| The Ramco Cements Limited | ||
| Rating Reaffirmed | ||
| 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 reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of The Ramco Cements Limited (TRCL).
The rating continues to reflect the strong market position of the company in the southern region, healthy operating efficiency and financial risk profile. These strengths are partially offset by modest return on capital employed (RoCE) and susceptibility to volatility in input prices and cyclicality in the cement industry.
In the first nine months of fiscal 2024, operating income increased 19.9% on-year, supported by 25.1% growth in sales volumes. Earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne also increased to Rs 888 during the same period from Rs 757 in the corresponding period of the previous fiscal, owing to reduction in power and fuel cost which was partially offset by decrease in realisation. For fiscal 2023 and the first nine months of fiscal 2024, sales volumes have grown at a healthy pace of 34.5% and 25.1%, respectively, supported by new products introduced and new markets tapped along with healthy demand from the individual housing and infrastructure development, especially in the southern region. The growth in absolute Ebitda will be supported by healthy volume growth of 8-10% with ramp up of new capacities.
The financial risk profile of the company continues to be healthy despite higher-than-anticipated capital expenditure (capex), resulting in estimated net debt to Ebitda ratio estimated above 3.0 times in fiscal 2024. Capex of Rs 1,610 crore in the first nine months of fiscal 2024 was higher than anticipated and is on account of purchase of limestone bearing land from Prism Johnson Ltd (‘CRISIL A1+’). Net debt to Ebitda ratio is expected to reduce from current level supported by higher cash accrual from commissioned facility and reduction in pace of capex going forward. Debt protection metrics are estimated to have moderated in the past two years, with adjusted interest coverage ratio of below 5 times and net cash accrual to adjusted debt ratio at below 0.25 time. Debt protection metrics are expected to improve going forward with cash accrual from incremental capacities. The financial risk profile would remain comfortable driven by healthy capital structure and adequate liquidity. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of TRCL and its subsidiaries and associates as the entities have strong operational 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: Strong market position in southern region and growing market position in eastern region TRCL has combined manufacturing capacity of around 22 million tonne per annum (MTPA) as on December 31, 2023, spread across Tamil Nadu, Andhra Pradesh, Odisha and West Bengal. It is the second largest player in the southern region. The company has an established market presence in south India (contributed 78% of overall sales in the first nine months of fiscal 2024) as well as strong brand recognition in the region, with key markets being Tamil Nadu, Kerala, Karnataka and Andhra Pradesh.
Out of the overall capacity, TRCL has been operating 2 MTPA in Kolaghat (West Bengal), 2 MTPA in Vizag (Andhra Pradesh) and 0.9 MTPA in Haridaspur (Odisha) to service the eastern market, which contributed 22% to overall sales in the first nine months of fiscal 2024. The share of the faster growing east market has been consistent at 18-24% over the past five years owing to commissioning of new facilities in the southern region. However, the share in eastern region is expected to increase going forward driven by healthy demand prospects in the region along with expected commissioning of further 0.9 MTPA capacity in Odisha.
TRCL will retain its strong brand image in the south market with brands such as Ramco Supercrete and Ramco Supergrade and maintain steady cash accrual, while gradually establishing itself in the new markets over the medium term.
Healthy operating efficiency Operating efficiency arises from sharp focus on operations supported by presence of captive power plants, which meet majority of the power requirement, setting up of split grinding units near markets which helped in better management of freight cost, and continuous investment to increase operating efficiency. The company has captive thermal power plant capacity of 175 megawatt (MW) along with wind power capacity of 166 MW and waste heat recovery system (WHRS) of 43 MW. Also, the company is in process of implementing combined WHRS of 25 MW in its Ramasamy Raja Nagar and Kolimigundala facility leading to increased operating efficiency.
The operating efficiency is also expected to benefit from rise in capacity utilisation which will be supported by healthy demand outlook. The company is estimated to have increased capacity utilisation to around 80% in fiscal 2024, a significant rise from the average of around 56% in the past decade ending fiscal 2023.
