Fitch Affirms UltraTech Cement With ‘BBB-‘ Ratings, Stable Outlook

Fitch Ratings affirmed UltraTech Cement Ltd.’s long-term foreign and long- term currency issuer default with the lowest investment grade rating of ‘BBB-‘ with a ‘stable’ outlook.


The credit rating agency also affirmed the company’s $400 million, 2.8% senior, unsecured noted due in 2031 with the same rating of ‘BBB-‘.

“The notes are rated at the same level as UltraTech’s IDRs because they represent its direct, unconditional, unsecured and unsubordinated obligations,” the agency said.

UltraTech’s ratings mirror its global standing as the third-largest cement producer globally, excluding China, and the leading producer in India.

Fitch stated that the competitive edge is supported by robust branding and cost-effective operations, which contribute to maintaining profitability above the industry average. Furthermore, UltraTech’s financial structure, enable it navigate industry cyclicality, despite having less geographic diversification than larger global peers.

Stable OutlookThe stable outlook indicates Fitch’s expectation that UltraTech will maintain a comfortable leverage headroom, even with increased expansion capex following the end March 2023.

“Significant debt reduction over FY21-22 has strengthened its financial structure, and healthy Ebitda generation in FY23 despite moderation in margins has helped it to maintain comfortable financial leverage,” Fitch said.

Key Rating Drivers

  1. Leading Market Position: UltraTech Cement has a capacity of 137.9 million tonne per annum and a domestic market share of 22% by installed capacity. The company is also planning to expand its capacity to 187 MTPA by 2027.

    The company also commands a pricing premium over smaller brands. Fitch sees UltraTech’s robust brand as a crucial competitive advantage, providing price and margin stability in the face of cyclical end markets and energy price fluctuations.

  2. Low Cost Leader: UltraTech maintains a higher Ebitda/tonne compared to Indian peers due to cost advantages stemming from captive limestone mines, strategic locations, and economies of scale.
  3. Comfortable Leverage Headroom: Fitch expects cement demand growth in India to be sustained and for energy prices to normalize. The agency believes that UltraTech’s higher expansion capex will lead to moderately negative free cash flow over FY24 and FY25, but its rising Ebitda generation will help keep Ebitda net leverage below 1.0 times, comfortably below Fitch’s negative rating action threshold of 2.5 times.

Additionally, UltraTech’s stronger credit profile than its parent Grasim Industries Ltd., and its strong record of integrating attractively priced acquisitions remain strong drivers, said Fitch Ratings.

Shares of the company were trading 0.24% higher at Rs 8,788.10 a piece, after the rating affirmation was announced. This compared to the 0.67% rise in the Nifty 50 as of 1:55 p.m.

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