Shares in DCM Shriram hit a new high of Rs 1,199 on the BSE after they rose 18 percent thanks to large volumes in intraday trading on Monday in an otherwise weak market. As of 1:11 p.m., the stock was trading 14 percent higher at Rs 1,157 compared to a 1.3 percent drop on the S&P BSE Sensex. Trading volumes over the counter tripled, with a combined 2.34 million shares changing hands on NSE and BSE.
In the past month, DCM Shriram’s shares have soared 65 percent, compared to a 0.20 percent rise on the Sensex. The company reduced its net debt to Rs 180 crore on March 31, 2021, from Rs 1,623 crore as of March 31, 2020. The debt reduction was led by lower sugar inventory and significantly lower pending fertilizer subsidy. A sensible approach to capital spending and working capital across all companies also led to lower net debt.
DCM Shriram is a diversified company with interests in the agricultural value chain (urea, sugar, seeds and marketing of agricultural inputs) and the chloro-vinyl chain (chlor-alkali and PVC). In addition to these, the company participates in other related businesses to take advantage of vertical integration, such as Fenesta Building System (UPVC doors and windows), cement (produced in its Kota integrated plant) and PVC compounds (50:50 JV with Axiall Inc., United States).
On June 29, 2021, the rating agency ICRA had upgraded the facilities based on funds and term loans from DCM Shriram to ICRA AA + from ICRA AA with stable outlook. The rating review takes into account the significant decrease in DCM Shriram’s net debt levels, driven by the improvement in the fertilizer and sugar segment’s working capital cycle, leading to a net debt / OPBDITA of 0.1 x times as of March 31, 2021, and the likelihood that the same will remain comfortable in the future.
The elimination of subsidy accumulation in the fertilizer segment due to the release of an additional subsidy by the Indian government in fiscal year 2021 and the diversion of sugar towards ethanol production leading to lower sugar inventory it will lead to lower working capital requirements.
The company has completely exited bulk fertilizer sales under the Shriram Farm Solution (SFS) business and is focused on selling value-added products, which has also resulted in improved profitability and restraint in the cycle of working capital. As a result of all these factors, the overall working capital requirement and working capital debt has decreased and is expected to remain lower than in recent years, which should lead to better capitalization and coverage ratios.
The rating upgrade also influences the improvement in the company’s cost structure driven by the commissioning of the 66 MW power plant in Kota in fiscal 2020 and the further improvement expected after commissioning. of the 120 MW power plant in Bharuch in fiscal year 2020.
In the future, revenues, earnings and cash accumulation are expected to increase due to the anticipated improvement in the conduct of the chlor-alkali business of the Electrochemical Unit (ECU), the good performance of the sugar segment and the increase of the scale and profitability of the company’s SFS business, said ICRA in justification of its rating.