Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities, commercial paper programme and fixed deposits of JK Lakshmi Cement Limited (JKLC).

 

The ratings continue to reflect the company’s healthy business risk profile, backed by its established market position in the northern region and highly cost-efficient operations, and strong financial risk profile, driven by robust liquidity. These strengths are partially offset by exposure to project risks and to volatility in input cost, realisation and cyclicality in the cement industry.

 

In fiscal 2024, operating income increased by 5% on-year driven by volume growth of 5% while realisation remained flat. Profitability, as measured by earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne stood at Rs 878 in fiscal 2024, compared with Rs 735 in fiscal 2023, owing to reduction in power and fuel costs as prices of coal/ petcoke decreased.

 

In the first half of fiscal 2025, operating income fell by 15% on-year owing to decline in volumes as well as realisation. This also led to Ebitda per tonne falling to Rs 565 (Rs 717 in the first half of fiscal 2024). With an expected recovery in demand and price hikes, operating performance is expected to improve from the second half of fiscal 2025 driven by higher operating leverage. Nonetheless, volumes for fiscal 2025 will likely remain flat and profitability will be much lower than previous fiscal; healthy improvement is expected from fiscal 2026.

 

JKLC is implementing a brownfield project in Durg for a 2.3 million tonne per annum (MTPA) clinker capacity along with integrated and split cement grinding capacity totalling 4.6 MTPA at Durg (Chhattisgarh), Prayagraj (Uttar Pradesh), Madhubani (Bihar) and Patratu (Jharkhand) in phases, with commissioning expected by fiscal 2028. Moreover, it is establishing its presence in the north-eastern region by setting up a greenfield project with grinding capacity of 1.5 MTPA and clinker capacity of 1 MTPA. The company is expected to undertake capital expenditure (capex) of around Rs 4,500 crore during fiscal 2025-2028 to implement these projects apart from other debottlenecking and cost efficiency improvement projects. CRISIL Ratings understands that these project will be funded 70% through debt and the remaining through internal accrual. Though the company will remain exposed to project execution risk, past track record of successfully completing various capacity addition projects (recent being an integrated 2.5 MTPA grinding and a 1.5 MTPA clinker facility in Udaipur Cement Works Ltd (UCWL)] will support the credit risk profile.

 

With sizeable capex, the net debt to Ebitda ratio is expected to increase sharply over fiscals 2025-2027 (from 1.3 times as on March 31, 2024). However, the ratio is expected to sustain below 2.5 times at all times and will remain a monitorable; and is expected to improve thereafter, with incremental accrual from enhanced capacity.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of JKLC and its associate and subsidiary companies as the entities are in similar businesses 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:

• Healthy market position in the northern region:

On consolidated basis, JKLC has installed cement grinding capacity of 16.50 MTPA, of which 10.75 MTPA is located in northern region as on November 30, 2024. The cement grinding capacity is supported by clinker capacity of 10 MTPA. The integrated cement capacities are at Sirohi and Udaipur in Rajasthan and at Durg; and grinding units are in Jhajjar (Haryana), Cuttack (Odisha), Kalol and Surat (both in Gujarat). The cement from its Sirohi, Jhajjar, Kalol and Surat plants is primarily sold in Rajasthan, Gujarat, Madhya Pradesh and Maharashtra, which contribute more than ~80% of the sales, while Chhattisgarh and Odisha contribute ~65% of cement from its Durg and Cuttack unit.

 

The company’s market position in northern region is strengthened, with commissioning of line-2 at UCWL consisting of 2.5 MTPA cement grinding capacity and 1.5 MTPA clinker capacity in fiscal 2024.

 

• Cost-efficient operations:

The plants are highly cost-efficient and JKLC is among the lowest cost producers in the cement industry. Proximity between plants and captive limestone mines assures supply of key raw material at low rates. Furthermore, the rising share of captive power sourcing through a total of 226 megawatt (MW) at consolidated level, which includes captive thermal power plants of 74 MW, waste heat recovery system of 45 MW and solar power plant of 103 MW along with power purchase agreement for wind power capacity of 4 MW, makes the operations self-sufficient by meeting majority of the power requirement. The strategic locations of these plants ensure competitive freight cost compared to other industry players. Proximity to raw materials, rise in captive sourcing of power and competitive freight costs will ensure high cost efficiency over the medium term.

 

• Healthy financial risk profile:

The financial risk profile has remained healthy  with net debt to Ebitda ratio below 1.3 times and interest coverage ratio above 7 times in fiscal 2024. The net debt to Ebitda ratio is expected to inch up over the medium term with the company undertaking large capex towards brownfield expansion at Durg and greenfield expansion in the north-east region besides a railway siding in Durg and debottlenecking. However, the net debt to Ebitda ratio will sustain below 2.5 times. Further, with improved profitability and ramping up of commissioned facilities resulting in higher cash accrual, the financial risk profile is expected to remain healthy over the medium term. Any marked deviation owing to higher-than-anticipated capex or lower profitability will remain a key monitorable.

