Rating Rationale
November 28, 2018 | Mumbai
UltraTech Cement Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.12157.74 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
 
Rs.360 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.250 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.200 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.175 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.300 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.500 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.650 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.300 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.3500 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 AAA/Stable/CRISIL A1+' ratings on the debt programmes and bank facilities of UltraTech Cement Limited (UltraTech) post its acquisition of Binani Cement Ltd (BCL). On November 19, 2018, Supreme Court upheld an order of the National Company Law Appellate Tribunal (NCLAT) approving UltraTech's resolution plan for BCL. Furthermore, on November 20, 2018, the board of BCL was reconstituted and it became a wholly owned subsidiary of UltraTech.

The reaffirmation factors in expected improvement in UltraTech's business risk profile with enhanced regional market share and cost efficiency offsetting increase in financial risk due to interim rise in leverage. Acquisition of BCL's 6.25 million tonne per annum (mtpa) in Rajasthan will complement UltraTech's capacity and enhance its market share in North India to nearly 23%. Besides, BCL has presence in China and Dubai through subsidiaries. In India, the capacities are presently operating sub-optimally but CRISIL believes UltraTech will turn them around and ramp up operations backed by operational synergies, superior brand positioning, and favourable demand outlook for cement. Surplus land and limestone reserves in Rajasthan also provide opportunity to recalibrate expansion plans more efficiently. Though the debt-funded acquisition may moderate the financial risk profile, expected improvement in profitability of acquired capacity and the management's intention to reduce debt using surplus cash flow will correct the net debt to earnings before interest, tax, depreciation, and amortisation (EBIDTA) ratio to below 2.5 times by March 31, 2020. Timely turnaround of acquired capacity, extent of improvement in consolidated profit, and debt reduction will remain key monitorables.

The ratings continue to reflect UltraTech's strong business risk profile, driven by its established position in the Indian cement business, with focus on operating efficiency. These strengths are partially offset by cyclicality in the cement industry.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of UltraTech and its subsidiaries (including BCL), as all the entities, collectively referred to as UltraTech, operate in the cement and related space, and have significant operational linkages and a common management.

Key Rating Drivers & Detailed Description
Strengths
* Established position in the Indian cement business with focus on operating efficiency
UltraTech is India's largest cement manufacturer with a capacity market share of 24%. The company has 113.35 mtpa capacity in India, including BCL, ongoing acquisition of the cement business of Century Textiles and Industries Ltd (Century; 'CRISIL AA/Watch Developing/CRISIL A1+'), and expansion. UltraTech has superior operating efficiency driven by strong consumption norms, efficient logistics because of pan-India presence, and captive power capability. The acquisition of BCL strengthens UltraTech's market position in northern India, while the acquisition of Century's cement business will strengthen its market position in the high-growth eastern market, and entrench its presence in other markets. Pan-India presence insulates the company from downtrends in any single region.

* Financial risk profile to improve over the medium term
Though the debt-funded acquisition of the cement capacity of Jaiprakash Associates Ltd (JAL) and its subsidiary had moderated UltraTech's financial risk profile, healthy ramp-up in JAL's capacity utilisation and profitability reduced the net debt to EBITDA ratio to 2.2 times by March 31, 2018.

The BCL acquisition results in incremental consolidated net debt of Rs 8000 crore, but the assets will be EBITDA-accretive from day one. The proposed acquisition of Century will add a further debt of Rs 3000 debt likely at the start of fiscal 2020, but will provide EBITDA from the start. Thus, the debt to EBITDA ratio is likely to be less than 2.5 times by March 2020. Favourable demand outlook for cement and improved profitability of acquired assets through operational synergies and superior brand positioning should benefit the company. The extent of improvement in consolidated profit and debt reduction will be key monitorables.

Financial flexibility is strong, backed by healthy liquidity of over Rs 2000 crore even after the BCL transaction. Longstanding relationships with banks and strong business positioning allow UltraTech to favourably raise debt at low interest cost.

Weakness
* Susceptibility to risks relating 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 in setting up a facility and the large number of players adding capacity during the peak of a cycle. This has 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. Increase in pet coke prices over the past year has impacted profitability of several players. Realisations and profitability are also affected by demand, supply, sales, and regional factors. Despite high volume growth and realisation being 4-5% higher, UltraTech's operating margin remained susceptible in past 18 months on account of elevated power and fuel costs, and rising freight costs.
Outlook: Stable

CRISIL believes UltraTech will continue to benefit from its healthy market position, geographically diverse presence in India, and high financial flexibility.

