Rating Rationale

Rating Rationale

June 24, 2024 | Mumbai

Ambuja Cements Limited

Ratings reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'

Rating Action

Total Bank Loan Facilities Rated	Rs.1650 Crore
Long Term Rating	CRISIL AAA/Stable (Reaffirmed)
Short Term Rating	CRISIL A1+ (Reaffirmed)

Rs.100 Crore Short Term Debt

CRISIL A1+ (Reaffirmed)

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 reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and short-term debt programme of Ambuja Cements Ltd (Ambuja Cements; part of the Adani group).

The ratings factor in the strong business risk profile by virtue of Ambuja Cements and ACC Ltd (ACC; ‘CRISIL AAA/Stable/CRISIL A1+’) being the second-largest cement group in India. The strong presence of the Adani group in coal, power and logistics verticals will result in structural reduction in cost of production of cement business owing to synergy benefits which shall further strengthen the business risk profile over the medium term. The financial risk profile of the company will remain strong over the medium term supported by a debt-free balance sheet and robust liquidity. The promoter holding company of the Adani group had raised ~$6.3 billion to fund the acquisition of shares from Holcim Ltd through a mix of debt, equity and shareholder loans without any commitment from Ambuja Cements and ACC to meet principal or interest obligation. At present $3.13 billion debt is outstanding at the holding company level

CRISIL Ratings has taken note of Ambuja Cements’ announcement on June 13, 2024, that it has entered into definitive agreement to acquire 100% stake in Penna Cement Industries Ltd (PCIL) from its promoters. The transaction will be at an enterprise value (EV) of Rs 10,422 crores, expected to be entirely funded from the internal accruals and available liquid surplus of the company. It is subject to regulatory approvals and is expected to close in the next 2-3 months. PCIL has 10 MTPA of grinding and 7.3 MTPA of clinker capacity. It is also undertaking 4 MTPA of grinding and 3 MTPA of clinker capacity expansion and the project cost is factored into in the stated transaction EV. Besides, it also has five bulk cement terminals and one 25,500-ton self-discharging cement carrier.

CRISIL Ratings believes that the acquisition will further strengthen the market position of Ambuja Cements, especially in the southern region and increasing its consolidated grinding capacity to 88.9 MTPA from 78.9 MTPA (including My Home Industries and Dahej grinding capacity). This will also support the company’s plan to increase consolidated cement capacity to 140 MTPA by 2028. Also, given the strategic location of PCIL facilities and its logistical infrastructure, the acquisition is expected to support optimization of costs for the company at the consolidated level. The pace of ramp of production and optimization of costs of the PCIL assets after the acquisition shall be a monitorable.

Ambuja cement has sizeable capex plans to achieve the intended target of reaching consolidated cement capacity of 140 MTPA by 2028, through a mix of greenfield and brownfield expansions as well as acquisitions. It is also focusing on extracting synergies between Ambuja Cements, its subsidiaries as well as within the larger Adani group to reduce cost of production and generate healthy cash accruals to support these capex plans. Further, the completion of equity infusion of Rs 15,000 crores by the promoters in March-April 2024 towards pending warrants boosting the liquid surplus to ~Rs 24,000 crore as on April 30, 2024. While the extent of improvement in cost of production from higher synergies remains a monitorable, CRISIL Ratings believes that the capex plans could anyways be funded via internal accruals and the robust liquid surplus and hence, does not expect leveraging of the balance sheet.

For fiscal 2024, the consolidated sales volume stood at 59.2 MTPA (vs 54.7 MTPA in fiscal 2023). EBITDA/ton improved to Rs 1,072 from Rs 737 in fiscal 2023, owing to cost optimization at the company and moderation in input prices. Profitability is likely to improve further over the medium term, with better efficiency improvement initiatives such as investments in renewable power, increase in use of Alternate Fuels and Raw materials (AFR), optimization of logistics footprint and synergies between Ambuja Cements and its subsidiaries and other group companies.

