Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to Rs 5,410 crore proposed non-convertible debentures (NCDs) of UltraTech Cement Ltd (UltraTech) and has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the existing debt instruments and bank facilities of the company. CRISIL Ratings has withdrawn its rating on Rs.2,600 crore proposed bank loan facilities on the request of the client. Also, CRISIL Ratings has withdrawn its rating on NCDs aggregating to Rs 1,250 crore upon receipt of independent confirmation of redemption. These withdrawals are in line with the CRISIL Ratings policy on withdrawal of ratings.

 

The ratings reflect the strong business and financial risk profiles of UltraTech, driven by its established position as the largest player in the Indian cement industry and healthy operating efficiency. Enhanced regional market share and successful ramp-up of acquired assets has also aided the financial risk profile, which is evident from low leverage (net debt to earnings before interest, tax, depreciation and amortisation [EBITDA] ratio). These strengths are partially offset by cyclicality in the cement industry.

 

During fiscal 2024, sales volume increased 12.7% on-year, on the back of strong demand, while operating income improved 12% with a fall in realisation during the fiscal. The EBITDA per tonne improved by Rs 84 over the same period, led by moderation in power and fuel costs. The company’s measures towards increasing the share of renewable sources in the overall power mix as well as reduction of lead distance, will support operating profitability going forward. The EBITDA per tonne is expected to reach more than Rs 1,100 over the medium term.

 

On July 28, 2024, UltraTech announced execution of share purchase agreement (SPA) wherein it will acquire 32.72% of equity stake in India Cements Ltd (ICL) from the existing promoter group and its associates for a cash consideration of Rs 3,954 crore. This is in addition to the 22.77% stake already acquired in ICL in June 2024 from its other shareholders for a total cash payout of Rs 1,891 crore. Subject to regulatory approvals, a mandatory open offer for acquisition of additional 26% equity stake in ICL from public shareholders will also be triggered which could lead to additional cash outflow of up to Rs 3,142 crore. Despite such sizeable payout as well as takeover of ICL’s debt (Rs 2,612 crore outstanding as on March 31, 2024), the financial risk profile of UltraTech will continue to remain strong owing to its large networth, healthy liquidity and strong cash accrual. ICL has installed cement capacity of 14.9 million tonne per annum (MTPA), majority of which is in South India and CRISIL Ratings also expects this acquisition to replace part of the earlier announced organic capex to add ~34 MTPA capacity pan-India over the next few years. Net debt to EBITDA ratio is expected to increase to 0.6-0.7 time in fiscal 2025 before improving gradually going forward.

 

UltraTech had a domestic grey cement capacity of 149.5 MTPA as on June 30, 2024. CRISIL Ratings believes that the acquisition of majority stake in ICL as well as consummation of acquisition of cement assets of Kesoram Industries Ltd (KIL) will further strengthen UltraTech’s already established position as the largest player in the Indian cement industry and will increase its regional market share in the south. It will also support the company’s plan to increase its consolidated cement capacity to 200 MTPA by fiscal 2027. While the operating profitability of ICL has been modest over the past few years, the company’s ability to optimize costs and profitability, post the acquisition, will remain a monitorable.

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of UltraTech and its subsidiaries. This is because the entities, collectively referred to as the UltraTech group, operate in cement and related space and have significant operational linkages and common management.

 

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 market position in the Indian cement business and healthy operating efficiency: UltraTech is India's largest cement manufacturer having consolidated grey capacity of 154.9 MTPA (domestic grey capacity of 149.5 MTPA) as on June 30, 2024. Operating efficiency is superior, driven by strong energy consumption norms, efficient logistics (because of pan-India presence) and captive power availability. The acquisition of UNCL strengthened UltraTech’s market position in the northern region. The takeover of Century's cement business has improved its position in the high-growth eastern market and reinforced its presence in other geographies. Its presence across regions was also strengthened with commissioning of capacity under phase-I. The company is progressing with its phase II and phase III expansion plans, with announced projects of ~34 MTPA capacity. CRISIL Ratings notes that some of this capex may be replaced on successful consummation of the ongoing transactions to acquire the cement assets of KIL and majority stake in ICL. Pan-India presence insulates the company from vagaries of external factors in any single region.

