ICRA Nepal has assigned the long-term rating of [ICRANP] LBBB- to the NPR 50-million long-term loans of R.M.C. Cement Private Limited. ICRA Nepal has also assigned the short-term rating of [ICRANP] A3 to the short-term loans worth NPR 555 Million and NPR 100 Million (including non-fund-based limits) of RCPL.
Established in 2009, R.M.C. Cement Private Limited is a cement manufacturing company with an installed grinding capacity of 600 tons per day. The company has mainly been producing the PSC and OPC since 2011. The plant is located in Simara in Bara district, while RCPL’s registered office is in Central Business Park, Thapathali, Kathmandu. RCPL is a family owned business, with Mr. Shrawan Agrawal and his two sons, Mr. Rajesh K. Agrawal and Mr. Vishnu K. Agrawal, holding the entire equity stake. RCPL is part of the RMC Group, which has enjoyed a presence of more than 25 years in the construction materials manufacturing sector, mainly for steel pipes and sheets.
The rating assignment takes into account the healthy demand outlook and strong financial profile of RCPL which is involved in manufacturing of cement through its grinding unit of ~0.2 million metric tons per annum (MTPA). Demand outlook for cement industry in Nepal is good owing to increasing construction activities led by large proposed/ under-construction infrastructure projects in the country. The capital structure and coverage indicators are strong with gearing of 0.2x in mid-July 2018, interest coverage of ~5x and Total debt/OPBITDA of 0.8x times in FY2018. The rating action also takes into consideration the operational synergies that could arise out of the clinker supply arrangements from Palpa Cement Industries P. Ltd. (RCPL’s sister concern), which is expected to start operations soon. This could help lower RCPL’s dependence upon clinker imports and hence maintain competitive positioning.
The ratings, however, are constrained by the intense competitive pressures in the industry with many established players/brands as well as large upcoming mine-based units in the field. ICRA Nepal also notes RCPL’s subdued sales growth in FY2018 and 5MFY2019, which has pressurized RCPL’s return and coverage indicators. This was mainly on account of tightening banking sector liquidity leading to slower loan disbursements and hence decline in level of construction activities. The company’s margins are also exposed to the cyclicality inherent in the cement industry as well as price trends for raw materials and other inputs. The company’s high working capital intensity (NWC/OI of ~ 74% in 5MFY2019) also remains an area of concern. Increased working capital requirements in recent periods would necessitate higher working capital debt and the company’s debt coverage indicators might witness stress amid rising interest rate across the banking sector. Going forward, RCPL’s ability to attain healthy sales growth amid challenges imposed by tightening liquidity, maintain comfortable debt coverage indicators while withstanding competitive pressures and judicious working capital management, will remain the key rating sensitivities.