The ratings continue to reflect the strong pan-India market position of Ambuja Cements and ACC, its robust operating efficiency and strong financial risk profile, driven by healthy cash flow and the debt-free position. These strengths are partially offset by susceptibility to the commoditised and cyclical nature of the cement industry. Substantial leveraging of the balance sheet or change in financial policies, which could weaken the financial risk profile, will be a key rating sensitivity factor.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Ambuja Cements, ACC and all other subsidiaries/JVs/associates. This is because all these companies have a common line of business and management. They operate as one unit symbiotically and optimise each other's plant capacities and spare inventories, and thus, benefit from operational, managerial and financial synergies.

Debt in ultimate holding company/companies of ACC and of Ambuja Cements has not been consolidated as it is non-recourse to these entities and will likely be serviced via cash flow streams at the promoter level not limited to dividends of either company.

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:

Strong market position: ACC and Ambuja Cements (with their subsidiaries) together had an installed capacity of 78.9 million tonne per annum (MTPA) as on May 31, 2024, with a pan-India presence making it the second largest player in the cement industry. The companies jointly hold 14-15% capacity share in the domestic market. They have 18 integrated units, 19 grinding and blending units, 86 ready-mix concrete plants and more than 100,000 plus channel partners with nation-wide presence. These factors shield the operations from price volatility in regional markets and demand-supply imbalance.

Healthy operating efficiencies: Consolidated operating margin has been healthy, aided by high proportion of blended cement (around 86%), low clinker factor (~64%) and power requirement (~60%) met captively through thermal power plants (TPPs), waste heat recovery system (WHRS) and wind/solar power. The company has announced investments of Rs 6,000 crores to add 1000 MW of renewable capacity by end of fiscal 2026 to further augment the power mix towards low-cost WHRS/wind/solar projects, so as to sustain its superior operating margin over the medium term.

For fiscal 2024, consolidated EBITDA margin improved to 19.2% with adjusted ROCE of around 14.9% (against 13.1% and ~12% respectively for 15 months end fiscal 2023).

Strong financial risk profile: The company has a networth of ~Rs. 50,000 crore as of March 31, 2024 (enhanced with equity infusion of Rs 15,000 crores received against conversion of share warrants in March-April 2024; this is in addition to Rs 5000 crore received while issuance of the warrants in October 2022) and liquid surplus of ~Rs 24,000 crore as on April 30, 2024, lend strength to the balance sheet at a consolidated level. Overall gearing too remained healthy. Strong cash flow and debt free position further translate into robust debt protection metrics.

The ultimate holding companies of cement business (i.e. of ACC and Ambuja Cements) have outstanding debt of $3.13 billion with bullet repayments and semi-annual interest servicing. The management has articulated to service this debt from the existing liquidity and cash flows generated at the group level from interest and dividend income, along with refinancing of the principal amount. Further, the cash balance and cash accrual of ACC and Ambuja Cements will be primarily utilised towards their growth capex. Therefore, the financial risk profile is expected to remain strong. However, any substantial increase in dividend or support to group/holding company from cash flows of ACC and Ambuja Cements may potentially weaken the credit risk profile of these companies and thus, would be a key monitorable.

The company at a consolidated level is likely to incur a large capex of nearly Rs 40,000 crore (including inorganic acquisitions) over fiscals 2025 to 2027, towards capacity addition, captive power plants, plant maintenance and other infrastructure development. These are likely to be funded through internal accrual and existing liquidity. Proceeds from the equity infusion by the promoters and healthy cash accruals of the company will ensure negligible reliance on debt to fund capex.

Weakness:

Susceptibility to volatility in input cost and realisations, and cyclicality in the cement industry: Capacity addition in the cement industry is sporadic, given the long gestation period for 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 in the past. Profitability also remains susceptible to volatility in input prices, including raw material, power, fuel, and freight cost. Increase in pet coke prices over the past year has impacted profitability of cement players. Realisations and profitability are also affected by demand, supply, offtake, and other regional factors.

