ICRA Nepal assigned Bishal Cement Industries and Shubha Shree Jagdamba Cement Mills rating on watch with negative implications
Tue, Jun 9, 2020 2:55 PM on Credit Rating, Latest,
Bishal Cement Industries Private Limited
ICRA Nepal has placed the ratings assigned to the bank loan limits of Bishal Cement Industries Private Limited (BCIPL or the company) on watch with negative implications. These ratings include the rating of [ICRANP] LBB-@ (pronounced ICRA NP L double B minus) assigned to the company’s long-term loans and the rating of [ICRANP] A4@ (pronounced ICRA NP A four) assigned to the company’s short-term loans.
The ratings for BCIPL have been placed on watch with negative implications in the light of the business disruptions caused by the Covid-19 pandemic-triggered lockdown and the expected impact of the pandemic on the Nepalese economy and hence on the demand for construction material(including cement) over the medium term. Subdued demand would result in lower scale economies,increased working capital intensity along with pressure on margins and deterioration in capitalisation and coverage indicators. The rating concerns along lowered debt coverage indicators would remain even higher for players like BCIPL, given its recent capacity enhancement,which has increased its term debt burden.
Credit strengths
- Proximity to multiple greenfield units likely to reflect in competitive clinker sourcing
- Track record of equity injection by promoters
Credit challenges
- Externalities brought on by Covid-19 could affect key operating parameters
- Stretched working capital cycle leading to weak liquidity
- Short track record,coverage indicators generally low
- Intense competition leading to lower realisation and low capacity utilisation
About the company
Incorporated in December 2009, Bishal Cement Industries Private Limited (BCIPL) is a grinding unit with installed capacity of 0.26 MTPA (capacity doubled in February 2019). The company’s shares are held by six individuals from diverse backgrounds and one trading company. BCIPL produces Ordinary Portland Cement (OPC) under one brand and Pozzolana Portland Cement (PPC)under three brands. Its factory is in Mianihiya-4, Rupandehi.
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Shubha Shree Jagdamba Cement Mills Private Limited
ICRA Nepal has placed the ratings assigned to the bank loan limits of Shubha Shree Jagdamba Cement Mills Private Limited. (SSJCM or the company) on watch with negative implications. These ratings include the rating of [ICRANP] LBB+@ (pronounced ICRA NP L double B plus) assigned to the company’s long-term loans and the rating of [ICRANP] A4+@ (pronounced ICRA NP A four plus) assigned to the company’s short-term loans (including non-fund based limits).
The ratings for SSJCM have been placed on watch with negative implications in the light of the business disruptions caused by the Covid-19 triggered lockdown and the expected impact of the pandemic on the Nepalese economy and hence on the demand for construction materials (including cement) over the medium term. The rating action factors in the probability of a significant decline in FY2020 and FY2021 revenues for SSJCM vis-à-vis the earlier estimates, which could weaken the company’s profitability and debt coverage metrics. This is also expected to result in increased working capital intensity and deterioration in the capital structure if the additional working capital requirements are funded through bank loans. The rating concerns along increased gearing and lowered debt coverage indicators would remain even higher for players like SSJCM, given its recent capacity enhancement, which has led to increased term debt burden.
Credit strengths
- Experienced promoters/management; operational synergies could arise from being part of the Saurabh/Shankar Group
- Strong operational profile
- Long track record and established sales channel resulting in high cement sales
Credit challenges
- Externalities brought on by Covid-19 could affect key operating parameters
- Moderation in capitalisation and coverage indicators,reduced financial flexibility and pressure on net profitability
- Stretched working capital cycle
- Intense competition
- Vulnerability to cyclicality and seasonal demand
- Risk of regulatory changes
About the company
Incorporated in August 2007, Shubha Shree Jagdamba Cement Mills Private Limited (SSJCM) produces and sells cement, and has a current installed grinding capacity of 0.86MTPA. The shares of the company are held by four individuals from two business houses of Nepal,namely the Shankar Group and the Saurabh Group. SSJCM produces ordinary Portland cement (OPC) and Portland slag cement (PSC). Its factory is located at Chhatta Pipra Chorni-4, Parsa which is ~125 km from Kathmandu.
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