Nepal Distilleries Rs 95 crore short and long term loan ratings is LBBB+/A2 assigned by ICRA Nepal

Fri, Jun 26, 2020 11:50 AM on Credit Rating, Latest,

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. 

Credit strengths

  • Strong positioning of the product in rum segment
  • Low working capital intensity
  • Healthy operating profit margin in consolidated rum segment

Credit challenges

  • 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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