Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A1+’ rating on the commercial paper programme of JK Cement Ltd (JKCL).

 

The rating continues to reflect the healthy business risk profile of JKCL, backed by its position as one of the largest white cement and wall putty manufacturers in India; established market position in grey cement in the northern and central region; backward integration leading to cost-efficient operations; and strong financial risk profile driven by healthy liquidity. These strengths are partially offset by exposure to risks relating to project implementation and susceptibility to fluctuations in input costs and realisations, and cyclicality in the cement industry.

 

Consolidated operating income grew 19% in fiscal 2024 driven largely by high volume growth. Profitability, as measured by earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne increased to Rs 1,091 in fiscal 2024, compared with Rs 832 in fiscal 2023 owing to reduction in power and fuel costs as prices of coal/petcoke dropped.

 

In the first half of fiscal 2025, consolidated operating income declined 3% on year on account of lower realisations while volume improved marginally. This also led to Ebitda per tonne falling to Rs 834 (Rs 959 in the first half of fiscal 2024). With expected recovery in demand and price hikes, the operating performance is expected to improve from the second half of fiscal 2025 driven by higher operating leverage. Nonetheless, volume growth for fiscal 2025 is expected to be at a low single-digit and profitability much lower than previous fiscal; healthy improvement is expected fiscal 2026 onwards.

 

The company has commissioned grey cement capacity of 9.9 million tonne per annum (MTPA) fiscal 2023 onwards, which has aided in augmenting its position in the fast-growing central region where majority of the above capacity has been added. Further, considering the company’s target to reach grey cement capacity of 50 MTPA by fiscal 2030 from the current 24.34 MTPA, capital expenditure (capex) is expected to remain elevated at Rs 1,500-2,000 crore annually.

 

Nonetheless, despite the increase in capex, financial risk profile is expected to remain healthy aided by incremental accruals from the newly commissioned capacity and cost optimisation measures undertaken by the company. While the financial leverage, as measured by net debt to Ebitda is likely to increase to more than 2 times in fiscal 2025 (from 1.6 times in fiscal 2024) owing to subdued profitability, it is expected to decrease to below 2 times fiscal 2026 onwards. Further, liquidity is supported by strong cash and equivalent of more than Rs 1,500 crore maintained over the past two years.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of JKCL and its associate and subsidiary companies as they are in similar lines of business and have strong financial, managerial and operational linkages.

 

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:

• Market leadership in white cement and wall putty segment along with established market position in grey cement segment in northern region: JKCL is one of the largest manufacturers of white cement (including wall putty) in India and the world as well, with total white cement and wall putty capacity of 3.05 MTPA (including UAE operations of 0.6 MTPA). The white cement market in India is a duopoly, with high entry barriers that keep competitive intensity low.

 

JKCL’s grey cement capacity has increased from 14.67 MTPA as on March 31, 2022, to 24.34 MTPA as on December 31, 2024, which has enabled it to become the sixth largest grey cement player in the country. It is one of the prominent players in the northern region along with diverse presence across central, south and west regions with plants across Rajasthan, Gujarat, Karnataka, Haryana, Uttar Pradesh, Odisha and Madhya Pradesh. It has commissioned 9.5 MTPA capacity in the past two years primarily in the central region, which has augmented its market position. The ongoing expansion of 6.0 MTPA (3 MTPA each in central and eastern regions) will further diversify its geographical presence.

 

• Backward integration leading to cost efficiency: JKCL sources limestones (key raw material) from various captive mines adjacent to the integrated plants. It has mines in Rajasthan, Karnataka and Madhya Pradesh, having mining lease at least till 2030. Its reserves are sufficient for existing operations as well as expansion planned over the medium term. Further, as on September 30, 2024, the company had captive power capacity of 250.64 megawatt (MW) (including waste heat recovery system [WHRS] of 82.3 MW and solar/wind power of 90.84 MW). This has enabled it to meet 65% of the power requirement captively in the first half of fiscal 2025. The strategic location of the plants ensures competitive freight cost. Proximity to raw materials, captive power and competitive freight costs will continue to ensure high-cost efficiency over the medium term.

 

• Healthy financial risk profile: Financial leverage as measured by net debt to Ebitda decreased to 1.6 times in fiscal 2024 owing to improvement in profitability as input cost declined. The ratio is expected to moderate to over 2 times in fiscal 2025 with company expected to continue incurring large capex even as profitability declines owing to industry wide weakening of cement prices. However, with ramp up of the newly commissioned facilities, net debt to Ebitda is expected to fall below 2 times fiscal 2026 onwards.

 

Debt protection metrics remain healthy with adjusted interest coverage ratio expected to be over 4 times and net cash accrual to adjusted debt ratio of 0.2 time in fiscal 2025 and improve thereon. Liquidity should remain healthy, with cash and equivalent above Rs 1,500 crore as on September 30, 2024.

