| Dalmia Bharat Limited | ||||||
| Ratings Reaffirmed | ||||||
| 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
The ratings continue to reflect the strong business risk profile of the DBL group, backed by its established and diversified market position across southern, eastern, northeastern and western regions and cost-efficient operations. The ratings further factor in the strong financial risk profile of the group, evident from moderate leverage and strong liquidity. These strengths are partially offset by the relatively lower return on capital employed (RoCE) and susceptibility to risks related to volatility in input costs and realisations, as well as inherent cyclicality in the cement industry.
The group is estimated to incur various capital expenditure (capex) over the medium term to augment its capacity to 75 million tonne per annum (MTPA) by fiscal 2027, in line with its aim to reach capacity of 110-130 metric tonne (MT) by 2031. It will also invest in waste heat recovery system (WHRS), solar power capacities and efficiency optimisation projects. However, finer details of these additional expansion plans are yet to be announced.
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Analytical Approach
Furthermore, CRISIL Ratings has not consolidated the refractory business of the group that is housed under Dalmia Bharat Refractories Ltd (DBRL) and its subsidiaries. This is because DBRL ceased to be a subsidiary of DCBL or DBL and there is no cash flow fungibility and operating linkages between DBRL and the DBL group.
CRISIL Ratings has adjusted networth for amortisation of goodwill on account of acquisitions.
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 With a track record of seven decades, the DBL group is the fourth-largest cement player (by capacity) in India, with operational capacity of 45.6 MTPA as on May 31, 2024. The group has diversified presence, with capacities in the east (47% of total capacity) in Odisha, West Bengal, Jharkhand and Bihar; south (35%) – Tamil Nadu, Andhra Pradesh and Karnataka; northeast (12%) – Assam and Meghalaya; and west (6%) – Maharashtra. The group has outperformed the market, with revenue growing faster than overall cement demand over the past decade, resulting in a gain in market share across key markets. The company is also marketing cement in the central region through tolling arrangements with Jaiprakash Associates Ltd (JAL). Furthermore, acquisition of JAL’s assets under phases I and II comprising 9.4 MTPA of grinding capacity, 4.4 MTPA of clinker capacity and 280 megawatt (MW) of thermal power plant which will further augment its market position.
Healthy operating profitability, led by cost efficiency Operating performance was strong over the past several fiscals, with earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne consistently above Rs 1,000 till fiscal 2022 driven by improvement in utilisation. However, utilisation fell to 62-67% in the past three fiscals through 2024 owing to cumulative capacity additions of 13.8 MTPA. Higher Ebitda per tonne was also aided by above-average realisations led by pick-up in demand and strong brand, focus on premium segments, and relatively stable operating cost led by various measures boosting overall cost efficiency.
Some of the measures undertaken by the group in the recent past to improve efficiency include a) increasing the share of blended cement in the overall mix, resulting in reduced consumption of energy and clinker per tonne of cement; b) lowering lead distances, with most cement units located close to raw material sources and major cement markets; and c) switching to multi-fuel kilns, which helped in managing overall fuel cost optimally. This efficiency, along with lower fuel and input prices, resulted in Ebitda per tonne rising to Rs 1,332 in fiscal 2021 from Rs 1,057 in fiscal 2019.
However, during fiscal 2022, Ebitda per tonne fell to Rs 1,091 owing to steep rise in input costs across the industry led by high power and fuel costs (on account of higher coal and pet-coke prices) and logistics (higher diesel prices). The downturn in profitability continued during fiscal 2023, wherein Ebitda further fell to Rs 886 per tonne due to sustained high coal and pet coke prices. Ebitda per tonne improved marginally to Rs 900 in fiscal 2024 with reduction in pet coke/coal prices which was partially offset by decrease in realisation owing to subdued cement prices in the second half of fiscal 2024. CRISIL Ratings estimates Ebitda per tonne to sustain at around Rs 900 in fiscal 2025 and improve gradually over the medium term, backed by healthy demand outlook and cost optimisation measures undertaken by the company.
Strong presence in the fast growing eastern market aiding absorption of new capacities
Strong financial risk profile The financial risk profile is supported by healthy operating performance. Financial leverage, as measured by net debt to Ebitda ratio (excluding market value of investment in IEX), decreased in fiscal 2024 to 0.88 time from 1.03 times in fiscal 2023 while adjusted gearing increased marginally in fiscal 2024 to 0.29 time from 0.24 time in fiscal 2023. Net debt to Ebitda ratio is expected to increase in fiscal 2025 on account of debt-funded acquisition and organic capex but will decrease, over the medium term, with higher accrual once the new facilities ramp up. Adjusted interest coverage and net cash accrual to adjusted debt ratios decreased to 7.69 times and 0.46 time, respectively, in fiscal 2024 from 13.20 times and 0.58 time, respectively, in fiscal 2023.
DBL has strong financial flexibility arising from its 100% owned subsidiaries - DCBL and DPL. CRISIL Ratings expects timely infusion of funds by its subsidiaries for meeting any debt obligation, considering common management and treasury operations across group entities.
Moderate return on capital The group has undergone a few restructurings, resulting in recognition of intangibles. Further, various capital expenditure (capex) projects over medium term are being undertaken to augment its capacity to 75 MTPA. This should lead to a significant increase in capital employed, and a resultant rise in depreciation and amortisation expenses, which in turn will lead to subdued return on capital. With the completion of ongoing capex, CRISIL Ratings expects return on capital to gradually improve with scaling up of assets and stable profitability. Any marked deviation due to lower profitability and higher-than-expected debt funding or acquisition leading to higher debt servicing will be a key monitorable.
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Liquidity: Strong
Environment, social and governance (ESG) profile CRISIL Ratings believes that DBL’s ESG profile supports its already strong credit risk profile.
The cement sector has significant impact on the environment owing to higher emissions, waste generation and water consumption. This is because of energy-intensive cement manufacturing process and 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 health hazards. DBL has continuously focused on mitigating these environmental and social risks.
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Outlook: Stable The DBL group will continue to benefit from its strong market position, healthy operating efficiency and comfortable liquidity. |
Rating Sensitivity factors Upward factors
Downward factors
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Key financials of DBL (Consolidated and CRISIL Ratings-adjusted numbers)
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
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. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||
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Criteria Details
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