DCM Shriram Sees CRISIL A1+ Rating Reaffirmed Despite Revenue Dip
Last Updated: Aug 24, 2024 | 5:16 PM IST
In a recent announcement, DCM Shriram shared that CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the company’s commercial paper. This comes as the company faces a challenging financial year.
Financial Performance Update
According to CRISIL Ratings, DCM Shriram’s operating income saw a dip of 5%, sliding to Rs. 10,922 crores in FY24 from Rs. 11,547 crores in FY23. The primary reason for this decline was the poor performance in the Chloro Vinyl segment, which took a substantial hit. This segment experienced a 31% drop in revenue primarily due to declining prices for caustic soda and PVC resins.
Overall, the company’s EBITDA margins shrank to 9.1% in FY24, a stark contrast to the 13.9% margin achieved in FY23. In the first quarter of fiscal 2025, DCM Shriram reported revenues of Rs. 2,876 crores with EBITDA margins settling at 8.6%.
Future Revenue and Profitability Prospects
With the launch of an 850 Tons Per Day (TPD) caustic soda plant, CRISIL Ratings anticipates revenue growth for DCM Shriram to hover around 8-10%. This growth is expected to be driven chiefly by the increased production volume from the new plant. Additionally, operating profitability is forecasted to improve to a range of 10-12% in the medium term, aided by better cost efficiency stemming from new captive power plants.
DCM Shriram’s revenue and profitability are likely to benefit from the diverse nature of its business operations, which contributes to a stable income stream despite challenges in specific segments.
Major Capital Expenditure Projects
The company has successfully wrapped up significant capital expenditure projects, including the 850 TPD caustic soda plant and a 120 MW power plant in the first quarter of fiscal 2025. Meanwhile, the Hydrogen Peroxide and Epichlorohydrin plants are nearing completion. Furthermore, DCM Shriram plans to finish its sugar segment expansion within this fiscal year, with preliminary studies ongoing for a proposed Epoxy plant project.
Financial Risk and Stability
Gross debt is expected to rise due to the increased capital expenses this fiscal year. However, the financial risk profile of DCM Shriram remains robust, thanks to steady cash accruals and solid liquidity. These factors are expected to offset the risks associated with the debt-funded capital expenditure.
Business Strengths and Challenges
DCM Shriram’s rating reflects its strong and diversified business risk profile. The company’s robust financial standing is indicated by its solid debt protection metrics, healthy capital structure, and ample liquidity. These strengths are somewhat balanced by risks associated with fluctuations in the sugar, chlor-alkali, and plastics markets. Additionally, the company is exposed to regulatory changes in the sugar and fertilizer industries.
Company Overview
DCM Shriram is a multifaceted business group with operations spanning various sectors. The company is active in the chloro-vinyl, sugar, and agricultural inputs businesses. In addition to this, it is involved in Fenesta building systems and cement production. The firm operates its chlor-alkali, plastics, urea, and cement businesses from Kota, and manages chlor-alkali operations from Bharuch, where it also has captive power plants. DCM Shriram owns four sugar mills in central Uttar Pradesh and a bioseed division in Hyderabad.
Stock Market Movement
On the stock market front, DCM Shriram experienced a modest increase. The company’s stock rose by 1.34%, closing at Rs. 1177.60 on the Bombay Stock Exchange (BSE) on Friday.
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First Published: Aug 24, 2024 | 5:06 PM IST