Rationale

 The rating for Kesoram Industries Limited (KIL) factors in the likely improvement in its debt coverage metrics, supported by the refinancing of the high cost, short tenure non-convertible debentures (NCDs) with low cost and longer tenure term loans in February 2024. The new term loans have a tenure of 10 years against 2 years of residual tenure of the NCDs, with reduction in interest rate to 11.25% p.a from 19% p.a. earlier, thereby eliminating the refinancing risk. The term loans have a ballooning repayment structure with a moratorium of 9 months resulting in significant decline in debt servicing burden in the near to medium term. The company reported an operating income (OI) of Rs. 3,743.1 crore in FY2024. ICRA expects the OI to report moderate growth in FY2025, driven by an increase in cement sales volumes. The rating continues to consider KIL’s track record of operations in the cement manufacturing business with established presence in Maharashtra, Telangana and Karnataka. The company’s vertically-integrated cement operations, with clinkerisation facility of 6.3 MTPA, captive limestone mines and a captive thermal power plant of 94.2 MW also support the rating. Further, the good quality limestone reserves at Sedam, in Karnataka, aid in cost efficiency. The rating is, however, constrained by the company’s leveraged capital structure and moderate OPBDITA/MT. Notwithstanding the decrease in OPBITDA/MT to Rs. 391/MT in Q4 FY2024 (Rs. 601/MT in Q3 FY2024), primarily due to decline in cement prices, KIL's OPBIDTA/MT grew by 17% to Rs. 505/MT in FY2024 from Rs. 430/MT in FY2023. The company has recently received a sanction for Rs. 300-crore working capital line, which could facilitate flexibility in fuel procurement mix. Any favourable change in fuel mix and the resultant impact on its OPBITDA/MT will remain a key monitorable. KIL’s total debt remained at Rs. 2,046.0 crore as of March 2024. With low repayments in the medium term as per the new debt structure and expected utilisation of recently sanctioned working capital limits, the debt and leverage levels are likely to remain elevated over the next two years. The rating continues to remain constrained by the cyclicality inherent in the cement industry, which leads to variability in profitability and cash flows. The company’s creditors remained high as of March 2024. However, the same is anticipated to decline over the medium term, supported by availability of working capital limits. This apart, any incremental investments or support to subsidiaries or Group companies by KIL will remain a key monitorable. The rating continues to remain on Watch with Developing Implications following the approved composite scheme of arrangement among KIL, UltraTech Cement Limited (UCL) and their respective shareholders and creditors for demerger of KIL’s cement division into UCL. ICRA will continue to monitor the developments and will take appropriate rating action as and when further details are available. The issuer rating has been withdrawn based on the request from the company and in line with ICRA’s policy on withdrawal of ratings.