12/10/22, 2:48 PM India Ratings and Research: Most Respected Credit Rating and Research Agency India

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India Ratings Affirms Parasakti Cement Industries at

‘IND BBB+’/Stable; Off RWE
Sep 16, 2021 | Cement & Cement Products

India Ratings and Research (Ind-Ra) has affirmed

Parasakti Cement Industries Limited’s (PCIL) Long-Term Issuer Rating
at ‘IND
BBB+’ while resolving the Rating Watch Evolving (RWE). The Outlook is Stable. The
instrument-wise rating actions
are as follows:

Instrument Date of Coupon Maturity Size of Rating/Outlook Rating Action

Type Issuance Rate Date Issue
(million)

Term loan - - August 2023 INR300 IND BBB+/Stable Affirmed; off RWE
Fund-based - - - INR500 IND BBB+/Stable Affirmed; off RWE
limits
Non-fund-based - - - INR465 IND A2 Affirmed; off RWE
limits

Key Rating Drivers

Completion of Ownership
Change:
The affirmation and RWE resolution reflect the completion of the change
in the
ownership of PCIL after Penna Cement Industries Limited ('IND A+'/Stable) sold its entire
stake  of 
50%  to  the 
former’s 
promoters  in March 2021 in order to pare debt.
PCIL was earlier
a 50-50 joint venture between
Penna Cement and P. Muni
Krishna, the erstwhile managing
director and co-promoter of Penna Cement. Penna’s stake was acquired by
Turbotech
Constructions Private
Limited (Turbotech) in March 2021, which is owned by the existing promoters
of PCIL, post which
PCIL is
wholly owned by the promoter family. PCIL is in the process
of merging Turbotech with itself by March 2022
subject
to the receipt of the necessary regulatory approvals and no-objection certificates. The merger will lead
to an
addition of debt of INR1,600 million-2,000 million in PCIL, which Ind-Ra
believes is likely to be refinanced. The
management has communicated to Ind-Ra
its commitment to infuse funds to meet any shortfall in PCIL, including
through
any monetisation of the promoters' assets, if required. 

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Improvement in  Operating  Performance

despite COVID-19 Impact:  Despite
a weak 1QFY21, PCIL’s sale volumes
grew 18% yoy in FY21 owing to
the strong recovery in the second half of the year; the company reported growth
of 34 %
yoy in 3QFY21, which improved to 68% yoy in 4QFY21 due to accelerated
growth in March. The growth was also aided by
the low base of FY20, when
volumes had declined by 27% yoy owing to a change in the Andhra Pradesh state
government, extended monsoon, and loss of sales due to the lockdown towards the
end of financial year.

PCIL’s growth momentum continued in 1QFY22, with the company achieving

sales of 0.34mnt (1QFY21: 0.15mnt,
4QFY21: 0.35mnt), its highest ever in the
first quarter of any year. Ind-Ra expects PCIL to register a healthy
double-digit
volume growth in FY22, led by a recovery in the housing and
infrastructure segments. 

Sharp Jump
in EBITDA, led by Higher Realisations and Lower Costs: After having been subdued for the past couple
of years owing to weak demand and high input costs, PCIL's EBITDA  per metric tonne (mt) surged 249% yoy to
INR866 
in FY21 (FY20: INR249), aided by higher realisations
and reduced power costs. The power costs fell due to a decline in
coal
prices and an increase in the share of the waste heat recovery system (WHRS) in
the power mix to 46% (FY20:
39%), backed by an increase in capacity utilisation.
While the WHRS was commissioned in 2HFY19, the low capacity
utilisation had limited
its benefits during FY19-FY20. The absolute EBITDA grew more than three times to
INR855 million
in FY21 owing to the increase in EBITDA per mt as well as sale
volumes. 

Despite an increase in market prices of fuel, PCIL's EBITDA per mt

stood at INR1,070 in 1QFY22 (1QFY21:
INR1,061/mt), supported by its low-cost
coal inventory and higher share of power from WHRS. The EBITDA per mt
might
moderate gradually over the near term because of the rise in coal and
diesel prices. However, Ind-Ra expects PCIL's
profitability to sustain at
higher levels compared to the historical average owing to the cost savings from
WHRS. 

The blended realisations increased 9% yoy to INR4,124 in FY21, led by

the price hikes implemented in the southern
region in 1HFY21. The realisations
are likely to remain range-bound in FY22, as the southern region is likely to
witness
only limited capacity addition in the near term. 

Credit
Metrics Improved in FY21, Merger to Increase Leverage: PCIL’s credit metrics improved in FY21 owing
to the
substantial increase in EBITDA. The net leverage (net debt/operating
EBITDAR) was 0.6x in FY21 (FY20: 4x), while the
cash interest
coverage (EBITDA/cash interest expense) was 16.5x (2.4x). An interest-free
sales tax loan availed from the
Andhra Pradesh government forms about a third
of PCIL’s total debt. Excluding this loan, PCIL turned net cash positive in
FY21. PCIL’s merger with Turbotech would lead to an increase in the net
leverage to around 2.5x in FY22 due to the
addition of debt. An equity infusion
could lead to a lower leverage.

