| The Ramco Cements Limited | ||
| Rated amount enhanced | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper programme of The Ramco Cements Limited (TRCL). |
| Analytical Approach |
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To arrive at the rating, CRISIL has treated the corporate guarantees given by TRCL to its affiliates as part of TRCL's debt. CRISIL has combined the business and financial risk profiles of TRCL and its subsidiaries and associates, as are in similar businesses and have strong operational and financial linkages. |
| Key Rating Drivers & Detailed Description |
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Strengths * Strong market position in South India: TRCL has combined manufacturing capacity of around 16.5 million tonne per annum (mtpa) as on March 31, 2019, spread across Tamil Nadu, Karnataka, Andhra Pradesh and West Bengal. TRCL has an established market presence in South India (deriving 75% of overall sales in fiscal 2019), and strong brand recognition in the region, with its key markets being Tamil Nadu, Kerala, Karnataka and Andhra Pradesh. Furthermore, TRCL has been operating 0.95 mtpa capacity in Kolaghat (West Bengal) and 0.95 mtpa capacity in Vizag (Andhra Pradesh) to service the eastern market, which forms 22% of overall sales in fiscal 2019. 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 south market and thereby diversify the revenue stream. The company is also setting up a greenfield unit at Kurnool, Andhra Pradesh with 2.25 mtpa of clinker capacity & 1 mtpa of cement capacity. The plant will have railway siding, 10 MW Waste Heat Recovery System & 15 mw thermal power capacity. Besides, expansion of clinkering capacity at Jayanthipuram Plant, AP, from 3 mtpa to 4.50 mtpa along with WHRS capacity of 27 mw is in progress. The overall size of the above capex is around Rs.3400 crores. CRISIL believes TRCL will retain its strong brand image in the Southern market and maintain steady cash accruals, while gradually establishing itself in the new markets over the medium term. * Healthy operating efficiency: TRCL is among the most efficient players in the cement industry. 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 helped in better management of freight cost, and continuous investment to increase operating efficiencies. Even though the operating profit per tonne was impact by increase in power & fuel and freight costs in fiscal 2019, however, the same remains healthy at Rs 939/ton. High operating efficiencies and healthy operating margin are likely to continue over the medium term. * Robust financial risk profile The financial risk profile has been strong, with moderate cash accrual, healthy gearing, and adequate debt protection metrics. Gearing was 0.38 time (based on gross debt) as on March 31, 2019. Net cash accrual to adjusted debt and interest coverage ratios were 0.41 time and 20 times, respectively, in fiscal 2019. Cash accrual of over Rs 800 crore is expected annually over the medium term, sufficient to service yearly debt repayment of Rs 120-150 crore. The company is planning to undertake capex of Rs 3400 crore over the two fiscals through fiscal 2022, which will be funded mainly through cash accrual. The financial risk profile will however, 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 thus will 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. Weaknesses * Moderate capacity utilisation Capacity utilisation continues to be moderate at 68% in fiscal 2019. However, there has been an improvement in utilisation levels over the last three years aided by higher sales to eastern India. Going forward, with satellite grinding units being set up to service the eastern market, the improvement in utilisation is a key monitorable. Capacity additions by other players in the eastern market, combined with moderate growth in cement demand in southern market, may result in slow sales, bringing down the operating rates, and constraining the ability to pass on 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. * Input costs related risk and cyclicality in cement industry Profitability is susceptible to volatility in input costs such as material, power, fuel and freight costs, in line with the industry. Operating margins moderated in fiscal 2019 due to high power & fuel and freight costs. |
| Liquidity |
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TRCL enjoys healthy liquidity driven by expected cash accruals of more than Rs 800 crores per annum in fiscal 2020 and 2021. 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 150-200 crores in fiscals 2020 and 2021 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 1.5 times as on March 31, 2019, TRCL has 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 |
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TRCL is a leading cement player with capacity of 16.5 million tonne spread across Tamil Nadu, Andhra Pradesh, Karnataka and West bengal. Established in 1957, it manufactures and markets cement 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. |
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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) | ||||||||||||||||||
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| Annexure - List of Entities Consolidated | ||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
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