Downside scenario
* Lower-than-expected ramp-up in cash accrual due to non-sustenance of performance
* More-than-expected debt because of sizeable acquisition or capital expenditure, or delay in reducing debt through surplus cash.

About the Company

UltraTech was formed in 2004 following the acquisition of the cement business of Larsen & Toubro Ltd ('CRISIL AAA/FAAA/Stable/CRISIL A1+') by Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+'). As on September 30, 2018, Grasim (the flagship company of the Aditya Birla group) held 60.2% equity stake in UltraTech, the other promoter group held 1.49%, and financial institutions and the public held the rest. Through UltraTech Cement Middle East Investments Ltd, UltraTech has capacity of 4 mtpa across the UAE, Bahrain, and Bangladesh.

BCL has capacity of 6.25 mtpa in Rajasthan, comprising an integrated cement unit of 4.85 mtpa and a split grinding unit of 1.4 mtpa. Also, through its subsidiaries, BCL has 3 mtpa clinker capacity in China and 2 mtpa grinding capacity in UAE.

On completion of the ongoing acquisition of Century's cement business (14.6 mtpa), UltraTech's total capacity in India is likely to expand to over 113.35 mtpa including ongoing expansion. Century's assets are in Madhya Pradesh, West Bengal, Maharashtra, and Chhattisgarh.

Key Financial Indicators*
As on/for the period ended March 31  2018 2017
Revenue Rs crore 31439 25341
Profit After Tax (PAT) Rs crore 2224 2714
PAT Margin % 7.1 10.7
Adjusted debt/Adjusted networth Times 0.87 0.37
Interest coverage Times 4.98 7.61
*The above reflect consolidated - CRISIL adjusted financials