Liquidity Indicator - Adequate: The average utilisation of overall fund and

non-fund-based limits was around 30% and
60%, respectively, for the 12 months
ending June  2021, indicating an adequate liquidity cushion to support any
exigencies. In FY21, PCIL’s free cash flow  turned positive at
INR262  million  (FY20: negative INR55  million, FY19:
negative
INR240 million) owing to the substantial increase in the EBITDA coupled with an
improvement in the net cash
conversion cycle to 60 days (FY20: 82 days, FY19:
54 days), resulting from lower receivables and higher payables. With
a
balanced mix of trade and non-trade sales, the company has an  average
receivable  cycle of around a month and it
maintains inventory of 2.5-3
months. The non-fund-based limits have enabled the company to have a credit
period of 1.5-2
months.

While PCIL had availed the Reserve Bank of India-prescribed debt moratorium
on the term loan in the first phase, the
strong cash flows in FY21 enabled it
to subsequently pay off the interest component; the company has  requested
the
lender to accept the prepayment of the principal for which the moratorium had
been sanctioned. In FY21, PCIL had also
availed a COVID-19 loan of INR104.5 million
to maintain a liquidity buffer, which is to be repaid by FY25. At
end-August
2021, the company had liquidity of around INR600 million, comprising
  equal parts of unused limits and
unencumbered
cash. The management is likely to maintain a cash buffer of at least
INR150-200 million over the medium term. The total
cash balance stood at INR635
million at FYE21. In FY22, PCIL's scheduled repayments
of INR278 million are likely to be
fully met by internal accruals, and
prepayment of INR400 million would be met by internal accruals and/or
equity infusion,
if required. 

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Cyclicality in Cement Industry: PCIL is susceptible to the cyclicality in

cement prices due to the continued oversupply in
the southern region. Furthermore,
the company is also exposed to the risk of slowdown in the end-user industries
as well
as fluctuations in prices of key inputs such as coal and diesel.

Rating Sensitivities

Positive: Steady growth in scale, continued strong

operating performance and a sustained improvement in the
financial profile
would lead to a positive rating action.

Negative: Significant
weakening of operating performance and/or higher-than expected debt addition,
leading to the
net leverage exceeding 3.5x and/or weakening of the liquidity
position could lead to a negative rating action.

Company Profile

PCIL’s facility is located in Guntur district,

Andhra Pradesh, with an installed capacity of 1.68 million tonnes per
annum.
The facility is located close to Tier A cities such as Hyderabad and Chennai,
and Tier B cities such as
Guntur, Vijaywada and Vishakapatnam.

FINANCIAL SUMMARY

Particulars FY21 FY20

Revenue (INR million) 4,070 3,161
EBITDA (INR million) 855 209
EBITDA (%) 21.0 6.6
Net leverage (x) 0.61 4.0
   
Source: PCIL, Ind Ra

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.

Rating History

Instrument
Type Current
Rating/Outlook Historical
Rating/Rating Watch/Outlook

Rating
Type Rated Rating 22 October 3 April
2020 29 March
Limits 2020 2019
(million)
Issuer
rating Long-term - IND
BBB+/Stable IND IND IND
BBB+/RWE BBB+/RWE BBB+/Stable
Term loan Long-term INR300 IND
BBB+/Stable IND IND IND
BBB+/RWE BBB+/RWE BBB+/Stable
Fund-based
limits Long-term INR500 IND BBB+/Stable IND IND IND
BBB+/RWE BBB+/RWE BBB+/Stable
Non-fund-based
limits Short-term INR465 IND A2 IND A2/RWE IND A2/RWE IND A2

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Complexity Level of Instruments

Instrument Type Complexity Indicator

Term loans Low

Fund-based Working Capital Limits Low

Non-fund-based Working Capital Limits Low

For details on the complexity level of

the instruments, please visit https://www.indiaratings.co.in/complexity-indicators

Contact

Primary Analyst

Priyanka Rathi

Analyst

India Ratings and Research Pvt Ltd

Room no - 1201, 12th Floor, OM Towers, 32 Chowringhee Road, Kolkata-700071, India

+91 33 40302514

For queries, please contact: infogrp@indiaratings.co.in

Secondary Analyst

Khushbu Lakhotia

Associate Director

+91 33 40302508

Chairperson

Prashant Tarwadi

Director
+91 22 40001772

Media Relation

Ankur Dahiya

Senior Manager – Corporate Communication

+91 22 40356121

APPLICABLE CRITERIA

Corporate Rating Methodology

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