SHREE CEMENT LTD.

Long term bank facilities CARE AA+

Short-term bank facilities PR1+
Short Term Debt PR1+
Long Term Borrowing CARE AA+

Rating
CARE has upgraded the rating assigned to the long term bank facilities of Rs.968.2 crore
(reduced from Rs.1112.1 crore) of Shree Cement Ltd (SCL) to ‘CARE AA+’ (Double A
plus) from the existing CARE AA (Double A). Also, CARE has retained the ‘PR1+’ (PR
One plus) rating assigned to the short-term bank facilities of Rs.100 crore (enhanced
from Rs.60 crore) of SCL. CARE has also upgraded the rating assigned to the proposed
Long Term Borrowing (LTB) programme (nomenclature changed from NCD) of Rs.500
crore of SCL to ‘CARE AA+’ (Double A plus) from the existing CARE AA (Double A).
The proposed LTBs shall have a bullet repayment at the end of seven years from the
date of availment. Further, CARE has retained the ‘PR1+’ (PR one plus) rating
assigned to the Short Term Debt (STD) programme upto Rs.500 crore (enhanced from
Rs.400 crore) of SCL for a maturity period upto 90 days, with daily put and call option.
Facilities/Instruments with ‘CARE AA’ rating are considered to offer high safety for
timely servicing of debt obligations. Such facilities/instruments carry very low credit risk.
CARE assigns ‘+’ or ‘-’ signs to be shown after the assigned rating (wherever necessary)
to indicate the relative position within the band covered by the rating symbol.
Facilities/Instruments with ‘PR1+’ rating would have strong capacity for timely payment
of short-term debt obligations and carry lowest credit risk. ‘PR1+’ is CARE’s highest
rating for short term facilities/instruments.
The long term rating has been upgraded from CARE AA (Double A) to CARE AA+ (Double
A plus) in view of SCL’s significant improvement in performance in FY09 despite volatile
economic environment, increased amount of liquid funds invested in mutual funds &
bank fixed deposits (Rs.1265.4 crore as on Mar.31, 2009), continuously having
comfortable debt-servicing parameters, achieving largest market share in Northern
region and significant advancement in ongoing projects. The ratings assigned to SCL also
draw strength from its long & satisfactory track record with rich experience of its
promoters, qualified management team, increasing capacity & high capacity utilisation,
strong operational efficiency on the back of backward integration (limestone & power)
and usage of pet coke, highly energy efficient cement plants, successful track record in
project implementation, satisfactory financial position with high & steady growth in
topline and bottomline, high profitability margins, improving cash accruals, comfortable
liquidity ratios, SCL’s position as one of the lowest cost cement players in the country,
earning modest level of additional income through sale of power & carbon credit and
Government support & thrust on infrastructure creation. However, the ratings also factor

CREDIT ANALYSIS & RESEARCH LIMITED

in capacity additions expected to be on-stream in FY10 leading to expected decline in
cement price and increasing competition & consolidation in the domestic industry. Trend
in sales price realisation in the context of huge capacity addition expected,
Governmental policy regarding infrastructure development and volatility in crude oil &
pet coke prices shall remain the key rating sensitivities.
Company Background
SCL, incorporated in 1979 and belonging to Shri B.G.Bangur - H. M. Bangur faction of
Bangur family of Kolkata, is engaged in cement manufacturing with its seven plants
(aggregate capacity – 7.9 mn tonnes p.a.) - two at Beawar and five at RAS in Rajasthan.
The company has established backward linkages with captive limestone mines and
Captive Power Plants (CPPs), the major cost constituents in cement manufacturing. SCL
is further augmenting its captive power capacity at RAS and adding grinding capacity at
Suratgarh, Rajasthan & Roorkee, Uttaranchal. In FY09, the company had also started
selling surplus power generated at its captive facilities.
SCL’s cement plants are considered among the most energy efficient plants in the
country and the company is one of the lowest cost cement players in the country. All the
cement plants have OHSAS 18001, ISO 9002 and ISO 14001 certification. Over the
years, the company has obtained various awards and accreditations.
Operations
SCL generally produces four grades of cement, viz., 53/ 43 / 33 grades Ordinary
Portland Cement (OPC) & Pozzolana Cement (PPC) and sells under the established brand
names ‘Shree’, ‘Shree Ultra’, ‘Bangur cement’ and ‘Tuff Cemento 3566’. These brands
are well established and have gained wide acceptance in Northern and Central India
where SCL operates. During FY09, the market share of the company continued to
increase to 4.3% in India and about 19% in northern region (as against 3.3% & 16%
respectively); thereby catapulting the company to numero uno position in the region.
SCL extended its streak of high performance to FY09 with capacity utilisation continuing
to remain above unity owing to blending of fly-ash with cement. Total net sales in FY09
grew by 28.6% over FY08 on account of surge in cement sales (by 24.8%) and sale of
surplus power amounting to Rs.80.6 crore (as against nil in FY08). The increase in
cement sales was due to increase in sales quantity and higher Average Net Sales Price
Realisation (ANSPR). The company was able to post 22.7% rise in quantity of cement
sold, despite some over-supply concerns in northern region, owing to its strong brand
image and better & concentrated marketing efforts. The realisations went up in view of
increased amount (98% in FY09 against 86% in FY08) of sales being carried out on free-
on-road basis (i.e., inclusive of freight charges), in line with the industry trend. The
company has started selling surplus power generated at its captive power units to
Rajasthan Power Procurement Centre (RPPC – a nodal agency incorporated by