 

The company’s measures for increasing share of renewable sources in the overall power mix as well as reduction of lead distance, will support operating profitability going forward. EBITDA per tonne is expected to reach more than Rs 1,100 over the medium term.

 

• Strong financial risk profile: The financial profile remains strong characterised by healthy networth of more than Rs 56,000 crore and net debt of ~Rs 2,480 crore as on March 31, 2024. Overall net debt to EBITDA ratio improved to 0.2 time in fiscal 2024, from a peak of 3.16 times in fiscal 2019. The company had sizeable organic capex plans of Rs 28,000-30,000 crore over fiscals 2025-2027 to be majorly funded from internal accrual. CRISIL Ratings notes that part of this capex may be deferred post successful acquisition of ICL and KIL assets. These acquisitions are expected to be debt-funded and net debt to EBITDA ratio is expected to increase to 0.6-0.7 time in fiscal 2025 before improving gradually over the medium term. The debt protection metrics are expected to remain healthy with interest coverage ratio and net cash accrual to adjusted debt ratio at more than 13.5 times and 0.8 time, respectively, in fiscal 2024.

 

Weakness:

• Susceptibility to risks related to input cost, realisations and cyclicality in the cement industry: Capacity addition in the cement industry tends to be sporadic because of the long gestation period and large number of players adding capacity during the peak of a cycle. This has led to unfavourable price cycles in the past. Moreover, profitability remains susceptible to volatility in the prices of inputs, including raw material, power, fuel and freight as has been experienced during fiscals 2022 and 2023. Realisations and profitability are also constrained by demand, supply, sales and regional factors.

Liquidity: Superior

The financial flexibility has been strong owing to access to capital markets and the ability to raise funds at competitive rates and on short notice. Longstanding relationships with banks and strong business positioning allows UltraTech to favourably raise debt at low interest cost. Liquidity is backed by a healthy cash balance of over Rs 7,600 crore as on June 30, 2024, part of which may be utilised to fund the ongoing acquisitions of ICL and KIL. Healthy cash accrual over the medium term should not only comfortably cover maturing debt in fiscal 2025 and meet incremental working capital requirement but also partly fund the company’s sizeable capex plans going forward.

 

Environment, social and governance (ESG) profile

CRISIL Ratings believes UltraTech’s ESG profile 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 the energy-intensive cement manufacturing process and its high dependence on natural resources such as limestone and coal as key raw materials. The sector has a social impact due to its nature of operations affecting the local community and the health hazards involved. However, UltraTech has continuously focused on mitigating its environmental and social risks.

 

Key ESG highlights:

• UltraTech has deployed strategies to reduce the carbon footprint in its entire production process. It aims for 27% reduction in CO2 emissions per tonne by 2032 on the base of fiscal 2017. It aims to develop carbon neutral concrete by 2050.
• The company plans to increase the share of electricity requirements from a combination of renewable energy sources and waste heat recovery system (WHRS) to 60% by fiscal 2027 and 85% by 2030. UltraTech has joined the RE100 initiative and is committed to 100% renewable energy usage by 2050.
• UltraTech’s loss time injury frequency rate (LTIFR) of 0.08 in fiscal 2024 is on the lower side, as compared to 0.10 in fiscal 2023.
• Its governance structure is characterized by 50% of its board comprising independent directors, split in chairman and CEO positions, dedicated investor grievance redressal system and extensive disclosures.
• There is growing importance of ESG among investors and lenders. UltraTech’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowings in its overall debt and access to capital markets.

Outlook: Stable

UltraTech will continue to benefit from its leading market position, geographically diverse presence in India and high financial flexibility.

Rating Sensitivity Factors

Downward factors

• Lower-than-expected increase in cash accrual because of non-sustenance of performance
• More-than-expected debt because of sizeable acquisition or capex, leading to sustained net debt to EBITDA ratio of more than 2 times

About the Company

UltraTech was formed in 2004 following the acquisition of the cement business of Larsen and Toubro Ltd ('CRISIL AAA/Stable/CRISIL A1+') by Grasim Industries Ltd (Grasim; 'CRISIL AAA/Stable/CRISIL A1+'). As on June 30, 2024, Grasim (the flagship company of the Aditya Birla group) held 57.27% equity stake in UltraTech. Through UltraTech Cement Middle East Investments Ltd (UCMEIL), UltraTech has capacity of 5.4 MTPA across UAE and Bahrain.

