Rating Rationale Goldstone Cements Ltd 10-Jan-2019 Brickwork Ratings reaffirms the ratings for the Bank Loan Facilities of ₹ 334.92 Crores of Goldstone Cements Ltd (GCL or ‘the Company’) and assigns rating for the new short term facility of ₹ 4.37 Crs.

Particulars Amount Amount Ratings* (₹ Crs) (₹ Crs) Facility Rated Tenure Previous Previous Present Present (6-Nov-2017)

BWR BBB- Reaffirmed at BWR BBB- Long (Pronounced as BWR Triple (Pronounced as BWR Triple B Fund Based 358.44 334.92 Term B Minus) Minus) (Outlook:Stable) (Outlook:Stable)

Assigned BWR A3 Non – Fund Short 0.00 4.37 - (Pronounced as BWR Single A Based Term Three)

Total 358.44 339.29 ₹ Three Hundred Thirty Nine Crores Twenty Nine Lakhs Only *Please refer to BWR website www.brickworkratings.com/ for definition of the ratings ​ ​ Complete details of Bank facilities is provided in Annexure-I

Ratings: Reaffirmed at BBB- (Stable) / Assigned A3 Rationale/Description of Key Rating Drivers/Rating sensitivities: BWR has principally relied upon the audited financial results up to FY18, provisional statement of H1FY19, projected financials upto FY20, publicly available information and information/clarification provided by the Company’s management.

The rating continues to derive strength from the business experience of the promoters, presence of linkage for raw materials (Limestone mining rights in the Company name), availability of various subsidies and fiscal incentives under North East Industrial and Investment Promotion Policy scheme and further the Company has built brand image “Black ” with support of brand image and retail network and improvement in operating cash flow in FY18 and further in H1FY19. However, the rating is constrained by the diversification of the major promoters into the relatively new business area of cement and threat of competition from larger players, however, partially offset by strengthening its senior management by inducting key management personnel from cement industry and competitive advantage over existing players in the form of subsidies/incentives from Government (State/Center) and tight liquidity in the

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system. Going forward, the Company’s ability to achieve the projected sales turnover and profitability margin, maintaining healthy gearing and efficiently managing working capital will be the key rating sensitivities. Description of Key Rating Drivers Credit Strengths: ● Long track record of promoters and The Company: The promoters have extensive experience ​ in running business for more than decade business, however, as the major promoters have newly stepped in to cement sector, risk relating to new business remains. However, the Company has strengthened its senior management personnel by way of inducting experts from cement industry. ● Brand Image & Dealership network : In a very short span of time (Within 2 years), GSL has ​ been able to establish its brand “Black Tiger Cement” in the markets of North East Region and has been able to place its brand at par with leading cement brands through lots of initiatives on the side of brand and product promotion during last two years. Moreover, addition of a robust network of more than 500 dealers and 2000 retailers in different areas of the North East Region in very short span. ● Availability of various subsidies & fiscal incentives under the NEIIPP : The Company is eligible for various incentives and subsidies under North East Industrial and Investment Policy like Central capital investment subsidy, excise duty subsidy, transport subsidy, income tax subsidy, interest subsidy etc. which provides competitive advantage over large players and established brand in the northeast region. ● Raw material Linkage: It is supported with availability of raw material (Limestone & Coal) ​ around the plant location. Currently, the Company has own limestone mining rights and very close proximity to other raw materials with established arrangements. ● Overall Performance in FY18 and H1FY19: Being in first full year operation, its capacity ​ utilization has improved as a result its overall finance performance has improved in FY18 against FY17. Due to lack of infrastructure in NE region and Central Government’s initiatives has provided support for infrastructure growth and housing development has witnessed strong demand for its product. As a result , it could achieve sales of Clinker & Cement (2,70,265MT) in H1FY19 against Clinker & Cement of 1,88,907 MT in H1FY18,registering a healthy growth of about 43% of the corresponding half year,mainly driven by substantial increase in cement production (The details are in Annexure II & III). Credit Risks: ● Operating Risk: The cyclical nature of the cement industry and the moderate pricing flexibility ​ in a highly competitive market with large players. ● Tight liquidity position : As reflected in working capital utilization was at the range of 90-95% ​ for last one year due to delay in providing additional facility for maintaining enough raw material like coal, gypsum etc. as a result its net working capital cycle was elongated to 179 days in FY18 (FY17: 1054 days due to first year of operation). Moreover, the Company has positive operating cash flow and further it is improved in H1FY19. However, the promoters have infused equity to support working capital needs. Also, the promoters has ability to provide capital as and when required.

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Analytical Approach For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).

Rating Outlook: Stable BWR believes the Goldstone Cements Ltd. business risk profile will be maintained over the medium ​ ​ term. The ‘Stable’ outlook indicates a low likelihood of rating change over the medium term. The rating outlook may be revised to 'Positive' in case the revenues and profit show sustained improvement. The rating outlook may be revised to 'Negative' if the revenues go down and profit margins show lower than expected figures.