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
INE481G07190 Debentures 22-Aug-16 7.53% 21-Aug-26 500 CRISIL AAA/Stable
INE481G08032 Debentures 25-Nov-16 6.93% 25-Nov-21 250 CRISIL AAA/Stable
INE481G08024 Debentures 24-Nov-16 6.99% 24-Nov-21 400 CRISIL AAA/Stable
INE481G07208 Debentures 18-Oct-16 7.15% 18-Oct-21 300 CRISIL AAA/Stable
INE481G07182 Debentures 08-Aug-16 7.57% 06-Aug-21 250 CRISIL AAA/Stable
INE481G08057 Debentures 03-Aug-18 8.36% 07-Jun-21 360 CRISIL AAA/Stable
INE481G07166 Debentures 27-Jul-16 7.57% 13-Aug-19 300 CRISIL AAA/Stable
INE481G07174 Debentures 08-Aug-16 7.57% 08-Aug-19 175 CRISIL AAA/Stable
INE481G07158 Debentures 08-Dec-15 7.85% 18-Dec-18 200 CRISIL AAA/Stable
NA Commercial Paper NA NA 7-365 days 3500 CRISIL A1+
NA Rupee Term Loan 1 NA NA Sep-42 592.37 CRISIL AAA/Stable
NA Rupee Term Loan 2 NA NA Sep-42 2664.71 CRISIL AAA/Stable
NA Rupee Term Loan 3 NA NA Sep-42 3317.92 CRISIL AAA/Stable
NA Rupee Term Loan 4 NA NA Sep-42 1614 CRISIL AAA/Stable
NA Rupee Term Loan 5 NA NA Sep-42 2000 CRISIL AAA/Stable
NA Rupee Term Loan 6 NA NA Nov-23 300 CRISIL AAA/Stable
NA Proposed Rupee Term Loan NA NA NA 283.85 CRISIL AAA/Stable
NA External Commercial Borrowings 1# NA NA Oct-18 162.94 CRISIL AAA/Stable
NA External Commercial Borrowings 2 NA NA May-21 338.45 CRISIL AAA/Stable
NA External Commercial Borrowings 3 NA NA Jun-21 311.3 CRISIL AAA/Stable
NA External Commercial Borrowings 4 NA NA Feb-19 246.32 CRISIL AAA/Stable
NA External Commercial Borrowings 5 NA NA Mar-23 65.18 CRISIL AAA/Stable
NA External Commercial Borrowings 6 NA NA Feb-23 130.35 CRISIL AAA/Stable
NA External Commercial Borrowings 7 NA NA Feb-23 130.35 CRISIL AAA/Stable
#CRISIL is awaiting independent confirmation of no dues before withdrawing ratings on these instruments
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  3500.00  CRISIL A1+  17-08-18  CRISIL A1+  31-07-17  CRISIL A1+  29-12-16  CRISIL A1+  02-12-15  CRISIL A1+  CRISIL A1+ 
        31-07-18  CRISIL A1+  27-06-17  CRISIL A1+  17-11-16  CRISIL A1+  29-07-15  CRISIL A1+   
        23-05-18  CRISIL A1+  27-03-17  CRISIL A1+  21-10-16  CRISIL A1+  16-04-15  CRISIL A1+   
                10-10-16  CRISIL A1+  21-01-15  CRISIL A1+   
                02-09-16  CRISIL A1+       
                17-08-16  CRISIL A1+       
                03-08-16  CRISIL A1+/Watch Developing       
                21-07-16  CRISIL A1+/Watch Developing       
                18-07-16  CRISIL A1+/Watch Developing       
                04-03-16  CRISIL A1+/Watch Developing       
Non Convertible Debentures  LT  2735.00
28-11-18 
CRISIL AAA/Stable  17-08-18  CRISIL AAA/Stable  31-07-17  CRISIL AAA/Stable  29-12-16  CRISIL AAA/Stable  02-12-15  CRISIL AAA/Stable  CRISIL AAA/Stable 
        31-07-18  CRISIL AAA/Stable  27-06-17  CRISIL AAA/Stable  17-11-16  CRISIL AAA/Stable  29-07-15  CRISIL AAA/Stable   
        23-05-18  CRISIL AAA/Stable  27-03-17  CRISIL AAA/Stable  21-10-16  CRISIL AAA/Stable  16-04-15  CRISIL AAA/Stable   
                10-10-16  CRISIL AAA/Watch Developing  21-01-15  CRISIL AAA/Stable   
                02-09-16  CRISIL AAA/Watch Developing       
                17-08-16  CRISIL AAA/Watch Developing       
                03-08-16  CRISIL AAA/Watch Developing       
                21-07-16  CRISIL AAA/Watch Developing       
                18-07-16  CRISIL AAA/Watch Developing       
                04-03-16  CRISIL AAA/Watch Developing       
Short Term Non Convertible Debenture  ST    --  17-08-18  Withdrawal  31-07-17  CRISIL A1+    --    --  -- 
        31-07-18  CRISIL A1+  27-06-17  CRISIL A1+           
        23-05-18  CRISIL A1+               
Fund-based Bank Facilities  LT/ST  12157.74  CRISIL AAA/Stable  17-08-18  CRISIL AAA/Stable  31-07-17  CRISIL AAA/Stable  29-12-16  CRISIL AAA/Stable  02-12-15  CRISIL AAA/Stable  CRISIL AAA/Stable/ CRISIL A1+ 
        31-07-18  CRISIL AAA/Stable  27-06-17  CRISIL AAA/Stable  17-11-16  CRISIL AAA/Stable  29-07-15  CRISIL AAA/Stable   
        23-05-18  CRISIL AAA/Stable  27-03-17  CRISIL AAA/Stable  21-10-16  CRISIL AAA/Stable  16-04-15  CRISIL AAA/Stable   
                10-10-16  CRISIL AAA/Watch Developing  21-01-15  CRISIL AAA/Stable   
                02-09-16  CRISIL AAA/Watch Developing       
                17-08-16  CRISIL AAA/Watch Developing       
                03-08-16  CRISIL AAA/Watch Developing       
                21-07-16  CRISIL AAA/Watch Developing       
                18-07-16  CRISIL AAA/Watch Developing       
                04-03-16  CRISIL AAA/Watch Developing       
Non Fund-based Bank Facilities  LT/ST          27-06-17  CRISIL A1+  29-12-16  CRISIL A1+  02-12-15  CRISIL A1+  CRISIL A1+ 
            27-03-17  CRISIL A1+  17-11-16  CRISIL A1+  29-07-15  CRISIL A1+   
                21-10-16  CRISIL A1+  16-04-15  CRISIL A1+   
                10-10-16  CRISIL A1+  21-01-15  CRISIL A1+   
                02-09-16  CRISIL A1+       
                17-08-16  CRISIL A1+       
                03-08-16  CRISIL A1+/Watch Developing       
                21-07-16  CRISIL A1+/Watch Developing       
                18-07-16  CRISIL A1+/Watch Developing       
                04-03-16  CRISIL A1+/Watch Developing       
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
External Commercial Borrowings 1384.89 CRISIL AAA/Stable External Commercial Borrowings 1384.89 CRISIL AAA/Stable
Proposed Rupee Term Loan 283.85 CRISIL AAA/Stable Proposed Rupee Term Loan 283.85 CRISIL AAA/Stable
Rupee Term Loan 10489 CRISIL AAA/Stable Rupee Term Loan 10489 CRISIL AAA/Stable
Total 12157.74 -- Total 12157.74 --
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
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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