ICRA Nepal has assigned the long-term rating of [ICRANP] LBBB+(pronounced ICRA NP L Triple B plus) to the NPR 650 million long-term loans of The Nepal Distilleries Private Limited (NDPL or the company). ICRA Nepal has also assigned the short-term rating of [ICRANP] A2 (pronounced ICRA NP A Two) to NDPL’s short-term loans (including non-fund based limits).
The assigned ratings factor in the strong brand and market positioning of NDPL’s flagship product ‘Khukri XXX Rum’ which has a dominant market share in the consolidated rum segment of Nepal. NDPL’s established track record, tested distribution network, consistent revenue growth (notwithstanding the expected deterioration in FY2020 amid Covid-induced disruption), healthy profitability, low working capital intensity and resulting healthy cash generation have been positively factored in the ratings. Further, the duty barrier against import of finished liquor protects domestic players like NDPL against international brands and cheaper imports. The decision by the Government of Nepal (GoN) not to increase the excise duty on 25 UP products for FY2021 (following the duty rise in each of the last three fiscals)is also expected to ease the pricing pressure and prevent demand deterioration over the near term.
- Strong positioning of the product in rum segment
- Low working capital intensity
- Healthy operating profit margin in consolidated rum segment
- Dividend withdrawal to increase gearing and strain liquidity
- Limited product diversification
- Regulatory risk
About the company
Nepal Distilleries Private Limited (NDPL) is a privately held company incorporated in November 1961 as a partnership firm and subsequently converted into a private limited company in August 1980. An old player in the domestic spirits industry of Nepal, NDPL has a single product portfolio comprising its flagship product ‘Khukri XXX Rum’. The company has a dominant market share and enjoys strong brand recognition in the Nepalese rum market. Currently, NDPL’s shares are held by Mr. Sharad Tibarewala and Mr. Basanta Chaudhary (through private investment companies) in the ratio of 80:20. As of mid-April 2020, the company has a single manufacturing unit that does the blending and bottling, with a bottling capacity of 3,000 cases per day. NDPL purchases extra neutral alcohol (ENA), the key ingredient in rum manufacturing, from the suppliers in India as well as domestic sugar mills with in-house distillation capacity.
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