Care Ratings assigns ‘CARE-NP BB’ and ‘CARE-NP A4’ to long-term and short-term bank facilities of Samrat Cement Company

Care Ratings Nepal Limited (CRNL) has assigned Rating of ‘CARE-NP BB’ to the long-term bank facilities and ‘CARE-NP A4’ to the short-term bank facilities of Samrat Cement Company Private Limited (SCPL).

Samrat Cement Company Private Limited (SCPL) is a private limited company, established in 2013, for setting up clinker grinding plant at Dang District of Nepal. The company is presently engaged in manufacturing and selling of cement with grinding capacity of 1,800 MTPD. The company is planning to expand its grinding capacity to 3,600 MTPD and adding clinker plant with capacity of 4,000 MTPD as backward integration, which are expected to come in operation during July 2021.

CRNL has rated two long term bank facilities worth Rs.566.64 Million and Rs.8,106.10 Million each and one short term bank facilities worth Rs.1,000 Million; grading total facilities worth Rs.9,672.74 Million.

The ratings assigned to the bank facilities of Samrat Cement Company Private Limited (SCPL) are constrained by the project implementation and stabilization risk associated with its significantly large-size planned capex, high project D/E ratio of the project, financial closure for the clinker unit and enhanced grinding capacity yet to be achieved, key approvals yet to be obtained for additional capacities, exposure to volatile interest rate, presently moderate scale of operations with low capacity utilization, foreign exchange fluctuation risk related to fuel and raw material price volatility risk. The ratings are further constrained by its presence in a highly fragmented & competitive cement industry.

The ratings, however, derive strength from the experienced promoters in the related field, moderate financial risk profile in the first full year of operation in FY18 (UA, refers to 12-month period ended mid-July 2018), healthy demand of cement products in the country, locational advantage of the plant site & prospecting license of limestone mines and product diversification & own brand.

Timely financial closure of the project, timely completion of the clinker plant & enhanced grinding plant within the cost estimates, satisfactory operations thereafter, managing foreign exchange fluctuation risks and ability of the company to pass through of changes in raw material prices to the customers will be the key rating sensitivities.