Healthy financial risk profile The financial risk profile has been healthy, marked by sufficient cash accrual, low gearing and adequate debt protection metrics.
Gearing is estimated at 0.8 time (based on gross debt) as on March 31, 2024. Net cash accrual to adjusted debt is estimated to remain at around 0.18 time backed by higher accruals despite the higher debt funded capex. Going forward, the capex is expected to be lower as compared to fiscal 2024 with accruals expected to fund majority of the capex.
With capex intensity expected to reduce, the financial risk profile will remain healthy over the medium term, aided by healthy profitability, and sufficient cash accrual. However, implementation of any further debt-funded capex may constrain the financial risk profile, and thus will remain a key monitorable.
TRCL is the flagship company of the Ramco group, which has a lineage of over 80 years, and healthy relationships with the lending community and capital markets. This is also reflected in the competitive interest rates enjoyed by TRCL.
Weakness: Moderate RoCE owing to significant investment towards capacity additions The company’s RoCE remained subdued at below 10% fiscal 2022 onwards owing to high capex intensity in the past few years. The company has undertaken capex of around Rs 7,400 crore during fiscal 2020 to 2023 which resulted in a significant increase in capital employed. Cash accrual did not increase proportionally as capacity utilisation averaged 60% leading to modest RoCE.
However, with completion of the ongoing capex and capacity utilisation expected at more than 80% resulting in higher cash accrual, RoCE may improve only gradually.
Susceptibility to volatility in input cost and realisations, and cyclicality in the cement industry 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 led to unfavourable price cycles for the sector in the past. Moreover, profitability remains exposed to volatility in input prices, including raw material, power, fuel and freight. Increase in coal and pet coke prices in the second half of fiscal 2022 and during fiscal 2023 impacted the profitability of all cement players. Realisations and profitability are also affected by demand, supply, offtake and regional factors. |
Liquidity- Strong TRCL enjoys healthy liquidity driven by expected annual cash accrual of more than Rs 1000 crore in fiscal 2025. TRCL also has access to fund-based limit which are moderately utilized. The company has repayment obligation of Rs 677 crore for fiscal 2025 with cash accrual sufficient to meet the repayment obligation. The company is expected to fund its capex requirements through a mix of internal cash accrual and debt. Bank lines are expected to meet the incremental working capital requirement.
ESG profile The Environment, Social, and Governance (ESG) profile of TRCL supports its already strong credit risk profile. The cement sector has a significant impact on the environment owing to higher emissions, waste generation and water consumption. This is because of energy intensive cement manufacturing process and its high dependence on natural resources such as limestone, coal as key raw materials. The sector has social impact due to its nature of operations affecting local community and health hazards involved. TRCL has continuously focused on mitigating its environmental and social risks.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. Commitment of TRCL to ESG will play a key role in enhancing stakeholder confidence, given high access to domestic capital markets |
Rating Sensitivity Factors Downward Factors
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About the Company TRCL is a leading cement player with capacity of around 22 MTPA spread across Tamil Nadu, Andhra Pradesh, Odisha and West Bengal. Set up in 1957, the company manufactures and markets cement under the brand Ramco, predominantly in south India. It also has windmill capacity of 166 MW, captive thermal power plants with capacity of 175 MW and WHRS of 43 MW.
TRCL is the flagship company of the Ramco group, which deals in cement, fibre cement sheets, textiles (cotton yarn) and information technology. Other companies in the group include Rajapalayam Mills Ltd ('CRISIL A+/Stable/CRISIL A1'), Ramco Industries Ltd ('CRISIL A1+') and Ramco Systems Ltd. The group was founded in 1938 by Late Mr P A C Ramasamy Raja and is presently managed by his grandson, Mr P R Venketrama Raja.
In the first nine months of fiscal 2024, TRCL’s consolidated revenue was Rs 6,698 crore and profit after tax (PAT) was Rs 240 crore, compared with Rs 5,585 crore and Rs 164 crore respectively, in the corresponding period of fiscal 2023 |
Key Financial Indicators
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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 – 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. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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