| Star Cement (I) Limited | ||||
| Rating 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 CRISIL Ratings has reaffirmed its rating on the long term bank facilities of Star Cement (I) Ltd (SCIL) at ‘CRISIL AA/Stable’. Further, CRISIL Ratings has withdrawn its rating on Rs 275 crore of proposed long term facilities on company’s request of the company. The withdrawal is line with CRISIL Ratings policy of withdrawal.
Star Cement Ltd (SCL; ‘CRISILAA/Stable/CRISIL A1+’) has a 51% stake while Star Cement Meghalaya Ltd (SCML; ‘CRISIL AA/Stable’; wholly-owned subsidiary of SCL) has a 34% stake in SCIL. The rating considers strategic importance of SCIL to SCL and centrally factors the strong operational, managerial and financial support SCIL will receive from SCL on an ongoing basis. These strengths are partially offset by risks associated with the ongoing capex.
SCIL is setting up an AAC block unit of 800 cubic meters (CBM) per day as well as a mortar manufacturing unit of 600 metric tonnes (MT) per day in Guwahati, Assam, at a budgeted cost of Rs 90-100 crore. The project is currently entirely funded through unsecured loans extended by parent and is expected to commission by last quarter of fiscal 2025. Post commissioning, SCIL is expected to leverage the extensive distribution network and regional marketing know-how of parent to ramp up its sales. |
Analytical Approach CRISIL Ratings has applied its criteria for notch-up of rating based on parent support. This is owing to the strategic importance of SCIL to SCL, and its 85% effective ownership and common management by the parent. |
Key Rating Drivers & Detailed Description Strengths Strong support from the parent, SCL SCL will have high operational, managerial and financial integration with its subsidiary, SCIL. The parent holds 85% effective stake in SCIL, thus giving it complete control over the operations. SCL intends to infuse funds for the projects under SCIL on a need basis, and is also expected to extend corporate guarantee for the debt to be raised for the project. Further, the AAC block and mortar manufacturing units of SCIL will receive key raw material including cement, fly ash and limestone from SCL and group companies, and will utilise the distribution network of SCL for sale of these products in the north eastern and eastern markets.
The parent is expected to maintain its stance of financial and managerial support to the company, given its strategic importance to SCL. Further, the rating of SCIL will remain sensitive to the credit rating of SCL.
The capacity being set up in SCIL is strategic from the perspective of SCL as the commissioning of the AAC block and mortar unit would further diversify the product mix of SCL in northeast India. The AAC block project will further enhance the green product portfolio for the company. Further, the projects have short payback period and are thus return accretive. SCIL’s plant will also be eligible for state government incentives such as refund of State Goods and Service Tax on sale of products in Assam. This would, in turn, boost the operating profitability of SCL.
Weakness SCIL is undertaking a capex of around Rs 90-100 crore to set up the AAC and mortar manufacturing unit. Although the unit is expected to commence operations by last quarter of fiscal 2025, successful ramp up of utilisation levels in these units remains a monitorable, given the differentiated and high value added nature of the products. Strong presence and established dealer network of SCL in the north east region mitigates this risk to some extent. |
Liquidity: Strong Liquidity of SCIL derives strength from the overall liquidity of SCL. In turn, SCL has strong liquidity driven by cash and bank balance at approximately Rs 103 crore as of March 31, 2024 and expected accrual of close to Rs 500 crore in fiscal 2025. Further cushion is available in the form of moderately utilised fund-based bank lines of Rs 300 crore. SCL has minimal repayment obligations in fiscal 2025. While SCL will dip into its cash balance to fund the equity portion of capex, accruals and bank lines should be sufficient to cover for any incremental working capital requirements of the company.
This will enable SCL to comfortably fund any required equity contribution towards the capex project of SCIL. Further, SCL plans to extend corporate guarantee for the loans raised by SCIL to fund the project. |
Outlook Stable The outlook on the long-term bank facility of SCIL reflects the rating outlook of the parent, SCL.
CRISIL Ratings believes SCL will maintain a strong credit risk profile over the medium term on back of its strong credit metrics and with commencement of additional capacities, resulting in increased scale of operations and superior cash accruals. |
Rating sensitivity factors Upward factors
Downward factors
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About the Company SCIL, incorporated in May 2021, is a wholly-owned subsidiary of SCL. SCIL is yet to commence operations and is setting up an 800 CBM per day AAC block unit and a 600 MT per day mortar manufacturing unit in Guwahati, Assam at a budgeted cost of Rs 100 crore. The project is expected to commission by last quarter of fiscal 2025. |
About the Parent Based in Lumshnong (Meghalaya), SCL (formerly Cement Manufacturing Company Ltd [CMCL]) was earlier a subsidiary of Century Plyboard (India) Ltd (CPIL). It commenced operations in December 2004. After a demerger in April 2012, CPIL transferred its cement, ferroalloy and power divisions to Star Ferro and Cement Ltd (SFCL), which held 70.5% in CMCL. In March 2015, the businesses were further demerged. The ferroalloy and power businesses were transferred to Shyam Century Ferrous Ltd (SCFL). SCL got its present name in June 2016. In August 2016, the board approved reverse merger of SFCL into SCL, which was completed in the first quarter of fiscal 2018, post which SCL, the operating company has become the listed parent company.
SCL has a combined cement manufacturing capacity of 7.70 MTPA, clinker manufacturing capacity of 6.1 MTPA, 12.3 MW WHRS and a captive power plant with capacity of 51 MW as of June 30, 2024. |
Key Financial Indicators (SCIL)
*Company is non-operational as of date
Key financials (SCL consolidated)
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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 - 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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