| Star Cement Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| 1 crore = 10 million | ||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL A1+' rating on the commercial paper program of Star Cement Limited (SCL). |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of SCL and its subsidiaries, Star Cement Meghalaya Ltd (SCML), Meghalaya Power Ltd (MPL), and Megha Technical and Engineers Pvt Ltd (MTEPL). This is because all these companies, collectively referred to as the Star Cement group, have a common management and intra-corporate transactions. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position and brand in north-east region, while diversifying its revenue base in the eastern region: The group is a leading cement player in the north-eastern region, supported by its strong brand, Star Cement, with a market share of 24% in the region as on March 31, 2019. The group is also diversifying its revenue in the eastern region (primarily West Bengal and Bihar), which contributed over 21-22% to total revenue in fiscal 2019. * Healthy operating profitability Operating profitability is healthy with EBITDA/ton of Rs 1579/ton in fiscal 2019. The same was aided by higher realisations, proximity to raw material sources, and fiscal incentives. The group has access to captive limestone mines. Power requirement for the Meghalaya units is met from a captive power plant of 51 megawatt (MW). The group also benefits from the healthy demand growth in NER, expected at 7-8% per annum over the medium term. As part of the government's North Eastern Investment Policy, the group is entitled to receive goods and service tax (GST) subsidies. GST subsidy is available till fiscal 2023 for the plant in Guwahati & Clinker unit at Meghalaya and till fiscal 2027 for the intergrated plant in Lumshnong, Meghalaya. Operating profitability is expected to remain healthy as the group has changed its sales mix to target areas with higher realisations and lower freight costs. * Robust financial risk profile marked by comfortable capital structure and healthy debt protection metrics: The company has become largely debt free and total debt of the company has come down to Rs 75 crores as of March 2019. SCL has received further subsidies from the government in the initial months of fiscal 2020. As a result, company had net cash position (gross debt ' liquid surplus) of over Rs. 300 crores by May 2019. Weakness * Volatility in raw material prices adversely affecting profitability: The company remains exposed to high raw material and power prices and freight costs, which constitute around 60% of cement's cost of production. Any rising input price may impact the profitability of SCL. * Commoditised nature of product with cyclicality in the cement industry: Capacity additions in the cement business take three to four years to become operational and stabilise; also, capacity expansions are lumpy, with most players setting up capacities simultaneously, in anticipation of demand growth. This lumpiness in capacity addition and the fact that setting up small capacities is not viable often lead to oversupply in the initial years after the capacities become operational. Thus, the domestic cement industry faces excess supply every three to four years. The Star Cement group is a regional player, making it more vulnerable to regional demand and supply patterns. Because of the limited product differentiation leading to limited pricing power, the group is not likely be able to entirely pass on any significant increase in input prices. This was reflected in the sharp decline in operating margin during 2016. Cyclicality in the industry, with low pricing power, may also put pressure on the group's margin. |
| Liquidity |
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SCL has strong liquidity driven by expected cash accruals of more than Rs 350 crore per annum in fiscal 2020 and fiscal 2021 as against term debt obligations of around Rs 20-25 crore. Further, SCL has access to unutilised bank lines. CRISIL expects internal accruals, liquid surplus and unutilized bank lines to be sufficient to meet its repayment obligations as well as incremental working capital requirements. |
| About the Group |
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Based in Lumshnong (Meghalaya), SCL (formerly known as Cement Manufacturing Company Ltd) was earlier a subsidiary of Century Plyboard (India) Ltd. 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 SCL. In March 2015, the businesses were further demerged. The ferroalloy and 13.8 MW power businesses were transferred to Shyam Century Ferrous Ltd (SCFL) and the cement business and 51 MW Power business to SFCL. 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. The Star Cement group has a combined cement manufacturing capacity of 4.40 million tonne per annum (mtpa; including 0.73 mtpa at its hired unit), clinker manufacturing capacity of 2.59 mtpa, and a captive power plant with a capacity of 51 megawatt. |
| Key Financial Indicators | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) | ||||||||||||||||||
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. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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