| JK Lakshmi Cement Limited | ||||||
| Rating reaffirmed at 'CRISIL A1+ '; 'CRISIL AA / Stable / CRISIL A1+ ' assigned to Bank Debt; 'F AA+ / Stable' assigned to Fixed Deposits | ||||||
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| & carved out of working capital limits | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA/CRISIL FAA+/Stable/CRISIL A1+’ ratings to the bank facilities and fixed deposit programme of JK Lakshmi Cement Ltd (JKLC); rating on the commercial paper programme has been reaffirmed its ‘CRISIL A1+’.
The ratings continues to reflect the healthy business risk profile of the company, backed by established market position in the northern region and highly cost-efficient operations; along with strong financial risk profile, driven by strong liquidity. These strengths are partially offset by exposure to project-related risk and susceptibility to risks relating to varying input costs and realisations, and cyclicality in the cement industry.
For fiscal 2021, consolidated operating income grew by 8% primarily driven by volume growth (7.5%), despite operations being hit by the pandemic at the start of the fiscal. Profitability, as measured by earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne, continues to improve further (around Rs 900 per tonne in fiscal 2021, Rs 821 per tonne in fiscal 2020 and Rs 413 per tonne in fiscal 2019) on the back of healthy realisation and benign input cost. Turnaround in the operating performance of JKLC’s subsidiary, Udaipur Cement Works Ltd (UCWL), has also supported improvement at consolidated levels.
The healthy operating performance is expected to sustain, driven by structural changes implemented (increasing captive power sourcing and optimising logistics) by JKLC.
Strong operating performance for two consecutive fiscals has resulted in substantial improvement in financial risk profile, as seen in net debt (gross debt less cash and cash equivalent) to EBITDA ratio below 1 time for fiscal 2021 against 1.9 times for the previous fiscal. Liquidity has strengthened further because of high accrual.
JKLC has announced a brownfield capacity expansion (capex) under its subsidiary, UCWL, for setting up a 1.5 million tonne per annum (mtpa) clinker capacity, 2.5 mtpa of grinding capacity, along with waste heat recovery system (WHRS) plant and railway sidings. The overall project cost is estimated at around Rs 1,600 crore and is to be funded through debt of Rs 1,000 crore (to be guaranteed by JKLC) and the balance through internal accrual and equity infusion from JKLC. The commissioning is expected to take around three years from the start of the project. Though the company remains exposed to project execution risk, past track record of successfully completing various capacity addition projects provides comfort. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of JKLC and its associate and subsidiary companies as these are in similar lines of business and have strong financial, managerial and operational linkages.
Please refer Annexure - Details of Consolidation, 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: JKLC has integrated cement capacities in Sirohi, Udaipur (both in Rajasthan), and Durg (Chhattisgarh); and grinding units in Jhajjar (Haryana), Cuttack (Odisha), Kalol and Surat (both in Gujarat). Sales in the northern and western regions, mainly comprising Rajasthan, Gujarat, Punjab, Haryana, and parts of Uttar Pradesh, contribute around 75% to the revenue. With the commissioning of the Odisha grinding unit, the company has further diversified its presence in the eastern region and is gradually ramping up capacity utilisation from these units.
Cost-efficient operations: The plants are highly cost-efficient and 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, rising share of captive power sourcing through a total of 105 megawatt (MW) that includes CPP of 74 MW, WHRS plant of 21 MW and solar power plant of 10 MW makes the operations self-sufficient to the extent of around 75% in term of power requirement. At its Sirohi integrated unit, the company is undertaking another WHRS plant of 10 MW, expected commissioning by March 2022, which would result in further cost savings. Strategic locations of these plants ensure competitive freight cost as compared to other industry players. Proximity to raw materials, rise in captive sourcing of power and competitive freight costs will continue to ensure high cost efficiency over the medium term.
Healthy financial risk profile: Significant capacity additions (around 7 million tonnes) over the past six years have led to a highly leveraged capital structure. Debt levels had peaked during the past 2-3 fiscals as the company was under expansion mode and accrual had not started then. This also led to average debt protection metrics in the past. However, with significant improvement in operating performance, financial risk profile has strengthened remarkably, as seen in net debt/EBITDA ratio below 1 time and interest coverage ratio above 5 times during fiscal 2021. The additional debt expected on account of the capex undertaken in UCWL will not impact the overall financial metrics as a similar amount of debt is expected to be repaid over the same period.
Furthermore, being a JK Group (eastern zone) company, coupled with extensive promoter experience and strong liquidity lends adequate financial flexibility to the company. Liquidity has been strong at over Rs 400 crore maintained over the past decade (around Rs 835 crore as on March 31, 2021), and is likely to continue over the medium term as well. This helps tide over any unforeseen adversity considering the cyclical nature of the cement industry. Large unutilised fund-based bank limit also lends additional cushion to overall liquidity.
Weaknesses Exposure to project-related risks: The capex of around Rs 1,600 crore in UCWL is to be funded through debt of Rs 1,000 crore and the balance through internal accrual and equity infusion from JKLC. Thus, the company is exposed to risks related to project execution and ability to ramp up new capacity.
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 the numerous players adding capacity during the peak of a cycle. This 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 pet coke prices in fiscal 2019 impacted profitability of several cement players. Realisations 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 of above Rs 400 crore over the past decade and is likely to continue doing so over the medium term as well. Working capital limit of Rs 250 crore remained unutilised during the six months ended August 2021. Cash accrual and liquidity will be adequate to repay debt of around Rs 380 crore and Rs 220 crore in fiscals 2022 and 2023, respectively, and also fund planned capex.. |
Outlook Stable CRISIL Ratings believes JKLC will continue to benefit from 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 sustained a basis * Sustained improvement in EBITDA per tonne above Rs 1200
Downward factors: * Weakening of business risk profile due to loss of market share, and EBITDA per tonne declining below Rs 700 on a sustained basis * Larger-than-expected debt-funded capex or acquisition or decline in profitability resulting in net debt to EBITDA ratio of more than 1.5 times on a sustained basis * Substantial delay in capex leading to cost and time overruns |
About the Company JKLC is a part of the JK group (eastern zone) and was promoted by the late Lala Lakshmipat Singhania and his son, the late Mr Hari Shankar Singhania. The company is presently headed by Mr Bharat Hari Singhania, (chairman and managing director). JKLC had set up its first cement plant in 1982 with 0.5 mtpa capacity, which has now grown to a total cement capacity of 13.9 mtpa and clinker capacity of 8.4 mtpa as on June 30, 2021. It has integrated units in Sirohi, Udaipur and Durg; and grinding units in Jhajjar, Cuttack, Kalol and Surat. It also has a CPP in Sirohi of 54 MW, WHR plant of 15 MW and solar power plant of 6 MW, which makes the entire northern region almost self-sufficient in power. The Udaipur unit was sourcing power from the grid, but after commissioning of the integrated unit in March 2017, it sourced power from its 6 MW WHR plant. At its Durg integrated unit, the company has already commissioned 7 MW WHR plant and has a CPP of 20 MW.
For the three months through June 2021 on consolidated basis, profit after tax (PAT) was Rs 136 crore on revenue of Rs 1,326 crore against Rs 51 crore and Rs 912 crore, respectively, in the corresponding period previous fiscal. |
Key Financial Indicators (consolidated) – CRISIL Ratings-adjusted
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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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
* carved out of working capital limits |
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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This Annexure has been updated on 5-Oct-2021 in line with the lender-wise facility details as on 5-Oct-2021 received from the rated entity.
Criteria Details
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