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 Tiger” 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 1 10 Jan 2019 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. 2 10 Jan 2019 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 Kolkata 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 3 10 Jan 2019 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 4 10 Jan 2019 Goldstone Cements Limited Bank & Loan wise break up Annexure I Type of Facilities Bank of Baroda Bank of India 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 5 10 Jan 2019 For print and digital media The Rating Rationale is sent to you for the sole purpose of dissemination through your print, digital or electronic media. While it may be used by you acknowledging credit to BWR, please do not change the wordings in the rationale to avoid conveying a meaning different from what was intended by BWR. BWR alone has the sole right of sharing (both direct and indirect) its rationales for consideration or otherwise through any print or electronic or digital media. Note on complexity levels of the rated instrument: BWR complexity levels are meant for educating investors.