CREDIT ANALYSIS & RESEARCH LIMITED 2

Government of Rajasthan) and on Indian Energy Exchange, India’s first automated
online electricity trading exchange platform.
The major cost drivers are expenses on raw material, power & fuel and freight, which
together comprised 77% of cost of sales in FY09. Limestone, the primary raw material, is
sourced from captive mines located in close proximity to the cement plants and
accounted for 6.5% of the aggregate cost of sales incurred during FY09. The company
has been able to reduce average cost of limestone, over the years, on account of
increased usage of better quality limestone available from mines at RAS. Fly-ash
generally comprised a major share (24.5% in FY09) of aggregate raw material expenses
in view of high transportation cost, despite the material being available free. The
transportation cost increased substantially during FY09 owing to increase in fuel prices,
surge in dispatched volume & increased sales on free-on-road basis. High transportation
cost is the main reason for SCL setting up grinding units at locations in close proximity to
market as well as fly ash sources.
SCL’s plants are among the most energy efficient plants in the world in terms of
electricity and fuel consumption per tonne of cement. SCL continued to improve on this
front and electricity consumption decreased further to 76.72 kWh/tonne in FY09 (from
79.35 kWh/tonne in FY08), which is significantly lower than the industry average of 100
kWh/tonne and benchmark level of around 85 kWh/tonne for major cement players). On
the fuel front, SCL has been saving significantly due to use of pet coke (cheaper with
high calorific value) both in power and cement plants. The petcoke remnants of CPP are
used for substituting the original material required in clinkerisation process, thereby
reducing aggregate consumption cost of petcoke. Despite this, the power & fuel
expenses have been witnessing an uptrend in the past few years owing to increase in
business volume coupled with increase in pet coke and petroleum prices. However, given
the fact that SCL’s entire fuel requirement is met through pet coke, the company is
placed relatively in a better position as compared to its peers using coal as fuel. Further,
the company also earned carbon credits and sold off substantial portion of the same in
FY09, thus adding to its bottomline.
New Project
SCL is, currently, setting up various projects comprising expansion of clinkerisation
capacity, setting up two grinding units - one at Suratgarh (Rajasthan) & another at
Roorkee (Uttaranchal), and five CPPs (three are coal based and two are waste heat
recovery based) at existing cement plant sites in RAS and Beawar in Rajasthan.
Involving a total outlay of Rs.1136 crore, the projects are being funded at a debt-equity
ratio of 0.36:1. Financial closure has been achieved and the company has spent Rs.554
crore on the projects till April 30, 2009. The projects are likely to be completed by
March, 2010, in phases, with clinkerisation plant expected to commence soon.
CREDIT ANALYSIS & RESEARCH LIMITED 3
 Financial Performance
During FY09, cement industry witnessed huge capacity addition, growth in demand and
more or less stable prices. The growth in demand and strong brand image helped the
company to post 24.8% rise in cement sales in FY09 over FY08. This, coupled with sale
of surplus power led total net sales to grow by 28.6% during the aforesaid period (CARG
of 38.4% during FY07-FY09). However, PBILDT witnessed a relatively lower y-o-y growth
of 11.7% (CARG of 26.3% during FY07-FY09) owing to relatively higher growth in power
& fuel and freight expenses (on account of rise in crude oil prices). Accordingly, PBILDT
margin, though declined, was satisfactory in FY09.

Capital charge declined during the period under consideration on account of substantial
reduction in depreciation (as no new assets was capitalised during the year). Accordingly,
PAT (after defd. tax) increased by about 68% over FY08 and PAT margin improved. GCA
also improved and was comfortable at Rs.784.9 crore in FY09 vis-à-vis term loan repayment
obligation.
Overall gearing and long-term debt equity ratios improved, as on Mar.31, 2009, and
continued to be comfortable. The company had an investment of Rs.1,265.4 crore in
mutual funds and fixed deposits as on Mar.31, 2009 indicating use of most of the
borrowings for arbitrage purpose. If this is adjusted, overall gearing would become
below unity (0.19 as on Mar.31, 2009). Interest coverage has generally been
satisfactory.
Liquidity position of SCL, as reflected in current ratio of 2.45 as on Mar.31, 2009, was
satisfactory. Further, the investment of Rs.1,265.4 crore lying in mutual funds and
unencumbered fixed deposits, as on Mar.31, 2009, also indicate comfortable liquidity
position of the company.

