ICRA Nepal assigned Ratings to Sarbottam Cement Private Limited with negative implications

ICRA Nepal has placed the ratings assigned to the bank loan limits of Sarbottam Cement Private Limited (Sarbottam or the company) on watch with negative implications. These ratings include the rating of [ICRANP] LBBB+@(pronounced ICRA NP L triple B plus) assigned to the company’s long-term loans and the rating of [ICRANP] A2@(pronounced ICRA NP A two) assigned to the company’s short-term loans (including non-fund based limits).

The ratings for Sarbottam have been placed on watch with negative implications in the light of the business disruptions caused  by the Covid-19  triggered  lockdown and  the expected impact  of the  pandemic on the  Nepalese economy and hence on the demand for construction  materials (including  cement)over  the  medium  term. Subdued  demand  would result in increased working capital intensity, lower scale economies along with pressure on margins and deterioration in capitalisation and coverage indicators. The rating concerns along lowered debt coverage indicators would remain even higher for players like Sarbottam, given its recent capacity enhancements, which has led to sizeable long-term debts. 

Credit strengths

• Strong operational profile
• Diverse  sales channel and good demand leading to high capacity utilisation and healthy sales  growth
• Healthy  profitability  indicators
• Experienced promoters/management; operational synergies from being part of the Saurabh Group

Credit challenges

• Externalities  brought  on  by  Covid-19  could  affect  key  operating  parameters;  relief measures  provided  so  far  only provide temporary respite.
• High working capital intensity
• Decreased sales realisation and increased debts leading to moderation in coverage ratios
• Intense industry competition
• Vulnerability to cyclicality and seasonal demand
• Risk of regulatory changes

About the company 

Incorporated in October 2010, Sarbottam Cement Private Limited (Sarbottam) is involved in the production and selling of clinker and cement. Initially established as a plant with a clinkerisation capacity of 1,190 TPD, the capacity currently stands at 2,990 TPD for clinker and 1,200 TPD for grinding. The shareholding of the company is held by seven individuals, of which four promoters belong to the Saurabh Group (62% stake), a prominent business house of Nepal. Its factory is located at Ramnagar VDC-05, Nawalparasi district. The company currently manufactures OPC and PPC under the brand Sarbottam.

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