Detailed Rationale CRISIL Ratings has assigned ‘CRISIL A/Stable/CRISIL A1’ ratings to the bank facilities of The India Cements Ltd (ICL).
The ratings reflect ICL’s established market position along with backward integration and improving operating performance. These strengths are partially offset by average operating efficiency in the past, leveraged-though-improving capital structure and significant exposure to related parties. The ratings also factor in the company’s inherent susceptibility to volatility in input costs and realisations, as well as cyclicality in the cement industry.
ICL is an established cement company, particularly in South India, which has been operating for over seven decades. Its brands, such as Coromandel, Sankar and Raasi, are well established and command premium. ICL has backward integration in the form of captive limestone mines and captive power plants, thus providing raw material security. Improvement in ICL’s operating performance during fiscal 2021 was driven by strong rebound in demand, post plunge in the first quarter, benign input prices and cost-reduction initiatives undertaken by ICL.
The financial risk profile is expected to improve with heathy cash accrual, deleveraging and no major capital expenditure (capex) plans. ICL has already reduced debt by about Rs 550 crore in fiscal 2021 and further plans to repay debt of Rs 600-650 crore in fiscal 2022. Debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) ratio is expected to improve to below 3 times in fiscal 2022 from around 4 times in fiscal 2021 and over 6 times in fiscal 2020. ICL has sizeable exposure to related parties, but is not expected to provide any material cash support to them going forward. Any material deviation in capex plans or stance of support towards related parties will be key rating sensitivity factors.
Our base case assumes double digit volume growth for ICL in fiscal 2022, mainly driven by low base of fiscal 2021, coupled with demand from housing and infrastructure segments, and waning impact of the second wave of the Covid-19 pandemic over the next few months. The pace of vaccination is expected to pick up significantly with inoculation opened to people aged 18 years and above, with effect from May 1, 2021. However, demand could be lower if localised lockdowns and other restrictions persist.
ICL’s volume declined 38% in the first half of fiscal 2021, resulting from disruptions caused by the pandemic and subsequent economic slowdown. However, strong demand rebound in the second half of fiscal 2021 restricted overall volume decline to around 20% for the fiscal. EBITDA per tonne improved to Rs 906 from Rs 530 in fiscal 2020, backed by healthy realisations, benign input prices and cost-reduction initiatives undertaken by ICL. With cement prices expected to hold firm in the current fiscal, performance for fiscal 2022 may improve further with volume growth projected at 20-25% and EBITDA per tonne largely sustaining at fiscal 2021 levels, supported by healthy realisations and operating leverage partially offsetting the rising input cost. Furthermore, various efficiency measures planned are expected to keep the overall cost under check.
ICL received moratorium from its lenders, in line with the relief measure announced by the Reserve Bank of India on payment of instalments against loans and interest. It availed the relief from March to August 2020. |
Analytical Approach For arriving at the ratings, the consolidated business and financial risk profiles of ICL and its subsidiaries have been considered. CRISIL Ratings has also combined the financials of Coromandel Sugar Ltd (associate company of ICL) due to common promoters and financial linkages in the form of loans, advances and corporate guarantee extended by ICL and Sri Saradha Logistics Pvt Ltd (SSLPL) due to significant loans and advances extended by ICL and linkages in the form of SSLPL holding stakes in several ICL group companies, including ICL. Collectively, these entities are referred to as the ICL group.
ICL’s networth has been adjusted for intangible assets, Ind-AS reserves, revaluation reserve and also for circular investment (investment in ICL by subsidiaries).
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:
Incorporated in 1946, ICL has been operating for more than seven decades, with total installed capacity of 15.55 million tonne per annum (MTPA) as on March 31, 2021. It is one of the largest cement manufacturers in South India, with total regional capacity of 12.95 MTPA. The company has healthy market position in the south, which contributes to around 60% of overall sales. ICL’s plants are located in proximity to principal markets, providing easy access to Andhra Pradesh, Telangana, Tamil Nadu and Kerala markets with an average radius of around 400 kilometre. The production facilities are also close to major ports in South India, which provide it easy access to international markets for import of coal. The manufactured cement enjoys a good brand image in its principal markets of Tamil Nadu and Kerala. Furthermore, ICL markets its cement under the brands -- Coromandel, Sankar and Raasi -- across India.
ICL sources limestone (key raw material) from various captive mines located adjacent to the integrated plants. These mines have reserves estimated at over 2 billion tonne and mining leases minimum till 2030, which are sufficient for existing operations as well as expansion planned over the medium term. In the case of other raw materials, such as gypsum and fly ash, ICL has adequate contracts with nearby plants to source them. The company has three captive thermal power plants of 50 megawatt (MW) at Sankarnagar, Tamil Nadu; 50 MW at Vishnupuram, Telangana; and 20 MW at Banswara, Rajasthan. Apart from these, the company has access to 26-MW, gas-based power plant in its subsidiary (Coromandel Electric Co Ltd) in Tamil Nadu and 22 MW from Andhra Pradesh Gas Power Corporation Ltd (‘CRISIL A/Stable/CRISIL A1’) against its equity stake. ICL further has an 8.5-MW waste heat recovery system (WHRS) plant at Vishnupuram and 18.65-MW of windmill capacity at Tamil Nadu. The above sources or arrangements meet 80-85% of ICL’s power requirement. The company has also acquired mining rights in Indonesia for low gross calorific value coal through its subsidiary, Coromandel Minerals Pte Ltd, Singapore.