CREDIT ANALYSIS & RESEARCH LIMITED 4

Financial Results
(Rs. crore)
For the year ending / As on March 31, 2007 2008 2009
(Audited)
Net sales 1403.1 2108.2 2710.9
Total income 1424.2 2177.1 2787.3
PBILDT 614.0 877.3 979.7
Interest & finance charges 12.1 52.7 77.4
Depreciation 317.2 407.9 205.4
PAT (before defd. tax) 200.7 325.6 579.5
PAT (after defd. tax) 273.4 340.3 571.4
GCA 517.9 733.5 784.9
Total capital employed 1498.1 2166.7 2695.8
Equity share capital 34.8 34.8 34.8
Tangible networth (net of revaluation
reserve) 566.7 836.0 1199.6
Key Ratios
Growth in Total income (%) 104.00 52.86 28.03
Growth in PBILDT (%) 148.44 42.89 11.68
Growth in PAT -after defd. tax (%) 292.92 24.47 67.91
PBILDT/Total operating income (%) 43.14 40.60 35.40
PAT (before defd. tax)/Total income (%) 14.09 14.96 20.79
PAT (after defd. tax)/Total income (%) 19.20 15.63 20.50
ROCE - operating (%) 25.31 26.52 32.65
RONW (%) 56.70 48.35 56.14
Debt equity ratio 1.59 1.55 1.03
Overall gearing ratio 1.64 1.59 1.25
Interest coverage 24.53 8.91 10.01
Total debt / Available NCA 2.20 1.94 1.73
Current ratio 2.13 2.92 2.45
Average collection period (days) 5 6 6
Average finished goods inventory period
(days) 7 6 5

Adjustments
i) Although the unit IV was commissioned on Mar.26, 2007, SCL charged depreciation on plant &
machinery of unit IV for six months in FY07 amounting to Rs.110.8 crore. Similarly, depreciation
charged on sixth plant, in FY08, was in excess by Rs.70.9 crore, as the plant was in use for only 9 days.
The effect of aforesaid additional depreciation has been negated in our analysis.
ii) Fixed assets revalued earlier was restated at their historical cost in FY08. Additional depreciation (upon
revaluation of fixed assets) was charged to P&L A/c and the corresponding amount was transferred to
Special Reserve from Revaluation Reserve. As such treatment was ignored in FY07, no adjustment has
been made in FY08 results for the purpose of this analysis.
iii) Sundry creditors for capital goods substituted by long term loans have been excluded from current
liabilities for the purpose of calculation of current ratio.
iv) Security deposits from customers have been considered as long-term liability as these are interest
bearing long-term deposits.
Industry Review
The Indian cement industry, with installed capacity of 217.8 mn tonnes p.a. (mtpa), is
the second largest in the world following China, accounting for about 5% of world

CREDIT ANALYSIS & RESEARCH LIMITED 5

production. The industry is further divided into five main regions viz. north, south, west,
east and central as cement is a freight intensive industry rendering transportation of
cement over long distances uneconomical.
The demand for cement continued to grow during FY09 on the back of increased
infrastructure spending by the Government of India and new industrial projects being
implemented, despite slowdown in real estate sector, the major consumer for cement.
Consequently, the cement production recorded a growth of 7.8% during the year (from
168.3 mn tonnes in FY08 to 181.4 mn tonnes in FY09) with 9.9% growth in northern
region. However, consumption in the northern region increased only by 2.3%, as against
8.4% for the whole country.
During FY09, the northern region witnessed 9.6% growth in dispatches (to 41.1 mt), as
against all-India average of about 8%, on the back of increased construction activity for
upcoming Commonwealth games in 2010 (to be held in New Delhi). The prices declined
marginally during August-November, 2008, but increased back to March, 2008 level by
March, 2009, in line with the trend witnessed in the industry. On the other hand, the
industry faced turbulence and unpredictability owing to significant volatility in crude-oil
and pet coke prices. SCL, currently, is market leader in the northern region followed by J
K Cement, Ambuja Cement and Grasim.
Cement sector is likely to continue to grow, though at reduced rate (at about 8.6% in
FY10), given the Government’s thrust on infrastructure. GoI has identified infrastructure
creation as an important tool to fight ongoing slowdown in the economy and have
unveiled quite a few measures providing thrust to the core sectors including cement
sector. RBI has also taken measures to increase investible resources in the economy in
order to encourage investment. These measures together have helped in bolstering the
demand for the cement and prices have witnessed an uptrend alongwith increased
dispatches, which is a positive sign for the sector. The momentum is likely to continue
with more such measures expected to be implemented. However, large capacities are
also expected to come on-stream during FY10 resulting in over-capacity, which might, in
turn, affect prices. In the long term, the level of consolidation and growth in regional
demand will also play a crucial role in price determination.
June 2009

Disclaimer
CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or
recall the concerned bank facilities. CARE has based its ratings on information obtained from sources believed
by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness
of any information and is not responsible for any errors or omissions or for the results obtained from the use of
such information. Most entities whose bank facilities are rated by CARE have paid a credit rating fee, based on
the amount and type of bank facilities.

CREDIT ANALYSIS & RESEARCH LIMITED 6

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