Andhra cements has been placed on Rating Watch with Developing Implications by India Ratings and Research following the proposed merger with its parent company Sagar Cements Limited. The rating agency assigned IND BBB/Rating Watch with Developing Implications for long-term facilities and IND A3+/Rating Watch with Developing Implications for short-term facilities on the company's bank loan facilities worth INR9,869.70 million.

Rating Action Details

The Rating Watch placement follows the in-principal approval by the boards of directors of both Sagar Cements Limited and Andhra Cements for the proposed amalgamation. The scheme remains subject to requisite statutory, regulatory, and shareholder approvals, including approval from the jurisdictional National Company Law Tribunal.

Strategic Rationale for Merger

India Ratings continues to apply a top-down approach under its Parent Subsidiary Linkage Rating Criteria, given Andhra Cements' strong linkages with Sagar Cements Limited, which holds a 75% stake and is rated IND BBB+/Negative. The proposed amalgamation is expected to simplify and streamline the group's cement business structure, lower overhead costs while eliminating duplicate functions, and rationalize compliance requirements.

Upon completion of the amalgamation, Andhra Cements will cease to exist as a separate legal entity and its debt instruments will be transferred to Sagar Cements Limited. The company's accumulated losses would also reduce tax outflows at the consolidated level. Andhra Cements has a cement capacity of 2.25 million tonnes, accounting for around 21% of Sagar Cements' consolidated capacity as of end-March 2025.

Financial Performance and Support

Andhra Cements reported modest financial performance in the recent period, with the company showing signs of operational recovery. The rating agency believes Andhra Cements may continue to require financial support from Sagar Cements Limited to meet its committed obligations until the completion of the amalgamation.

In addition to its equity stake, Sagar Cements Limited had extended inter-corporate deposits and advances aggregating INR950 million to Andhra Cements as of end-March 2025, demonstrating the parent company's commitment to supporting the subsidiary.

Liquidity and Risk Factors

The rating agency has assessed the liquidity position as stretched, with average utilization of fund-based and non-fund-based working capital limits at around 90% and 85% respectively over the 12 months ended February 2026. However, Sagar Cements Limited maintains available liquidity of around INR0.8 billion as of 9MFY26, supported by fund infusions from promoters, along with sanctioned-but-undrawn bank lines of around INR2.5 billion.

India Ratings expects the industry to face challenges from higher input costs during 1QFY27 due to Gulf geopolitical situations, once existing fuel inventories are depleted. The industry's ability to implement price hikes amid elevated competitive intensity will be crucial for profitability in the coming months.

Company Background

Andhra Cements Limited was acquired by Sagar Cements Limited in March 2023 following approval from the National Company Law Tribunal in February 2023. The company was not operational during FY20-FY23 but commenced operations in 1QFY24. It operates cement grinding facilities with a capacity of 2.25 million tonnes at Durga Cement Works located in Guntur, Andhra Pradesh.

Andhra Cements has received board approval for its proposed merger with holding company Sagar Cements Limited, following a board meeting held on March 30, 2026. The company has formally disclosed this development under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, marking a significant milestone in the corporate restructuring process.

Board Meeting and Regulatory Disclosure

The board of directors accorded in-principle approval for the proposed merger during their meeting on March 30, 2026. Company Secretary G Tirupati Rao communicated this decision to both the National Stock Exchange of India and BSE Limited, fulfilling the mandatory disclosure requirements under securities regulations.

Official Communication Details

The formal disclosure was addressed to the National Stock Exchange of India at Exchange Plaza, Bandra-Kurla Complex, and BSE Limited at P J Towers, Dalal Street, Mumbai. The communication emphasized that the merger remains subject to necessary approvals from regulators and other concerned authorities. The company operates under CIN L26942AP1936PLC002379 with GSTIN 37AABCA9263D2ZQ.

Corporate Structure and Operations

Andhra Cements Limited operates as a subsidiary of Sagar Cements Limited, with its registered office and works located at Durga Cement Works, Durgapuram, Srinagar Post, Dachepalli Mandal, Palnadu District, Andhra Pradesh. The company also maintains a Vizag unit at Visakha Cement Works and its corporate office in Jubilee Hills, Hyderabad.

Merger Structure and Next Steps

The merger will see Andhra Cements integrate with its holding company Sagar Cements Limited. This corporate action represents a consolidation initiative that will bring the subsidiary under the direct operational umbrella of its parent entity. The company will proceed with obtaining necessary regulatory approvals as the next phase of the merger process, ensuring compliance with applicable corporate and securities regulations governing such transactions.