Fitch affirms ratings of UltraTech at 'BBB-'

Fitch Ratings has affirmed UltraTech Cement's long-term foreign- and local-currency issuer default ratings (IDR) at 'BBB-'.

The outlook on the foreign-currency IDR is 'negative' and that on the local-currency IDR is 'stable'.

Fitch has also affirmed UltraTech's $400 million 2.80% senior unsecured notes due 2031 at 'BBB-'.

The ratings agency said that UltraTech Cement's (UTCL's) ratings reflect its position as the third-largest cement producer globally, excluding China, and the largest in India, a market with healthy long-term growth prospects. The company has strong branding and cost-efficient operations that underpin its competitive position.

In Fitch's view, these helped UTCL's profitability to remain above the industry average and position it well to cope with the industry's inherent cyclicality despite weaker geographic diversification than larger global peers.

The 'negative' outlook on UTCL's foreign-currency IDR reflects Fitch's 'negative' outlook on India's long-term foreign- and local-currency IDRs.

UTCL's foreign-currency IDR is not directly constrained by India's sovereign rating but cannot exceed the country ceiling of 'BBB-', which reflects the transfer and convertibility risks associated with foreign-currency obligations.

Should the sovereign IDRs be downgraded to 'BB+', the country ceiling may also be revised lower in tandem, which would constrain UTCL's foreign-currency IDR to 'BB+'.

The 'stable' outlook on the local-currency IDR underscores UTCL's robust profitability despite the impact of coronavirus pandemic on cement demand in the financial year ended 31 March 2021 (FY21).

UTCL also took a prudent approach to growth, enabling significant debt reduction. This should support comfortable leverage headroom despite higher expansion capex and dividend payouts, and Fitch's expectation of moderation in margins after FY21.

UltraTech Cement, part of the Aditya Birla Group, is the third-largest cement producer outside China, and the largest in India by installed capacity.

The company's consolidated net profit rose 0.38% to Rs 1,314 crore on 14.41% increase in net sales to Rs 11,743 crore in Q2 September 2021 over Q2 September 2020.

The scrip shed 0.15% to currently trade at Rs 7638.35 on the BSE.

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