 

Further, being part of the JK group (eastern zone), along with extensive promoter experience and strong liquidity, lends adequate financial flexibility to the company. Liquidity was strong at over Rs 400 crore in the past decade (Rs 406 crore as on September 30, 2024) at the consolidated level and is likely to remain healthy over the medium term. This helps the company to tide over any unforeseen adversities, considering the cyclical nature of the cement industry. Large, unutilised fund-based bank limit lends additional cushion to liquidity.

 

Weaknesses:

• Exposure to project risks:

The company is undertaking two large projects over the medium term. The project cost of the integrated cement capacity of 4.6 MTPA grinding unit (with split grinding units) and 2.3 MTPA clinker unit in Durg is expected to be around Rs 2,500 crore and will be funded through debt of Rs 1,750 crore and internal accrual. Further, the company is setting up a greenfield project of 1.5 MTPA grinding capacity along with 1 MTPA clinker facility in northeast region at cost of Rs 1,500 crore. Thus, the company will remain exposed to risks related to project execution and ability to ramp-up new capacities.

 

• Susceptibility to volatility in input cost, realisation 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 has led to unfavourable price cycles for the sector in the past. Moreover, profitability remains susceptible to volatility in input prices, including raw material, power, fuel and freight. Increase in coal and pet coke prices in fiscals 2022 and 2023 impacted the profitability of several cement players. Realisation and profitability are also affected by demand, supply, offtake and regional factors. The company also remains exposed to fluctuations in fuel and cement prices.

Liquidity: Strong

JKLC has maintained healthy liquidity above Rs 400 crore over the past decade and is expected to continue to do so over the medium term. At the standalone level, fund-based working capital limit of Rs 300 crore was utilised 50% on average during the six months through November 2024.

 

Cash accrual and liquidity will be adequate to repay debt of around Rs 245 crore and Rs 207 crore in fiscals 2025 and 2026, respectively, on consolidated basis, and capex.

 

ESG profile

CRISIL Ratings believes the environment, social and governance (ESG) profile of JKLC 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 a social impact as its operations affect local community and involve health hazards. However, JKLC has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights:

• JKLC is working on enhancing AFR (alternative fuel and raw material) capability in its Sirohi plant. The company targets to achieve a thermal substitution rate of 20% by fiscal 2030.
• It is targeting to meet 100% of its electrical energy requirement through renewable energy by 2040.
• The company aims to become 5 times water-positive by fiscal 2025.
• Its governance structure is characterised by 62.5% of its board comprising independent directors, dedicated investor grievance redressal system and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. The company’s commitment to ESG will play a key role in enhancing stakeholder confidence, given the high shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Outlook: Stable

CRISIL Ratings believes JKLC will continue to benefit from its healthy business risk profile and strong financial risk profile over the medium term.

Rating sensitivity factors

Upward factors

• Improved business risk profile on the back of significant improvement in market share on a sustained basis
• Sustained improvement in Ebitda per tonne above Rs 1200

 

Downward factors

• Weakening of the business risk profile due to loss of market share and Ebitda per tonne declining sharply on a sustained basis
• Any large, debt-funded capex or acquisition or decline in profitability, resulting in net debt to Ebitda ratio of more than 2.5 times on a sustained basis
• Substantial delay in capex leading to cost and time overruns

About the Company

JKLC is part of the JK group (eastern zone) and was promoted by the late Mr Lala Lakshmipat Singhania and late Mr Hari Shankar Singhania. The company is now headed by Mr Bharat Hari Singhania (Chairman Emeritius) and Smt Vinita Singhania (Chairperson and Managing Director).

 

The company set up its first cement plant in 1982 with 0.5 MTPA capacity, which has now grown to 16.5 MTPA and clinker capacity of 10.0 MTPA as on November 30, 2024 at consolidated level. It has integrated units in Sirohi, Udaipur and Durg, and grinding units in Jhajjar, Cuttack, Kalol and Surat. It has a total of 226 MW of captive power capacity at the consolidated level, which includes thermal power plant of 74 MW, waste heat recovery plant of 45 MW, solar power plant of 103 MW and power purchase agreement for wind power capacity of 4 MW.

 

For the six months ended September 30, 2024, at the consolidated level, JKLC reported profit after tax (PAT) of Rs 48 crore and operating income of Rs 2,798 crore, as against Rs 176 crore and Rs 3,305 crore, respectively, for the corresponding period of the previous fiscal.

Key financial indicators (Consolidated; CRISIL Ratings-adjusted)

Particulars	Unit	2024	2023
Revenue	Rs crore	6788	6,452
Profit after tax (PAT)	Rs crore	484	369
PAT margin	%	7.1	5.7
Adjusted net debt / adjusted networth	Times	0.69	0.67
Adjusted interest coverage	Times	7.45	6.72

 

Any other information: Not applicable