Andhra Cements Limited (ACL) — Announcement

📢 Key Event
India Ratings places ACL's bank facilities on Rating Watch with Developing Implications pending proposed amalgamation with parent SCL.

🔄 What Changed

Rating placed on Watch (previously IND BBB+/Negative as of 12 August 2024); SCL's net leverage improved to 6.2x (9MFY26) from 9.4x (FY25); ACL swung from FY25 losses of ₹292 million EBITDA to 9MFY26 positive EBITDA of ₹72.3 million; SCL consolidated sales volumes grew 12% yoy to 4.3 million tonnes.

🔮 What's Next
Amalgamation expected to complete within 9-12 months subject to NCLT and regulatory approvals; Management expects valuation exercise conclusion in near term; SCL consolidated capacity projected to increase to 11.75 million tonnes by FY27; ACL capacity share of SCL expected to increase to ~27% by end-FY27 from 21% as of March 2025.

💡 Investor Takeaway
The Rating Watch reflects uncertainty pending amalgamation approval; upon completion, ACL's debt transfers to SCL (rated one notch higher), but SCL faces stretched liquidity and elevated leverage despite improved profitability and must execute capex discipline to restore credit metrics.

⚠️ Risks
Stretched liquidity with 90% utilization of fund-based working capital limits; SCL's Negative Outlook reflects liquidity risk and potential deleveraging challenges from subdued cement pricing environment; Large capex commitments FY26-FY27 expected to keep leverage elevated; Gulf geopolitical situation likely to increase input costs in 1QFY27; Decadal-high supply pipeline and elevated competitive intensity may limit industry's pricing power.

India Ratings placed Andhra Cements Limited's ₹9,869.70 million bank loan facilities on Rating Watch with Developing Implications at IND BBB/A3+, following board approval for proposed amalgamation with parent Sagar Cements Limited. ACL reported modest EBITDA of ₹72.3 million in 9MFY26 and continues requiring financial support from SCL. The amalgamation, expected within 9-12 months, will consolidate the cement business, reduce overhead costs, and transfer ACL's debt to SCL upon completion.

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