| UltraTech Cement Limited | ||||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to Rs 250 crore proposed non-convertible debentures (NCDs) of UltraTech Cement Ltd (UltraTech) and has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the existing debt instruments and bank facilities of the company. Furthermore, CRISIL Ratings has withdrawn its rating on proposed long term bank loan facilities aggregating to Rs 5,000 crore at the request of the company and upon receipt of requisite documents. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of ratings.
The ratings reflect the strong business and financial risk profiles of UltraTech, driven by its established position as the largest player in the Indian cement industry and healthy operating efficiency. Enhanced regional market share and successful ramp-up of acquired assets has also aided the financial risk profile, which is evident from low leverage (net debt to earnings before interest, tax, depreciation and amortisation [EBITDA]). These strengths are partially offset by cyclicality in the cement industry.
The company has completed phase-I expansion in Q2FY24 with capacity addition of 19.9 MTPA and currently setting up capacity of 22.6 MTPA pan India sans west under phase-II. It is expected to be implemented by fiscal 2025 with estimated capex of around Rs 13,000 crore. Further, it has announced phase-III expansion to add capacity of 21.9 MTPA in a phased manner from FY26 onwards. This will entail an investment of around Rs 13,000 crore, expected to be funded via internal accruals. With the announced capex plans, the company aims to achieve domestic grey cement capacity of 181.6 MTPA by FY27. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of UltraTech and its subsidiaries. This is because the entities, collectively referred to as the UltraTech group, operate in cement and related space and have significant operational linkages and common management.
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 market position in the Indian cement business and healthy operating efficiency UltraTech is India's largest cement manufacturer having capacity market share of 22% with consolidated grey capacity of 137.9 MTPA as of September 2023. Operating efficiency is superior, driven by strong energy consumption norms, efficient logistics (because of pan-India presence) and captive power availability. The acquisition of UNCL strengthened UltraTech’s market position in the northern region. The takeover of Century's cement business has improved its position in the high-growth eastern market and reinforced its presence in other geographies. The presence across region is also strengthened with commissioning of capacity under phase-I. The company is progressing well on phase-II expansion with capacity addition of 22.6 MTPA across all regions sans west. It has also announced phase-III of expansion plans for a capacity of 21.9 MTPA. Pan-India presence insulates the company from vagaries of external factors in any single region.
UltraTech’s volumes grew by 17.7% during the first half of fiscal 2024 compared to first half of fiscal 2023, on back of strong demand, while EBITDA/ton declined by Rs 42 during the same period owing to lower realization and higher raw material costs.
Strong financial risk profile Overall net debt to EBITDA ratio improved to 0.34 times in fiscal 2023, vis-à-vis 0.41 times in fiscal 2022 and peak of 3.16 times in fiscal 2019. It is expected to further improve with higher operating profitability and gradual reduction in net debt as capex is expected to be met through accruals. Debt protection metrics are expected to remain healthy with Interest coverage ratio and net cash accruals to adjusted debt ratio at more than 13 times and 0.6 times respectively, as on March 2023. The financial risk profile also benefits from a large networth, and high liquidity maintained on the balance sheet.
Weaknesses : Susceptibility to risks related to input cost, realisations and cyclicality in the cement industry Capacity addition in the cement industry tends to be sporadic because of the long gestation period and large number of players adding capacity during the peak of a cycle. This led to unfavourable price cycles for the sector in the past. Moreover, profitability remains susceptible to volatility in the prices of inputs, including raw material, power, fuel and freight as has been experienced during fiscal 2022 and fiscal 2023. Realisations and profitability are also constrained by demand, supply, sales and regional factors. |
Liquidity: Superior The financial flexibility has been strong owing to access to capital markets and ability to raise funds at competitive rates and on short notice. Longstanding relationship with banks and strong business positioning allows UltraTech to favourably raise debt at low interest cost. Liquidity is backed by healthy cash balance of over Rs 5,400 crore as on September 30, 2023. However, healthy cash accrual over the medium term should comfortably cover not only maturing debt in fiscal 2024 and incremental working capital requirement but also support capex going forward.
Environment, social, and governance (ESG) profile CRISIL Ratings believes UltraTech’s ESG profile supports its already strong 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 energy intensive cement manufacturing process and its high dependence on natural resources such as limestone, and coal as key raw materials. The sector has social impact due to its nature of operations affecting the local community and the health hazards involved. However, UltraTech has continuously focused on mitigating its environmental and social risks.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. UltraTech’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to capital markets. |
Outlook: Stable UltraTech will continue to benefit from its leading market position, geographically diverse presence in India and high financial flexibility. |
Downward Factors
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About the Company UltraTech was formed in 2004 following the acquisition of the cement business of Larsen and Toubro Ltd ('CRISIL AAA//Stable/CRISIL A1+') by Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+'). As on September 30, 2023, Grasim (the flagship company of the Aditya Birla group) held 57.27% equity stake in UltraTech, the other promoter group held 2.69%, and financial institutions and the public held the rest. Through UltraTech Cement Middle East Investments Ltd (UCMEIL), UltraTech has capacity of 5.4 MTPA across UAE and Bahrain.
UltraTech's consolidated grey capacity is 137.9 MTPA (domestic capacity of 132.5 MTPA), as on September 30, 2023. Furthermore, the company is planning additional capacity of 49.1 MTPA through ongoing phase-II expansion, announced phase-III and some debottlenecking projects, which will take overall capacity to 187 MTPA (domestic capacity to 181.6 MTPA).
In addition, the company has 1.5 MTPA of white cement capacity. Furthermore, the company has power generation capacity of 1,188 megawatt (MW) with 555 MW of renewable energy and 210 MW WHRS as on March 31, 2023. Green energy consumption contributed to 19.27% of the energy requirement in fiscal 2023.
For the six months ended September 30, 2023, UltraTech reported profit after tax (PAT) of Rs 2,971 crore and operating income of Rs 33,749 crore, against Rs 2,341 crore and Rs 29,057 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators*
*Consolidated financials adjusted by CRISIL Ratings. | ||||||||||||||||||||||||
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Yet to be issued |
Annexure - List of Entities Consolidated
! 4% Shareholding of UCMEIL & 5% Shareholding of UCMEIL * Subsidiaries of UCMEIL $ 51% held by nominee as required by local law for beneficial interest of the Company upto July 20,2022 $$ 51% held by nominee as required by local law for beneficial interest of the Company ^ 1 share held by employee as nominee for the beneficial interest of the Company # Subsidiary of PT UltraTech Investments Indonesia !! Wholly owned subsidiary of UNCL && 55.54% held by UNCL and 44.46% held by MHL *** Wholly owned subsidiary of SSCILLC ^^^ Wholly owned subsidiary of BHUMI Subsidiary of UCMEIL w.e.f. November 23, 2020 ## Wholly owned subsidiary of 3B Binani Glassfibre Sarl ### Wholly owned subsidiary of Project Bird Holding II Sarl which was merged with 3B w.e.f. April 12, 2021 !!! 67% held by Project Bird Holding II Sarl which was merged with 3B w.e.f. April 12, 2021 $$$ Associate of UCMEIL @Wholly owned subsidiary of RAKW |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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