Shivam Cement - first manufacturing company to issue IPO at premium, significant milestone for Nepali Capital Market; Hongshi Shivam Cement, foreign JV revolutionizing Nepali industry; Interview with Satish Kumar More

Satish Kumar More, a figure to look up to bears a charismatic personality and the zeal of a youth to attain his goals. He is one of the founding members of Lucky Group and has been playing an integral role in the group’s diversification towards manufacturing. Apart form Lucky Group he also serves as the Senior Vice-President of the CNI (Confederation of Nepalese Industries), a professionally led manufacturing and service sector industry centered apex body. In addition, he has previously served as the President of Nepal Foreign Trade Association. A visionary of the Group, he serves as a dedicated Chairman and is a guidance counselor.

Lucky Group currently has following companies under its portfolio:

• Lucky Nepal Co. (P.) Ltd.
• Lumbini Vidyut Udyog (P.) Ltd.
• Ganapati Vanaspati (P.) Ltd.
• Nuplast Industries (P.) Ltd.
• Shivam Cement Ltd.
• Hongshi Shivam Cement (P.) Ltd.
• Asia Meditech Solutions (P.) Ltd.
• Star Asia Insurance Brokers (P.) Ltd.
• Teletalk Pvt. Ltd.

Shivam Cement one of the companies where Lucky Group has its stake is in the process of going public. This is a milestone for the Nepali Capital Market. Currently, more than 70% of the market capitalization is concentrated by the BFIs and the entry of Real sector companies adds diversification to both the bourse and individual portfolio. In addition, it is also the first manufacturing company to be issuing IPO at a premium, so the entire market is impatiently waiting for Shivam to go public.

In this backdrop, Rachit Agrawal and Aakriti Thakali from ShareSansar caught up with Mr. Satish K. More and talked regarding the topic. The excerpts of which are:

Could you enlighten us with a brief history of Shivam Cement?

Shivam cement is the joint venture established in 2009 by Lucky Group, Goyal Group, Sharda Group and Maru group with an objective to enter the industry and develop quality products. When the company was first established the production capacity stood at 750 tons of grinding and 1200 tons of clinker.

Later the group was joined by Bhimsaria Group and Devanera Group. Today the production capacity stands at 1800 tons of clinker and 3000 tons of cement.

So in the course of time we have enhanced our capacity and are using the state-of-the-art technology. We are using German and Denmark based technology for capacity enhancement. Just last year, roller press using German Technology was introduced for grinding.

Will going public strengthen the company’s financials and the groups’ as a whole?

This is our main aim here. The brand image is number one thing for Shivam and we’ve been maintaining our quality to ISI standard.

Basically it was our dream to share this brand with the people around the areas of our operation – both mines and factory affected. So we’ll be issuing 2% shares for the locals of the affected areas and to them whatever the premium is determined by SEBON we’ll be proving 20% to 25% discount on it. After that we’ll be issuing 10% for the general public.

What are your thoughts about entering the market during this bearish trend?

That’s a very good question, but it is very difficult to predict what will be the good time to enter the market. But I don’t think that will create much of a problem. We’ve already completed the underwriting and other requirements as per SEBON’s rules and regulation.

When can we expect the IPO to float?

We approached SEBON and requested them to allow us to float both the IPO for locals and general public at the same time by publishing the two prospectus too at the same time. However based on their first comment, they want to give us permission in two stages. Since we’ll be providing discount to the locals, they suggested that we need to issue first to the locals and after completion of that the second stage can be carried forward.

So we’ve agreed that we’ll be issuing in two stages but we’ve also requested to give the permission at once so that the entire floatation time can be shortened. We are yet to hear from SEBON regarding that.

How are you planning to use the money raised via IPO?

We basically have two plans to use the money that will be raised from the issuance.

1. We are thinking of expanding Shivam’s production capacity.
2. We are also thinking of lowering the debt in the capital composition by paying off some of the bank loans.

What is current financial standing of Shivam Cement?

The regulations of the SEBON require that the company should be in profit for three consecutive years before going public. So that automatically clarifies that Shivam is in profit for the past three years. The other financials are:

• Paid-up capital: Rs. 387.2 crore
• Net profit of 3^rd quarter of 2074/75: Rs. 90 crore
• Net profit of FY 2073/74: Rs 81 crore
• Dividend distributed on 2073/74: 10% after tax

So from the figures above we can see that the foundations of Shivam is pretty strong. Also, we can see that it has earned more net profit in these 9 months than last year’s 12 months, which shows how well their performance is and this also boosts their net worth.

The paid-up capital stands at Rs 387.2 crore and will climb by 12% after the IPO issuance, where 2% will go to locals and 10% to the general public.  Similarly, the debt stands somewhere near Rs 400 crore, so the debt-equity ratio stands somewhere near 50:50.

Similarly, