Final Phase of CG's Palpa Cement's Construction is Underway; Total Investment of the Project is Rs. 14.73 Million at a Debt:Equity of 75:25

CG Cement Industries - Palpa Private Limited has reached the final stage of construction of the cement industry being built with an investment of Rs. 14,730 million rupees, which is being funded in a debt-to-equity mix of 75:25.

The funding arrangements for the company’s construction are not yet finalized and construction is yet to start. Till mid-April 2022, the company's physical and financial progress is 85 to 90 percent.

The company has been rated by the rating agency ICRA Nepal for a bank loan of Rs. 12,547 million rupees. It has got LB+ rating for long-term loans of Rs. 9,547 million and an A4 rating for short-term loans of Rs. 3 million.

The relative greater project cost compared to other companies operating on a comparable size is the key factor limiting the ratings given to CG Palpa. Although the clinkerization unit is almost ready for commercial operations, the current challenges facing the cement industry are anticipated to have an influence on stabilization and profitability during the unit's early years of operation.

Demand and pricing dynamics for the company would continue to be impacted by cyclical economic patterns and any negative changes in the cost of key raw materials. The project is still subject to execution and financial risks related to its grinding unit, whose construction has not yet begun and for which no money has yet been secured.

Given the company's substantial dependence on debt (about 75% of the cost of the clinkerization project), its cash flows and ability to service its debts could be put under pressure in the face of scaling issues and an environment of rising interest rates, demanding promoter support.

With vertical rolling mill (VRM) technology, the cement industry can produce 2800 tons of cement per day or 2950 tons per day. The business intends to market OPC and PPC cement.

Key Strengths

• Experienced/ resourceful promoters; operational synergies could arise from being part of the Chaudhary Group
• Relatively lower limestone cost could aid competitive pricing

Key Weakness

• Relatively higher project cost
• Execution and funding risks for grinding unit
• Debt coverage indicators likely to remain stretched during initial years
• Intense industry competition and declining margins across the industry amid demand slowdown
• Vulnerability to cyclicality and seasonal demand; risk of regulatory changes

About the company:

CG Cement Industries Palpa Private Limited (CG Palpa), a 2011 incorporation, is a vertical rolling mill (VRM)-based greenfield cement production operation with a capacity of 2,950 TPD for clinker and 2,800 TPD for cement. The mines are situated around 4-5 kilometers from the factory, whereas the plant is being built near Sardewa, Palpa district.