| The KCP Limited | ||||||
| Ratings upgraded to ‘CRISIL A+/FAA-/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the long term bank facilities and fixed deposits of The KCP Ltd (KCP; part of the KCP group) to ‘CRISIL A+/FAA-/Stable’ from 'CRISIL A/FA+/Stable' while reaffirming the short term rating at ‘CRISIL A1’. Simultaneously, it has withdrawn its rating on the bank loan facilities aggregating Rs 59.37 crore based on no due certificate, receipt of confirmation from bank and at the client’s request. The withdrawal is in line with the CRISIL Ratings policy on withdrawal of ratings.
The upgrade reflects CRISIL Rating’s expectation that KCP’s financial and business risk profiles will strengthen driven by healthy performance of the cement and sugar segments which is also expected to sustain over the medium term. KCP will benefit from sustained realisations, driven by pricing discipline in the industry and volume uptick because of higher infrastructure spending in the core markets of Andhra Pradesh and Telangana along with increasing sales to satellite market of Tamil Nadu amongst others.
Based on the nine month trend and estimation for the fourth quarter, the cement business volume growth is estimated at around 13-15% in fiscal 2022 compared to around 8% growth in industry volume across South India. In fiscal 2022, the earnings before income, depreciation, tax and amortisation (EBIDTA) margin of KCP is estimated to be at similar levels to the previous fiscal.
On account of healthy operating performance, the debt protection metrics have strengthened further, as visible in estimated debt to EBITDA ratio of less than 1 times in fiscal 2022 compared with 1.2 times in the previous fiscal and interest coverage ratio expected to improve to around 12 times in fiscal 2022 from 8.27 times in fiscal 2021. Liquidity has also witnessed significant improvement with cash and cash equivalents estimated at around Rs 500 crore as on December 31, 2021 along with moderate bank limit utilisation. Maintenance of ample liquidity and sustenance of operating margins will be key monitorables.
The ratings continue to factor in the group’s established track record in the cement segment in South India and the sugar sector in Vietnam and healthy financial risk profile indicated by low gearing. These strengths are partially offset by sub-par performance of the engineering and hotel divisions and susceptibility to business cycles and continuing demand-supply mismatch in the South Indian cement markets. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of The KCP Ltd, KCP Vietnam Industries Ltd (KCP Vietnam) and joint venture Fives Cail KCP Ltd. This is because the three entities, collectively referred to as the KCP group, have common management and financial linkages.
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 Established track record in the cement and sugar businesses The KCP group has been in the cement business for over six decades. The cement division is estimated to have witnessed volume growth of around 13-15% in fiscal 2022 compared to around 8% growth in industry volume across South India. The company continues to have significant market footprint in the Andhra Pradesh and Telangana regions. Overall revenue from this division is estimated at Rs 1,400-1,500 crore in fiscal 2022 compared with Rs 1200 crore in fiscal 2021. Cement profitability moderated in the third quarter of fiscal 2022 due to high power cost, resulting in estimated EBIT margin of around 15-16% in fiscal 2022 from 19.17 in fiscal 2021. However, performance may improve in 2-3 quarters’ time as demand revives in these geographies and realisation improves.
The group also has sugar crushing capacity of 11,000 tonne per day (tpd) in Vietnam housed under the subsidiary i.e. KCP Vietnam Industries Ltd. Revenue from this segment is 20-30% of the overall revenues. Performance of the sugar business improved in fiscal 2022 because of healthy harvest. Performance of the sugar division is expected to sustain in fiscal 2023 on account of healthy yield and continued government support to local producers in Vietnam.
Healthy financial risk profile Financial risk profile is backed by steady cash accrual, healthy capital structure and comfortable debt protection metrics. Gearing is estimated to have been healthy at below 0.30 time as on March 31, 2022, with interest coverage ratio estimated at 12 times in fiscal 2022.
Weaknesses Weak performance of the engineering and hotel businesses The engineering and capital goods industry is highly vulnerable to economic cycles on account of linkages to the capex plans of customers, which are affected by slowdown in industrial growth. Despite healthy order book, profitability of the engineering division is expected to remain subdued because of high competitive intensity.
The company also has operations under the hospitality segment since April 2016 and was ramping up the occupancy levels gradually. However, the Covid-19 pandemic had severely impacted the hospitality industry and recovery in the sector is expected to take more time compared with other sectors.
Performance in both the aforementioned segments is expected to improve in fiscal 2023, but overall impact on the financial risk profile is expected to be minimal, as contribution from these segments is low in terms of revenue and profitability.
Susceptibility to business cycles and continuing demand-supply mismatch in South Indian cement markets Capacity addition in the cement industry tends to be sporadic because of the long gestation period for setting up a facility and numerous players adding capacity during the peak of a cycle. This has led to unfavourable price cycles for the sector. Moreover, profitability remains susceptible to volatility in input prices, including raw material, power, fuel and freight. Realisations and profitability are also affected by demand, supply, offtake and regional factors. KCP remains exposed to fluctuations in fuel prices in addition to the risk of volatility in cement prices given the oversupply situation in South India. |
Liquidity: Strong Net cash accrual, projected at more than Rs 300 crore in fiscal 2023, will sufficiently cover debt obligation of around Rs 52 crore. Cash and cash equivalents for the KCP group are estimated at around Rs 500 crore as on December 31, 2021. Utilisation of fund-based working capital limit averaged 22% over the 12 months through February 2022. |
Outlook: Stable CRISIL Ratings believes KCP will continue to sustain its improved operating performance and healthy financial risk profile, backed by its strong market position in cement and sugar business. |
Rating Sensitivity Factors Upward Factors
Downward Factors
|
About the Group The KCP group was founded in 1941 by Mr V Ramakrishna, a first-generation entrepreneur who began operations by setting up a sugar unit. The cement division commenced operations in 1958 and has two units, one each at Guntur (capacity of 0.825 MTPA), Muktyala (3.52 MTPA) in Andhra Pradesh and one packaing plant at Arakkonam (0.5 MTPA) in Tamil Nadu. The heavy engineering division, set up in 1955 at Tiruvottiyur in Chennai, undertakes casting, fabrication and machining of heavy equipment for core industries (sugar, cement, steel and power). KCP Vietnam Industries Ltd, which commenced operations in 1999, has a sugar crushing capacity of 11,000 tpd. The group also has a 128-room four-star hotel in Hyderabad named ‘Mercure’, which began operations in April 2016.
For the nine months ended December 2021, consolidated profit after tax (PAT) for the company was Rs 179 crore on operating income of Rs 1,586 crore compared with PAT of Rs 95 crore on operating income of Rs 1,182 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators (Consolidated)
|
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)
|
Annexure – List of Entities Consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
This Annexure has been updated on 25-Apr-2022 in line with the lender-wise facility details as on 19-Aug-2021 received from the rated entity.
Criteria Details
|