Liquidity: Superior

At Ambuja Cements on a consolidated level, cash and equivalent stood at more than Rs 24,000 crore as on April 30, 2024. Unutilised bank limit and healthy cash accrual will suffice to meet working capital requirement.

At a consolidated level, cash accrual of over Rs 7000 crore is expected per fiscal over the medium term. Accordingly, the cash accrual and surplus liquidity would comfortably cover the capex requirement.

Outlook: Stable

CRISIL Ratings believes Ambuja Cements will maintain its strong financial risk profile over the medium term, supported by healthy cash accrual and low reliance on debt.

Rating Sensitivity factors

Downward factors

Substantial leveraging of the balance sheet constraining the debt protection metrics
Sustained decline in operating margin to less than 12%
Any substantial increase in dividends or support to group/holding company, which weakens the financial risk profile

About the Company

Ambuja Cements is one of India’s leading cement manufacturers with an installed capacity of 78.9 MTPA at a consolidated level as of March 2024 (31.55 mtpa at a standalone level). In January 2006, Holcim acquired a 14.8% stake in Ambuja Cements. Following an open offer in April 2006, Holcim assumed management control of the company. Post restructuring between ACC and Ambuja Cements, effective from August 12, 2016, ACC became a subsidiary of Ambuja Cements.

ACC is the oldest cement company in India, with standalone installed capacity of 37.1 MTPA as of March 2024. The company also manufactures ready-mix concrete and has over 86 plants across the country.

On May 15, 2022, the Adani group and Holcim Ltd executed a share purchase agreement for purchase of the latter’s entire stake in Ambuja Cements and ACC Ltd for a total consideration of Rs 50,181 crore (~$6.3 billion). This enabled entry of the Adani group into the cement business at second position in India, with a significant scale and strong brands. Subsequently, the board was reconstituted in September 2022 upon completion of the transaction.

Key Financial Indicators* – Ambuja Cements (consolidated)

Particulars	Unit	2024	2023#
Revenue	Rs crore	33,086	38,890
Profit after tax (PAT)	Rs crore	4,738	3,024
PAT margin	%	14.3	7.8
Adjusted debt / adjusted networth	Times	0.00	0.00
Interest coverage	Times	37.67	37.51

*as per CRISIL analytical adjustment

#Financials for 15 months ended March 31; includes consolidated numbers of ACC Ltd

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. 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)	Complexity Levels	Rating assigned with outlook
NA	Short-term debt	NA	NA	7-365 days	100	Simple	CRISIL A1+
NA	Cash Credit & Working Capital Demand Loan	NA	NA	NA	45	NA	CRISIL AAA/Stable
NA	Cash Credit & Working Capital Demand Loan^	NA	NA	NA	10	NA	CRISIL AAA/Stable
NA	Letter of credit & Bank Guarantee#	NA	NA	NA	1265	NA	CRISIL A1+
NA	Letter of credit & Bank Guarantee^^	NA	NA	NA	110	NA	CRISIL A1+
NA	Proposed Long Term Bank Loan Facility	NA	NA	NA	220	NA	CRISIL AAA/Stable

^ - Interchangeable with bank guarantee / letter of credit

# - Fully interchangeable with bank guarantee

^^ - Upto 80 Cr interchangeable with bank guarantee

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
ACC Ltd	Full	Subsidiary
M.G.T Cements Pvt Ltd	Full
Chemical Limes Mundwa Pvt Ltd	Full
OneIndia BSC Pvt Ltd	Full
ACC Mineral Resources Ltd *	Full
Bulk Cement Corporation (India) Ltd*	Full
Lucky Minmat Ltd*	Full
Singhania Minerals Pvt Ltd*	Full
Sanghi Industries Ltd	Full
Ambuja Shipping Services Limited	Full
Foxworth Resources And Minerals Limited	Full
LOTIS IFSC Private Limited	Full
Ambuja Concrete North Private Limited	Full
Ambuja Concrete West Private Limited	Full
ACC Concrete South Limited*	Full
ACC Concrete West Limited*	Full
Asian Concretes and Cements Private Limited*	Full
Asian Fine Cements Private Limited (w.e.f. 8th Jan 2024)*	Full
Counto Microfine Products Pvt Ltd	Equity method	JV/Associate
Aakaash Manufacturing Company Pvt Ltd ^	Equity method	JV/Associate
Alcon Cement Company Pvt Ltd ^	Equity method	JV/Associate
Asian Concretes and Cements Pvt Ltd ^ (up to 7th Jan 2024)	Equity method	JV/Associate

