By Prakash P

India Ratings and Research (Ind-Ra) has revised Rain Cements Limited’s (RCL) Outlook to Stable from Positive while affirming the Long-Term Issuer Rating at ‘IND A’. The instrument-wise rating actions are as follows:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based limits

-

-

-

INR100

IND A/Stable

Affirmed; Outlook revised to Stable from Positive

Non-fund-based limits

-

-

-

INR700 (increased from INR500)

IND A1

Affirmed

Non-fund-based limits

-

-

-

INR450

IND A/Stable/IND A1

Assigned

 

Analytical Approach: To arrive at the rating, Ind-Ra has taken a standalone approach for RCL due to its moderate operational and legal linkages with the key Rain group entities. RCL had provided a post-default guarantee for a portion of the debt taken by the holding company of Rain Group, Rain Industries Limited (Rain; ‘IND A’/Stable). However, RCL had not provided any ongoing funding support to Rain in the recent past. Ind-Ra has included corporate guarantee of INR2.1 billion extended by RCL to Rain as part of debt for RCL.

KEY RATING DRIVERS

Comfortable Credit Metrics Despite Moderation: RCL’s net adjusted leverage (net adjusted debt/operating EBITDAR) deteriorated to 2.7x in 2018 (2017: 1.3x) on account of a decline in operating EBITDA to INR710 million (INR850 million), resulting from a fall in realisations and sustained cost pressures. The net adjusted leverage includes corporate guarantee of INR2.1 billion at end-2018 (end-2017: INR1.9 billion) for Rain’s debt. Its interest coverage (operating EBITDA/interest expenses) remained robust at 178x in 2018 (2017: 340x) as the company does not have any interest-bearing liabilities and only incurs bank charges on the non-fund-based facilities.

Strong Liquidity; Negligible Interest-Free Debt: RCL had unencumbered cash and cash equivalents of INR0.9 billion at end-2018 (end-2017: INR1.5 billion), while its debt remained negligible, consisting of INR0.6 million of interest-free sales tax deferment loan, payable in instalments up to 2025. The company did not have any other long-term or working capital debt on its books at end-2018. The fund-based working capital limits of INR100 million remained largely unutilised over the 12 months ended May 2019.

Growth in Revenue; Profitability Declined but Likely to Improve in 2019: RCL’s revenue grew to INR9.1 billion in 2018 (2017: INR8.9 billion), owing to an increase in cement volumes to 2.23 million metric tonnes (MT) (2.10 million MT), resulting from an improved demand for cement. However, cement realisations moderated to INR4,100 per tonne in 2018 (2017: INR4,223 per tonne). This along with continued cost pressures in 2018 led to a decline in operating EBITDA margin to 7.8% in 2018 (2017: 9.6%).

Ind-Ra expects the profitability to improve in 2019 on the back of an improvement in realisations, likely commercialisation of a 4.1MW waste heat recovery plant from July 2019 and some moderation in coal prices. However, the sustenance of improved realisations remains key to maintain the improved profitability in 2020 and beyond.  

Key Industry Risks: RCL faces the risks of volatile cement prices, given the oversupply situation in the south Indian market. The industry also faces demand risk because of the cyclical nature of the housing sector, which accounts for 65% of the demand. Also, the profitability remains exposed to any fluctuations in coal and fuel prices.


RATING SENSITIVITIES

Positive: A sustained improvement in the cement volumes and profitability of RCL could result in a positive rating action.

Negative:
Developments that could, individually or collectively, lead to a negative rating action include:

Higher than expected financial support to the parent (Rain)

- Sustained weakness in volumes and/or margins resulting in net adjusted leverage increasing above 3x (including USD30 million of guaranteed debt) on a sustained basis 


COMPANY PROFILE

RCL produces and sells cement under the Priya brand. Its key markets are Andhra Pradesh, Telangana, Karnataka and Tamil Nadu. The company has an annual cement manufacturing capacity of 4 million MT.


FINANCIAL SUMMARY

 

Particulars

2018

2017

Revenue (INR million)

9,138

8,886

EBITDA (INR million)

710

850

EBITDA margin (%)

7.8

9.6

Profit after tax

271

375

Gross interest coverage (x)

178

340

Net adjusted leverage (x)

2.7

1.3

Source: RCL, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

13 April 2018

13 February 2017

21 December 2015

Issuer rating

Long-term

-

IND A/Stable

IND A/Positive

IND A-/Stable

IND A-/Stable

Fund-based limits

Long-term

INR100

IND A/Stable

IND A/Positive

IND A-/Stable

IND A-/Stable

Non-fund-based limits

Short-term

INR700

IND A1

IND A1

IND A2+

IND A2+

Non-fund-based limits

Long-/Short-term

INR450

IND A/Stable/IND A1

-

-

-


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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For more information, visit www.indiaratings.co.in.

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Analyst Names

  • Primary Analyst

    Prakash P

    Senior Analyst
    India Ratings and Research Pvt Ltd Harmony Square 3rd Floor, Door No. 48 & 50 Prakasam Street T Nagar Chennai - 600017
    044 43401700

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121