The Hindu Business Line : Madras Cements on expansion mode

The details
With the expansion, the company does not expect its total debt to exceed Rs 600 crore.
In the first four months of this financial year, the company has reduced its debt by Rs 125 crore
The company had debentures worth Rs 80 crore, which would be repaid equally in 2007 and 2008.

Chennai , Aug. 9

Madras Cements Ltd, which has taken up an Rs 1,052-crore expansion programme, expects a bulk of its borrowings to take place only after March 2007.

It expects a healthy balance sheet for the year given the surging demand for cement and the increase in prices, according to its Executive Director - Finance, Mr A.V. Dharmakrishnan.

With the expansion, the company does not expect its total debt to exceed Rs 600 crore, which, with a 10-million-tonne a year capacity and its superior operating efficiencies, will not be a problem for the company to service, according to him.

In the first four months of this financial year, the company has reduced its debt by Rs 125 crore and had interest bearing debt as on date of Rs 193 crore. It has short-term debt of Rs 102 crore with an average cost of 6.3 per cent.

Reacting to the downgrading in the rating of its debt instruments by Crisil, Madras Cements rejected the rating and instead got its short-term debt rated by ICRA Ltd, another rating agency. ICRA has assigned "A1+" - the highest rating for short-term debt - for its short-term debt/commercial paper programme.

In a recent rating release, Crisil said that its previous rating factored in an expected improvement in Madras Cements' capital structure based on modest capital expenditure plans. "Madras Cements has announced capital expenditure plans of Rs 10.52 billion (Rs 1,052 crore) constituting 77 per cent of its current total asset base to be funded through debt and internal accruals, without infusion of additional equity. Hence, the company's overall financial profile is expected to remain sub-par for its rating category," Crisil said.

Mr Dharmakrishnan questioned this and said Madras Cements had increased its capacity from 4 lakh tonnes to 60 lakh tonnes a year without infusion of equity. The company had funded all expansions only through a mix of internal accruals and debt. Madras Cements did not see any need right now to go in for equity funds.

During 2000-01, Madras Cements borrowed long-term debt of Rs 175 crore, for which Crisil had given an "AA" rating. At that time, the company's capacity was 30 lakh tonnes and interest bearing debt Rs 479 crore. The capacity had now been increased to 60 lakh tonnes, while the interest bearing debt was only Rs 193 crore.

He said that the company had debentures worth Rs 80 crore, which would be repaid equally in 2007 and 2008. Besides, it had Rs 290 crore as interest-free sales tax loan (through the sales tax deferral scheme that the Tamil Nadu Government had as part of its financial incentive package for major investments). Annual repayment of this would start after 2011.