| Star Cement Meghalaya Limited | ||||||
| 'CRISIL AA/Stable/CRISIL A1+' assigned to Bank Debt | ||||||
| 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 assigned its ‘CRISIL AA/Stable/CRISIL A1+’ ratings to the bank facilities of Star Cement Meghalaya Ltd (SCML).
SCML is a subsidiary of Star Cement Ltd (SCL; ‘CRISIL AA/Stable/CRISIL A1+’) and has a clinker manufacturing capacity of 2 MTPA in Meghalaya. It procures limestone from SCL and supplies clinker to grinding units under SCL and is thus crucial to the business of the parent.
Therefore, the rating factors the parentage of SCL, considering the strategic importance of SCML to the parent and the strong operational, managerial and financial linkages between the entities. These strengths are partially offset by limited scale of operations under SCML and captive nature of its business owing to dependence on SCL for procurement of raw material as well as sale of products.
SCML has a track record of stable operations with high utilisation levels in the clinker manufacturing unit. The company achieved utilisation levels of more than 90% on average over the past 5 years. It generated an EBITDA of Rs 147 crores during fiscal 2023. During the first nine months of fiscal 2024, it generated an EBITDA of Rs 95 crores. Further, commissioning of WHRS of 12.5 MW during fiscal 2024 is expected to support operating efficiency going forward.
SCML has negligible debt on its books. The financial risk profile is further supported by the absence of large-scale capex, prudent working capital management and healthy cash accruals of more than Rs 100 crore each year.
CRISIL Ratings has taken note of the proposed scheme of amalgamation between SCML and other subsidiaries of SCL viz. Meghalaya Power Ltd, Megha Technical and Engineers Ltd and NE Hills Hydro Ltd. The amalgamation is subject to necessary approvals and is expected to improve the business risk profile of the SCML, as it will house cement grinding (0.7 mtpa) and power (51 MW) assets from the other subsidiaries. |
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 SCML to SCL, its 100% effective ownership (directly or indirectly) and common management by the parent. |
Key Rating Drivers & Detailed Description Strengths:
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 SCML will remain sensitive to the credit rating of SCL.
Further, post the proposed scheme of amalgamation between SCML and other subsidiaries, the strategic importance of SCML to SCL will increase as SCML will gain ownership of 0.7 mtpa of cement capacity from Megha Technical & Engineers Pvt Ltd and captive power unit from Meghalaya Power Ltd.
Weakness:
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Liquidity: Strong Liquidity of SCML derives strength from the overall liquidity of SCL. In turn, SCL has robust liquidity, driven by cash and bank balance at approximately Rs 110 crore as on December 31, 2023, and cash accrual of close to Rs 480 crore projected for fiscal 2024; also, SCL has negligible debt as on December 31, 2023. Additionally, SCML is expected to generate accruals of more than Rs 100 crores each year over the medium term from its clinker operations, which should be sufficient to fund its working capital needs. |
Outlook: Stable The outlook on bank facilities of SCML 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 SCML is a subsidiary of Star Cement Ltd, with clinker capacity of 2 MTPA in Lumshnong, Meghalaya. It was incorporated on 22nd December 2005, in Meghalaya under the name of “Meghalaya Logistics Ltd”. The name of the Company was changed on 12th March 2007 to ‘Star Cement Meghalaya Limited’. |
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 5.70 MTPA, clinker manufacturing capacity of 2.80 MTPA, 12.3 MW WHRS and a captive power plant with capacity of 51 MW as of December 31, 2023. |
Key Financial Indicators (SCML)
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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