 

UltraTech's consolidated grey capacity is 154.9 MTPA (domestic capacity of 149.5 MTPA), as on June 30, 2024. In addition, the company has 1.5 MTPA of white cement capacity. Furthermore, the company has power generation capacity of 1,188 megawatt (MW), out of which 890 MW is green power capacity (WHRS + renewables).

Key Financial Indicators*

As on/for the period ended March 31	Unit	2024	2023
Revenue	Rs.Crore	70731	63075
Profit After Tax (PAT)	Rs.Crore	7004	5073
PAT Margin	%	9.9	8.0
Adjusted debt/adjusted networth	Times	0.18	0.26
Interest coverage	Times	13.77	13.28

*Consolidated financials adjusted by CRISIL Ratings.

Any other information: Not Applicable

Annexure - List of Entities Consolidated

Names of Entities Consolidated	Extent of Consolidation	Rationale for Consolidation
UltraTech Cement Lanka Pvt Ltd (UCLPL)	80%	Subsidiary
Harish Cement Ltd	100%	Subsidiary
UltraTech Cement Middle East Investments Ltd (UCMEIL)	100%	Subsidiary
Star Cement Co. LLC, Dubai *$	100%	Subsidiary
Star Cement Co. LLC, Ras-Al-Khaimah*$	100%	Subsidiary
Al Nakhla Crusher LLC, Fujairah*$	100%	Subsidiary
Arabian Cement Industry LLC, Abu Dhabi*$	100%	Subsidiary
UltraTech Cement a Company WLL, Bahrain *^	100%	Subsidiary
Bhagwati Limestone Company Pvt Ltd (BLCPL)	100%	Subsidiary
Gotan Limestone Khanij Udyog Pvt Ltd	100%	Subsidiary
Bhumi Resources PTE Ltd (BHUMI) !!	100%	Subsidiary
Star Super Cement Industries LLC (SSCILLC) *$$	100%	Subsidiary
Binani Cement (Tanzania) Ltd***	100%	Subsidiary
BC Tradelink Ltd, Tanzania***	100%	Subsidiary
PT Anggana Energy resources (Anggana), Indonesia^^^	100%	Subsidiary
Binani Cement (Uganda) Ltd***	100%	Subsidiary
Duqm Cement project International, LLC, Oman*	70%	Subsidiary
Letein Valley Cement Ltd (w.e.f. January 16, 2024)	100%	Subsidiary
Ras Al Khaimah Co. for White Cement & Construction Materials P.S.C U.A.E (RAKW) (w.e.f April 15, 2022)*	54.39%	Subsidiary
Ras Al Khaimah Lime Co, Noora LLC (w.e.f April 15, 2022) @	54.39%	Subsidiary
Modern Block Factory Establishment (w.e.f April 15, 2022) @	54.39%	Subsidiary
Bhaskarpara Coal Company Ltd	47.37%	Joint Operations
Mandanpur (North) Coal Company Pvt Ltd	11.17%	Associate
Aditya Birla Renewable Energy Ltd	26.00%	Associate
Aditya Birla Renewable SPV 1 Ltd	26.00%	Associate
ABReL (MP) Renewables Ltd (w.e.f June 16, 2022)	26.00%	Associate
ABReL Green Energy Ltd (w.e.f June 22, 2022)	26.00%	Associate
ABReL (Odisha) SPV Ltd (w.e.f June 15, 2022)	26.00%	Associate
ABReL (RJ) Projects Ltd (w.e.f. June 22, 2023)	26.00%	Associate

! 4% Shareholding of UCMEIL

& 5% Shareholding of UCMEIL

* Subsidiaries of UCMEIL

$ 51% held by nominee as required by local law for beneficial interest of the Company upto July 20,2022

$$ 51% held by nominee as required by local law for beneficial interest of the Company

^ 1 share held by employee as nominee for the beneficial interest of the Company

# Subsidiary of PT UltraTech Investments Indonesia

!! Wholly owned subsidiary of UNCL

&& 55.54% held by UNCL and 44.46% held by MHL

*** Wholly owned subsidiary of SSCILLC

^^^ Wholly owned subsidiary of BHUMI

Subsidiary of UCMEIL w.e.f. November 23, 2020

@Wholly owned subsidiary of RAKW