CRISIL Ratings upgrades credit ratings of NCL Industries

NCL Industries said that CRISIL Ratings has upgraded its ratings on the bank facilities and fixed-deposits of the company.

With regard to the company's bank facilities worth Rs 396 crore, the credit ratings agency has upgraded the long-term rating to 'CRISIL A/ Stable' from 'CRISIL A-/Positive' and the short-term rating to 'CRISIL A1' from 'CRISIL A2+'.

It has also upgraded the rating on the company's fixed deposits worth Rs 75 crore to 'FA+/Stable' from 'FA/Positive'.

CRISIL Ratings said that the rating upgrade factors in better than expected performance in fiscal 2021 along with the expected sustenance of the same over the medium term and improved operating efficiencies due to savings on power costs. The ratings improvement also factors in the improved financial risk profile & liquidity.

The company's revenue grew by 48% in fiscal 2021 to Rs 1,386 crore despite the nation-wide lockdown imposed in Q1 of fiscal 2021. This was driven by healthy uptick in demand from infrastructure and housing segments in the subsequent quarters, resulting in significantly better operating rate and higher price realizations.

It further said that the realizations are estimated to remain high over the medium term, owing to strong retail dealer network particularly in rural markets which should lead to revenues remaining at around Rs 1400-1500 crore for fiscal 2022 and ahead.

Operating margins have also increased sharply to 20.6% in fiscal 2021 (from 15% in the previous year) driven by lower input costs and higher realizations. However, increasing prices of coal, packing material and higher fuel/transportation costs could lead to moderation in operating margins by 200 to 300 bps in fiscal 2022.

Nevertheless, commissioning of solar power and waste heat recovery units in the quarter ended June, 2021 should result in saving on the power cost by Rs 28-30 crore per annum from fiscal 2022 onwards. As a result, operating efficiencies should continue to remain moderate over the medium term.

Financial risk profile has also strengthened due to healthy operating performance, thereby improving networth, gearing and debt protection metrics. Net cash accrual increased to Rs 178 crore in fiscal 2021 from about Rs 71 crore in the previous fiscal.

Moreover, despite the ongoing and planned debt funded capital expenditure, the financial risk profile and liquidity should remain healthy because of healthy net cash accruals.

The ratings also reflect NCL's established market position in South India, long track record of operations, its moderate operating efficiencies and healthy financial risk profile. These rating strengths are, however, partially offset by risks relating to volatile input costs, cyclicality in cement industry, and commodity nature of the product.

NCL manufactures different varieties of cement, cement bonded particle boards, ready-mix concrete and doors.

The company's consolidated net profit rose 4.76% to Rs 33.47 crore on a 54.46% increase in net sales to Rs 403.01 crore in Q1 FY22 over Q1 FY21.

The scrip shed 0.29% to currently trade at Rs 240.35 on the BSE.

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