposed to project related risks. TRCL's profitability will remain susceptible to volatility in cost of inputs such as raw material, power, fuel, and freight, in line with the industry. The operating margin moderated in fiscal 2018 and first half of fiscal 2019 due to high power and fuel and freight costs.

Liquidity
TRCL enjoys healthy liquidity driven by expected cash accruals of more than Rs 800 crores per annum in FY19 and FY20. TRCL also has access to fund based limits of Rs 950 crores which are moderately utilized. The company has long term repayment obligations around Rs 120-200 crores in fiscals 2019 and 2020 with capex of around Rs 1000 crores per annum. The company is expected to fund its repayment obligations and capex requirements largely through internal accruals, with balance being funded by debt. Outstanding CP to the tune of Rs 825 crores is backed by unutilized bank lines and is expected to be rolled over on maturity. With net debt to EBITDA of 1.0 times as on March 31, 2018, TRCL has sufficient headroom, to raise additional debt to meet its capex requirements. Its bank lines are expected to meet its incremental working capital requirements, which are assessed to be minimal.
About the Company

TRCL is a leading cement player in South India with capacity of 16.7 mtpa spread across Tamil Nadu, Andhra Pradesh, Karnataka, and West Bengal. Established in 1957, it manufactures cement, which it markets under the Ramco brand predominantly in South India. The company also has windmill capacity of 125.95 megawatt (MW; post the transfer of 33.23 MW to a newly formed subsidiary, Ramco Windfarms Ltd, in fiscal 2014) and captive thermal power plants with capacity of 175 MW.
 
TRCL is part of the Ramco group, which has interests in cement, fibre cement sheets, textiles (cotton yarn), and information technology. Other companies in the group include Rajapalayam Mills Ltd (rated 'CRISIL A-/Positive/CRISIL A2+'), Ramco Industries Ltd (rated 'CRISIL A1+') and Ramco Systems Ltd. The group was founded in 1938 by the late Mr P A C Ramasamy Raja and is presently managed by his grandson, Mr P R Venketrama Raja.
 
In first half of fiscal 2019, the company reported PAT of Rs 239 crores on net sales of Rs 2,327 crores against a PAT of Rs 324 crores on revenues of Rs 2020 crores.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 4,330 3,852
Profit after tax (PAT) Rs crore 556 664
PAT margin % 12.5 16.7
Adjusted debt/adjusted networth Times 0.32 0.44
Interest coverage Times 18.93 12.00

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 Commercial Paper Programme NA NA 7-365 days 825 CRISIL A1+
 
Annexure - Details of Consolidation
Subsidiary  
Ramco Windfarms Limited Full consolidation
Associates  
Ramco Industries Limited Equity method
Ramco Systems Limited Equity method
Rajapalayam Mills Limited Equity method
Shri Vishnu Shankar Mill Limited Equity method
Madurai Trans Carrier Limited Equity method
Lynks Logistics Limited Equity method
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper Programme  ST  825.00  CRISIL A1+  27-09-18  CRISIL A1+  06-09-17  CRISIL A1+    --    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
Criteria for rating trading companies
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

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

ANUSHA BADHWAR
Rating Analyst - CRISIL Ratings
CRISIL Limited
D:+91 22 6172 3247
Anusha.Badhwar@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