Despite being impacted by the pandemic in the early period of fiscal 2021, ICL’s operating performance improved significantly in fiscal 2021, as reflected in standalone EBITDA increasing by 38% year-on-year despite volume declining 20% during the same period. In the past, ICL’s operating efficiency remained modest owing to relatively higher cost of production than the industry average because of higher power and fuel cost on account of vintage of the plants operated by ICL. However, the improvement in fiscal 2021 was led by an increase in EBITDA per tonne to Rs 906 (Rs 531 during fiscal 2020), supported by strong realisation, benign input costs and rationalisation of fixed cost. This improved performance is expected to sustain in fiscal 2022, with estimates of realisation remaining firm, while efficiency measures planned along with sustaining the rationalised fixed cost offset the rise in input cost and restrict significant moderation in profitability. However, the worsening impact of the ongoing second wave or possible third wave of the pandemic may have a downside risk to current estimates.
Weakness:
The ICL group’s balance sheet remained leveraged in the past because of subdued performance and debt remaining high, despite no major capacity expansion undertaken. Gross debt to EBITDA ratio was above 5.5 times in the last two fiscals before improving to around 4 times in fiscal 2021. Overall leverage is expected to improve as ICL does not intend to undertake any debt-funded capex over the medium term, along with significant debt reduction expected on account of scheduled term debt repayment. Gross debt to EBITDA ratio is estimated to improve to around 3 times by fiscal 2022 and below 2.25 times by end of fiscal 2023; and would remain a key monitorable.
ICL, on a standalone basis, had exposure aggregating Rs 1,888 crore as on March 31, 2020, which is greater than 60% of the adjusted standalone networth. Of this, Rs 631 crore is in the form of investment in equity, preference or debenture instruments of various subsidiaries or associates, while Rs 1,257 crore was extended as loans, advances or deposit to related entities. Apart from this, ICL has also extended corporate guarantee, aggregating Rs 150 crore, to lenders for debt availed by group companies. Most of the exposure to related entities is of legacy nature. Based on management undertaking, incremental cash support is not likely to be extended to any of the related entities, going forward, except for core business purpose. ICL also plans to simplify the group structure over the medium term. Any deviation to the management’s articulation on support to related entities will be negative for the rating.
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. 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. ICL remains exposed to fluctuations in fuel prices in addition to the risks of volatile cement prices, given the oversupply situation in South India. |
Liquidity: Adequate Liquidity is supported by cash accrual, existing working capital limit and refinancing (if required) to meet debt repayment and working capital requirement. The ICL group has maturing debt of around Rs 650 crore and Rs 580 crore in fiscals 2022 and 2023, respectively. While cash accrual would be adequate to meet the debt repayment, CRISIL Ratings believes ICL also has flexibility to refinance, if required. Additionally, the company has access to fund-based working capital limit of Rs 750 crore, with average utilisation of 65-70% during the 12 months through February 2021. |
Outlook: Stable CRISIL Ratings expects ICL to continue to maintain a healthy business risk profile, supported by its leading market position in the South India cement markets, and its average-but-gradually-improving operating efficiencies. The financial risk profile is also expected to sustain the improvement over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Established in 1946, ICL is one of the leading cement manufacturers in South India with an established presence in all five states in the region. Its first cement plant at Sankarnagar was commissioned in 1949. Since then, it has grown in size, mostly through the inorganic route, by acquiring cement plants of Coromandel Cement Ltd and Cement Corporation of India in Andhra Pradesh. It also acquired other cement companies -- Raasi Cement Ltd and Visaka Cement Industry Ltd – that were subsequently merged with the company. ICL had installed capacity of 15.55 MTPA as on March 31, 2021, spread across 10 different manufacturing units (including two split grinding units) in Tamil Nadu, Andhra Pradesh, Telangana, Maharashtra and Rajasthan. Cement manufactured by ICL is marketed under the brands -- Coromandel, Sankar and Raasi. The company primarily manufactures two standard types of cement: Ordinary Portland Cement and Portland Pozzolana Cement, the mix being 37:67. It has several captive power sources totalling 195 MW. ICL is currently headed by Mr N Srinivasan (Vice Chairman and Managing Director). |
Key Financial Indicators - ICL (CRISIL Combined Financials)*
*2021 numbers are not added as CSL & SSLPL audited financials are not yet available
Key Financial Indicators - ICL (Consolidated Financials)
*based on quarterly filings |
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)
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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 various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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