Rating Rationale
September 27, 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).

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 risks related to volatility in input costs and cyclicality in the cement industry.

Analytical Approach

To arrive at the rating, CRISIL has treated the corporate guarantees given by TRCL to its affiliates as part of the company's debt. CRISIL has combined the business and financial risk profiles of TRCL and its subsidiaries and associates as they all have strong operational and financial linkages. 

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 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, it remained healthy at Rs 1,205/tonne.

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 120-150 crore per fiscal. A capex of Rs 1,870 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.

Weaknesses
* Moderate capacity utilisation
Capacity utilisation was 56% in fiscal 2018 (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 risks related to volatility in input costs and cyclicality in the cement industry
Profitability is 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 due to high power and fuel and freight costs.
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 quarter of fiscal 2019, the company reported PAT of Rs 125 crores on net sales of Rs 1,220 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 NA NA NA 825 CRISIL A1+
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  ST  825.00  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 rating short term debt

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