Jaypee Cements looking to get short term and long term loans worth Rs.985.07 Million; ICRA Nepal grades the issue

ICRA Nepal has assigned the long-term rating of [ICRANP] LBB- to the NPR 56.34 million long-term loans of M. Jaypee Cement Private Limited (MJP or the company). ICRA Nepal has also assigned the short-term rating of [ICRANP] A4 to the existing/proposed short-term loans of MJP worth NPR 928.73 Million.

The rating assignment factors in the company’s ability to report a healthy sales growth trend (~136% growth in the last three years ending mid-July 2018), aided by the increased demand for cement after the April-2015 earthquake along with phase-wise capacity enhancements by the company. ICRA Nepal also notes the low-cost clinker availability within the country in recent periods, which has aided improvement in operating margins in 9M FY2019 (11.3% against 10.1% for FY2018), despite the sales decline by ~29% during the period.

The rating is, however, constrained by the sharp spike in working capital intensity (NWC/OI), which increased to ~85% in 9M FY2019 compared to ~35% in FY2016. This was on account of elongated debtor days in recent periods (239 days in mid-April 2019) leading to stretched working capital cycle necessitating higher working capital debt. Hence, the capital structure and coverage indicators have deteriorated in recent periods with gearing of 3.3x as of mid-April 2019, interest cover of 1.8x and total debt/OPBITDA of 7.5x for 9M FY2019. The rising debt levels along with volatility in interest rate have also pressurised the profitability indicators of the company with net profitability of 1.2% for 9M FY2019 as against 2.7% for FY2017.

The rating is also 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. This might keep the capacity utilisation of the plant low, which reportedly declined to ~19% for 9M FY2019 from ~35% for FY2018. The company’s margins are also exposed to the cyclicality inherent in the cement industry. Going forward, MJP’s ability to judiciously manage its working capital levels, attain healthy sales growth amid challenges imposed by tightening liquidity and maintain comfortable debt coverage indicators would remain the key rating sensitivities.

Established in 2000, M. Jaypee Cement Private Limited is a cement manufacturing company with an installed grinding capacity of 950 tonne per day. The company has mainly been producing Portland Pozzolana Cement (PPC) and Ordinary Portland Cement (OPC) under the three brands of Apex Cement (OPC-33 grade, 43 grade and 53 grade), Buddha Cement (PPC) and Lumbini Cement (PPC). The plant is located at Birpur in Kapilvastu District. The shareholders of MJP include 32 individuals from diverse backgrounds.

Source: ICRA Nepal