M. Jaypee Cement Private Limited Rs 98.5 crore loan Ratings placed on watch with negative implications
Fri, Jun 12, 2020 12:30 PM on Credit Rating, Latest,
ICRA Nepal has placed the ratings assigned to the bank loan limits of M. Jaypee Cement Private Limited (MJP or the company) on watch with negative implications. These ratings include the rating of [ICRANP] LBB-@ (pronounced ICRA NP L double B minus) assigned to the company’s long-term loans and the rating of [ICRANP] A4@ (pronounced ICRA NP A four) assigned to the company’s short-term loans
The ratings for M JP 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. With the rising industry competition, M JP already witnessed a major sales decline in FY2019 along with a sharp increase in working capital intensity. Hence, the expected subdued demand over the medium term would aggravate the same, along with higher pressure on margins and deterioration in capitalisation/coverage indicators. The rating concerns along lowered debt coverage indicators would remain even higher for players like MJP, given its already low scalability and relatively weaker operational profile. M JP generally has poor financial flexibility, given the very high working capital borrowings as against the drawing power (~125% as of mid-July 2019). This elevates the rating concerns on liquidity pressures amid the currently developed scenario. The promoter’s ability to support the company’s debt servicing (in case of shortfalls)remains to be seen.
Credit strengths
- Proximity to multiple greenfield units likely to reflect in competitive clinker sourcing
- Track record of equity injection by promoters
Credit challenges
- Externalities brought on by Covid-19 could affect key operating parameters
- Sales remained muted in pre-Covid era; further decline likely due to pandemic
- Stretched working capital cycle leading to weak liquidity
- Debt coverage indicators likely to remain weak
- Intense competition
About the company
Established in 2000, M. Jaypee Cement Private Limited has an installed cement grinding capacity of 0.31 MTPA. The company has mainly been producing Portland Pozzolana Cement (PPC)and Ordinary Portland Cement (OPC)under the three brands of Apex Cement (OPC-33 grade, 43 grade and 53 grade), Buddha Cement (PPC) and Lumbini Cement (PPC). The plant is located at Birpur in Kapilvastu District. The shareholders of M JP include 32 individuals from diverse backgrounds.
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