| The KCP Limited | ||||||
| Ratings upgraded to ‘CRISIL A/FA+/Stable/CRISIL A1’ ; NCD Withdrawn | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its ratings on the bank facilities and fixed deposits of The KCP Ltd (KCP; part of the KCP group) to ‘CRISIL A/FA+/Stable/CRISIL A1’ from 'CRISIL A-/FA/Stable/CRISIL A2+'. Simultaneously, it has withdrawn its rating on the Rs 70 crore proposed non-convertible debentures and bank loan facilities aggregating Rs 239.86 based on no due certificate, receipt of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 Ratings expectation that KCP group’s financial and business risk profiles will improve driven by healthy performance of the cement business and the same would 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 exploring newer markets of Tamil Nadu, Maharashtra, Madhya Pradesh and others. Additionally improvement in realisation in the sugar business carried out by the group's Vietnam subsidiary will also benefit the cash flow over the medium term.
Based on the nine month trend and estimation for the fourth quarter, the cement business volume growth is estimated at around 25% in fiscal 2021 compared with fall of around 5% in industry volume across South India. In fiscal 2021, the earnings before income, depreciation, tax and amortisation (EBIDTA) margin of the KCP group is estimated at 20%, a significant increase from 12.7% in the previous fiscal. Improvement in the EBITDA margin is backed by healthy performance of the cement business, as seen in EBITDA/tonne estimated at Rs 1,050-1,100 compared with around Rs 340 in the previous fiscal, largely aided by healthy realisation.
On account of healthy operating performance, the financial risk profile has strengthened further, indicated by improved leverage, as visible in estimated debt to EBITDA ratio of around 1.25 times in fiscal 2021 compared with 2.74 times in the previous fiscal. Debt protection metrics also improved, as seen in interest coverage ratio improving to around 7 times in fiscal 2021 from 3.26 times in fiscal 2020. Liquidity too has witnessed significant improvement, more pronounced in the standalone business (cash and cash equivalents estimated at Rs 140-150 crore as on March 31, 2021 compared with Rs 36 crore as on March 31, 2020). Maintenance of ample liquidity and sustained operating margin 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.
KCP 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, 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 - Details of Consolidation, 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 five decades. The cement division is estimated to witness volume growth of around 25% in fiscal 2021 compared with fall of around 5% 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 1,200 crore in fiscal 2021 compared with Rs 844 crore in fiscal 2020. Cement realisation improved in fiscal 2021, resulting in the EBIT margin estimated to increase to around 20% from 3.1% in fiscal 2020. Healthy performance in the cement division is expected to sustain as demand revives in these geographies and realisation remains firm.
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 consolidated group. Performance of the sugar business was subdued in fiscal 2021 because of reduced harvest on account of continued drought conditions and low realisation due to decrease in global sugar prices. Performance of the sugar division is expected to improve in fiscal 2022 on account of better yield and expected recovery in global sugar prices.
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 0.40 time as on March 31, 2021, with interest coverage ratio estimated at 7 times in fiscal 2021.
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. Even though the hotel is in its initial stage of operations, with commencement of operations only in April 2016, the company has been able to gradually ramp up its occupancy levels. However, the Covid-19 pandemic has 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 likely to remain impacted in fiscal 2022, 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 Rs 210 crore in fiscal 2022, will sufficiently cover debt obligation of around Rs 72 crore. Cash and cash equivalents for the KCP group are estimated at Rs 350 crore as on March 31, 2021. Utilisation of fund-based working capital limit averaged 27% over the 12 months through February 2021. |
Outlook: Stable CRISIL Ratings believes KCP will continue to maintain 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
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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) and Muktyala (3.52 MTPA) in Andhra Pradesh. 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 2020, consolidated profit after tax (PAT) for the company was Rs 95 crore on operating income of Rs 1,182 crore compared with PAT of Rs 24 crore on operating income of Rs 1,072 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators (Consolidated)
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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)
Instrument withdrawn
#Yet to be issued |
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 Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit | Axis Bank Limited | 10 | CRISIL A/Stable |
| Cash Credit | Bank of Baroda | 28.45 | CRISIL A/Stable |
| Cash Credit | Bank of India | 18.65 | Withdrawn |
| Cash Credit | Canara Bank | 43.9 | CRISIL A/Stable |
| Cash Credit | Canara Bank | 10 | Withdrawn |
| Cash Credit | HDFC Bank Limited | 15 | CRISIL A/Stable |
| Letter of credit & Bank Guarantee | Axis Bank Limited | 30 | CRISIL A1 |
| Letter of credit & Bank Guarantee | Bank of Baroda | 27 | Withdrawn |
| Letter of credit & Bank Guarantee | Bank of Baroda | 10 | CRISIL A1 |
| Letter of credit & Bank Guarantee | Canara Bank | 93 | CRISIL A1 |
| Letter of credit & Bank Guarantee | HDFC Bank Limited | 5 | Withdrawn |
| Proposed Cash Credit Limit | Not Applicable | 50 | CRISIL A/Stable |
| Proposed Letter of Credit & Bank Guarantee | Not Applicable | 25 | CRISIL A1 |
| Proposed Long Term Bank Loan Facility | Not Applicable | 50 | CRISIL A/Stable |
| Proposed Long Term Bank Loan Facility | Not Applicable | 1.02 | Withdrawn |
| Short Term Loan | HDFC Bank Limited | 20 | CRISIL A1 |
| Term Loan | Bank of Baroda | 14.81 | Withdrawn |
| Term Loan | Bank of India | 22.4 | Withdrawn |
| Term Loan | Canara Bank | 59 | Withdrawn |
| Term Loan | Canara Bank | 20.96 | CRISIL A/Stable |
| Term Loan | Canara Bank | 10.31 | Withdrawn |
| Term Loan | Canara Bank | 2.57 | CRISIL A/Stable |
| Term Loan | Canara Bank | 0.81 | Withdrawn |
| Term Loan | HDFC Bank Limited | 22.78 | CRISIL A/Stable |
| Term Loan | Indian Overseas Bank | 17.13 | Withdrawn |
| Term Loan | Indian Overseas Bank | 8.42 | CRISIL A/Stable |
| Term Loan | State Bank of India | 209.25 | CRISIL A/Stable |
| Term Loan | State Bank of India | 53.73 | Withdrawn |
This Annexure has been updated on 2-Sep-2021 in line with the lender-wise facility details as on 19-Aug-2021 received from the rated entity.
Criteria Details
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