Rationale

 The reaffirmation of the ratings factors in the Star Group's strong financial risk profile as reflected in its comfortable capital structure, strong debt protection metrics and strong liquidity position, which are expected to continue in the near term. The operating income (OI) declined by 7% YoY in FY2021 as sales volumes contracted in Q1 FY2021 due to the pandemic-induced lockdown, while the OPBIDTA/MT moderated by 7% owing to elevated raw material costs and lower absorption of fixed overheads. However, the Group's debt coverage metrics remain strong supported by limited total debt of Rs. 18.2 crore and a continued net debt negative status as on September 30, 2021. The cost optimisation initiatives taken by the company to lower freight costs (by purchase of own fleet) and power & fuels costs (by investing in WHRS capacities) are likely to support the OPBITDA/MT going forward. In H1 FY2022, SCL witnessed a sales volume growth of 28% YoY to 1.38 MTPA, supported by a low base effect of the previous year, and sales volumes are likely to be higher by 10-11% YoY in FY2022. The long-term demand prospects are positive given the government's thrust on the affordable housing and infrastructure segments. The capital structure and debt protection metrics are likely to remain strong over the near to medium term despite capex plans during FY2022-FY2024 towards setting up of WHRS capacity and clinker expansion, as it is expected to be met out of internal accruals. The ratings continue to factor in the Group's established market position in the cement manufacturing business in North East India with a market share of ~23% in the region and its integrated nature of operations. Further, a wide distribution network of more than 2,000 dealers and 12,000 retailers has resulted in a strong brand presence across the North Eastern region, enabling the Group to enjoy premium pricing compared to the peers. The ratings are, however, constrained by the modest scale of operations compared to other national level cement players, given the high geographical concentration risks as its presence is concentrated in the North East (~80% volume sales in FY2021). ICRA, however, expects the demand-supply scenario in the region to remain favourable over the medium term, given the thrust on infrastructure development in the area and limited capacity addition in the region. Moreover, the Group has expanded its footprint in eastern India and has set up a 2-MTPA grinding unit in Siliguri, West Bengal, which commenced operations in Q4 FY2021. While the higher penetration in the eastern markets is likely to aid in geographical diversification, the ability of the Group to increase its presence outside the North East while sustaining profitability at healthy levels remains to be seen. ICRA also notes the cyclicality inherent in the cement industry which leads to variability in profitability and cash flows.