About the Company Goldstone Cements Limited was incorporated in 2007; its corporate office is located in and cement unit is located in Mynkree Village, Jaintia hills, Meghalaya. Initially it was promoted by MPJ and More groups. During FY17, the MPJ group has taken over the Company and management control. The Company is into manufacturing of cement and current capacity is 1700TPD of Clinker and 2615TPD of cement (Includes Pozzolana Portland cement and Ordinary Portland cement). Also, it has captive power plant of 10 MW.

Company Financial Performance The Company has recorded operating income of ₹ 216.82 Crs and Operating profit of ₹ 62.68 Crs in FY18. The Company’s tangible net worth was at ₹ 256.26 Crs in FY18, up from ₹ 223.85 Crs in FY17 and total debt equity stands at 1.71X in FY18. On provisional basis (H1FY19), although it is monsoon season, the Company could achieve more than 50% of projected revenue for FY19. Key Financial Indicators

Key Parameters Units 2017 (A) 2018 (A)

Operating Revenue ₹ Crs 34.66 216.82 EBITDA ₹ Crs 20.76 62.68 PAT ₹ Crs (49.70) (31.35) Tangible Net worth ₹ Crs 223.71 256.14 Total Debt/Tangible Net worth Times 1.59 1.33 Current Ratio Times 1.08 1.19

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Rating History for the last three years

S. Instrument Current Rating (2018) Rating History No /Facility

Type Amount (Long Term/ Rating 6-Nov-2017 2016 2-Jan-2015 ( Crs) Short Term) ₹

BWR BBB- BWR BBB- BWR BB 1 Fund Based Long Term 334.92 - (Stable) (Stable) (Stable)

Non Fund 2 Short Term 4.37 BWR A3 - - Based

Three Hundred Thirty Nine Crores and Twenty Nine Lakhs Total 339.29 ₹ Only

Hyperlink/Reference to applicable Criteria ● General Criteria ● Approach to Financial Ratios ● Infrastructure Sector ● Short Term Debt

For any other criteria obtain hyperlinks from website

Analytical Contacts Media

[email protected] Vidya Shankar Director - Ratings Relationship Contact [email protected] [email protected]

Phone: 1-860-425-2742

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Goldstone Cements Limited Bank & Loan wise break up Annexure I Type of Facilities Bank of Baroda Bank of Dena Bank Union Bank of India

In ₹ Crs (03-4-18) (13-8-18) (28-11-17) (04-04-18)

Cash Credit 24.50 15.00 14.00 23.00

Fund Based Term Loans 68.36 67.63 59.83 62.60

Total (Long) 92.86 82.63 73.83 85.60 Letter of Credit (2.00) 0.00 0.00 2.00 (Sublimit of CC) Non Fund Based Bank Guarantee 2.00 0.00 0.00 0.37 Total (Short) 2.00 0.00 0.00 2.37

Total (Long & Short) 94.86 82.63 73.83 87.97

Goldstone Cements Limited Annexure II Units H1FY18* H1FY19* % of Growth Clinker Production MT 1,74,989 2,29,589 31.20% Cement Production MT 46,908 1,90,279 305.64% Clinker & Cement Sale MT 1,88,907 2,70,265 43.07% *The information have been provided by the company and half yearly numbers are on a provisional basis

Goldstone Cements Limited Annexure III Units H1FY18* FY19* % of Achievement

Gross Sales ₹ Crs 200.58 378.92 52.93% EBITDA ₹ Crs 54.44 89.03 61.15% PAT ₹ Crs 7.39 10.39 71.13% *The information have been provided by the company and half yearly numbers are on a provisional basis

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About Brickwork Ratings Brickwork Ratings (BWR), a SEBI registered Credit Rating Agency, accredited by RBI and empaneled by NSIC, offers Bank Loan, NCD, Commercial Paper, MSME ratings and grading services. NABARD has empaneled Brickwork for MFI and NGO grading. BWR is accredited by IREDA & the Ministry of New and Renewable Energy (MNRE), Government of India. Brickwork Ratings has Canara Bank, a leading public sector bank, as its promoter and strategic partner. BWR has its corporate office in Bengaluru and a country-wide presence with its offices in Ahmedabad, Chandigarh, , Hyderabad, Kolkata, Mumbai and New Delhi along with representatives in 150+ locations.

DISCLAIMER

Brickwork Ratings (BWR) has assigned the rating based on the information obtained from the issuer and other reliable sources, which are deemed to be accurate. BWR has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented “as is” without any express or implied warranty of any kind. BWR does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by BWR should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents. BWR has the right to change, suspend or withdraw the ratings at any time for any reasons.

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