Gujarat Ambuja Cements Ltd was yesterday downgraded by Credit Rating Information Services of India Limited (Crisil). This is expected to put pressure on the ratings of other, less efficient cement companies.
Crisil attributed the downgrade to a deterioration in Gujarat Ambuja's financial risk profile following its aggressive diversification and lower realisations.
The company's Rs 200-crore non-convertible debentures were downgraded to AA+ from AAA. Crisil, however, reaffirmed the AAA rating on the company's fixed deposit programme, and the P1+ rating on its Rs 90-crore commercial paper.
This means that the company's long-term debt has been downgraded but the short-term debt has been left untouched. The risk on long-term debt is higher than that on short-term debt. "The rating revision is on account of a deterioration in financial risk profile of the company on account of the aggressive growth over the last few years and the recent investment in the erstwhile Modi Cement Ltd," a statement from Crisil said.
The rating also considered the decline in prices in Gujarat and the export markets which account for more than half of the company's sales. The rating considered the proactive management, the pricing flexibility available (on account of competitive cost structure) in the current situation of oversupply and its strong brand image.
The company is one of the largest cement manufacturer in the country. It has an installed capacity of 5.0 million tonnes per annum. GACL reported gross sales of Rs 1,131 crore and a net profit of Rs 132 crore for the year ending June 30, 1998. The scenario in the cement industry is pretty grim. Sources claim that the FIs have already classified a lot of mini cement plants as non perfroming assets. Even the big cement plants in the north are not doing well.
