Palpa Cement Industries Rs 7.23 billion loan ratings placed on watch with negative implications
Thu, Jun 11, 2020 1:10 PM on Credit Rating, Latest,
ICRA Nepal has placed the ratings assigned to the bank loan limits of Palpa Cement Industries Private Limited (PCIPL or the company) on watch with negative implications. These ratings include the rating of [ICRANP] LBB@ (pronounced ICRA NP L double B) 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 PCIPL have been placed on watch with negative implications in the light of the business disruptions caused by the Covid-19 triggered lockdown and its impact on the Nepalese economy and hence on the demand of construction materials (including cement) over the medium term. Subdued demand would result in lower scale economies and 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 PCIPL, given its limited operational track record and sizeable long-term debt service burden. However, the company’s strong parentage provides some comfort.
Credit strengths
- Completion of project construction eliminates execution risk
- Experienced promoters; operational synergies could arise from being part of the RMC Group
Credit challenges
- Externalities brought on by Covid-19 could affect key operating parameters and might require promoter support
- Sales momentum to weaken; realisation remains low among peers
- Debt coverage indicators likely to remain weak over the near term
- Intense competition
- Raw material price volatility risks
About the company
Incorporated in 2009, Palpa Cement Industries Private Limited (PCIPL) has a green field cement manufacturing unit,which started commercial operations about a year ago (for clinker; cement production started from only around three months back). The plant is in Sunuwal VDC, Nawalparasi district,while the mines are located ~30 km from the factory in Rahawas VDC, Palpa District. The plant has a manufacturing capacity of 0.59 MTPA clinker sand 0.73 MTPA cement,based on the vertical rolling mill (VRM) technology. The company currently produces ordinary Portland cement (OPC). PCIPL belongs to the RMC Group, which is a renowned business house in Nepal with extensive experience primarily in the manufacturing sector. The company’s registered office is in Central Business Park, Thapathali, Kathmandu, Nepal.
For detailed report, click here