*Subsidiaries of ACC Ltd

^JV / Associates of ACC Ltd

Annexure - Rating History for last 3 Years

	Current			2024 (History)		2023		2022		2021		Start of 2021
Instrument	Type	Outstanding Amount	Rating	Date	Rating	Date	Rating	Date	Rating	Date	Rating	Rating
Fund Based Facilities	LT	275.0	CRISIL AAA/Stable		--	11-08-23	CRISIL AAA/Stable	07-09-22	CRISIL AAA/Stable	03-06-21	CRISIL AAA/Stable	CRISIL AAA/Stable
			--		--	28-04-23	CRISIL AAA/Stable	23-05-22	CRISIL AAA/Stable		--	--
			--		--	09-02-23	CRISIL AAA/Stable	16-02-22	CRISIL AAA/Stable		--	--
			--		--	02-02-23	CRISIL AAA/Stable		--		--	--
Non-Fund Based Facilities	ST	1375.0	CRISIL A1+		--	11-08-23	CRISIL A1+	07-09-22	CRISIL A1+	03-06-21	CRISIL A1+	CRISIL A1+
			--		--	28-04-23	CRISIL A1+	23-05-22	CRISIL A1+		--	--
			--		--	09-02-23	CRISIL A1+	16-02-22	CRISIL A1+		--	--
			--		--	02-02-23	CRISIL A1+		--		--	--
Short Term Debt	ST	100.0	CRISIL A1+		--	11-08-23	CRISIL A1+	07-09-22	CRISIL A1+	03-06-21	CRISIL A1+	CRISIL A1+
			--		--	28-04-23	CRISIL A1+	23-05-22	CRISIL A1+		--	--
			--		--	09-02-23	CRISIL A1+	16-02-22	CRISIL A1+		--	--
			--		--	02-02-23	CRISIL A1+		--		--	--

All amounts are in Rs.Cr.

Annexure - Details of Bank Lenders & Facilities

Facility	Amount (Rs.Crore)	Name of Lender	Rating
Cash Credit & Working Capital Demand Loan	25	HDFC Bank Limited	CRISIL AAA/Stable
Cash Credit & Working Capital Demand Loan	20	State Bank of India	CRISIL AAA/Stable
Cash Credit & Working Capital Demand Loan^&	10	Standard Chartered Bank Limited	CRISIL AAA/Stable
Letter of credit & Bank Guarantee^{^}	165	Standard Chartered Bank Limited	CRISIL A1+
Letter of credit & Bank Guarantee^%	110	State Bank of India	CRISIL A1+
Letter of credit & Bank Guarantee^	250	HDFC Bank Limited	CRISIL A1+
Letter of credit & Bank Guarantee^	850	ICICI Bank Limited	CRISIL A1+
Proposed Long Term Bank Loan Facility	220	Not Applicable	CRISIL AAA/Stable

& - Interchangeable with bank guarantee / letter of credit

^ - Fully interchangeable with bank guarantee

% - Upto 80 Cr interchangeable with bank guarantee

Criteria Details

Links to related criteria

CRISILs Approach to Financial Ratios

Rating criteria for manufaturing and service sector companies

CRISILs Bank Loan Ratings - process, scale and default recognition

Rating Criteria for Cement Industry

CRISILs Criteria for rating short term debt

CRISILs Criteria for Consolidation

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