 

Weaknesses:

• Exposure to project-related risks: The current capacity expansion of 3.3 MTPA clinker capacity at Panna and 6 MTPA grinding capacity (3 MTPA in Bihar and 1 MTPA each at Panna, Hamirpur and Prayagraj) is expected to be completed by the third quarter of fiscal 2026 at a cost of Rs 2,850 crore to be funded with debt of Rs 1,800 crore and the remaining with cash accruals. It has incurred capex of Rs 478 crore till the second quarter of fiscal 2025. While the company has not announced finer counters of the capex yet, may consider greenfield expansion at Rajasthan (6 MTPA) and/or brownfield expansion at Madhya Pradesh (6 MTPA), Karnataka (5 MTPA), Odisha (3 MTPA) over the medium term in line with its target of reaching grey cement capacity of 50 MTPA by fiscal 2030. Thus, the company will continue to be exposed to risks related to execution and the ability to ramp up new capacity. However, the company’s track record of timely completion of projects of such scale mitigates the project execution risk to a large extent which is further substantiated by timely ramp up of capacity added in the past two years.

 

• Susceptibility to risks relating to input costs, realisations and cyclicality in the cement industry: Capacity addition in the cement industry tends to be sporadic because of the long gestation period for setting up a facility and numerous players adding capacity during the peak of a cycle. This led to unfavourable price cycles for the sector in the past. Decline in the cement prices across the industry during the first half of fiscal 2025 impacted the profitability of cement players. Moreover, profitability remains exposed to volatility in input prices, including raw material, power, fuel and freight. Realisations and profitability are also affected by demand, supply, offtake and regional factors.

Liquidity: Strong

Healthy net cash accrual of Rs 1,000-1,400 crore each for fiscals 2025 and 2026 is more than adequate to meet the yearly scheduled debt obligation of Rs 400-500 crore. Further JKCL had cash and equivalent of more than Rs 1,500 crore as on September 30, 2024, which is likely to be maintained at healthy levels over the medium term as well. Fund-based working capital limit of Rs 800 crore was utilised at an average of 71% for the six months through October 2024.

 

Environment, social and governance (ESG) profile 

Crisil Ratings believes the ESG profile of JKCL 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 as cement manufacturing process is energy intensive and its high dependence on natural resources such as limestone and coal as key raw materials. The sector has a social impact due to its nature of operations affecting the local community and the health hazards involved.

 

However, JKCL has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights of JKCL: 

• JKCL aims to achieve gross greenhouse gas (GHG) emissions (Scope 1 + Scope 2) target of 532kg CO2 (carbon dioxide) per tonne cementitious material (SBTi) by 2030. It stood at 563 kg CO2 per tonne in fiscal 2024.
• JKCL is targeting net GHG Scope 1 target of 465 kg CO2 per tonne cementitious material (GCCA) by 2030. It stood at 512 kg CO2 per tonne in fiscal 2024.
• JKCL has estimated an Internal Carbon Price (ICP) of USD 19 per tCO2e (tonne of carbon dioxide equivalent) for all its businesses to better manoeuvre in the dynamic regulatory environments.
• The company has green energy (renewable energy and WHRS) mix target of 75% of total energy requirement and achieve thermal substitution rate (TSR) of 35% by 2030. It’s share of green energy and TSR stood at 51% and 16.3%, respectively, in fiscal 2024
• It aims to achieve 5 times water positive by 2030. It achieved water positivity of 4.5 times in fiscal 2024. JKCL also offers monetary rewards for any innovative projects that reduce water consumption.
• JKCL has a target to achieve 5% gender diversity by 2030.
• The governance structure is characterised by 50% of the board members being independent directors. The company’s chairman and executive positions are also split. 
   

There is a growing importance of ESG among investors and lenders. JKCL’s commitment to ESG will play a key role in enhancing stakeholder confidence and access to capital markets.

Rating sensitivity factors

Downward factors:

• Business risk profile weakens, resulting from loss of market share along with Ebitda/tonne declining below Rs 700 on a sustained basis.
• Higher than expected debt-funded capex or acquisition or decline in profitability levels resulting in net debt to Ebitda of more than 3 times on a sustained basis

About the Company

JKCL is part of the JK Organisation and was promoted by the late Dr Gaur Hari Singhania and his son, the late Mr Yadupati Singhania. The company is presently headed by Dr Raghavpat Singhania (Managing Director) and Mr Madhavkrishna Singhania (Joint Managing Director and Chief Executive Officer).

 

JKCL commenced operations in May 1975 with commercial production at its flagship grey cement unit at Nimbahera, Rajasthan. The company has installed grey cement capacity of 24.34 MTPA along with total white cement capacity of 3.05 MTPA (including UAE capacity) as on December 31, 2024. It had captive power capacity of 250.64 MW as on September 30, 2024, which includes a captive power plant of 77.50 MW, WHRS of 82.3 MW and solar and wind power of 90.84 MW.

 

In March 2022, the company announced to foray into the paint business with investment of Rs 600 crore spread over five years. In line with the same, it is operating and marketing its paints business through wholly owned subsidiary J.K. Maxx Paints Ltd. This will enable JKCL to provide a bouquet of products and increase market share through synergies from its network of dealers and painters.

 

In the first half of fiscal 2025, JKCL generated consolidated operating income of Rs 5,368 crore and profit after tax (PAT) of Rs 321 crore compared with Rs 5,515 crore and Rs 286 crore, respectively, in the corresponding period of fiscal 2024.

Any other information: Not Applicable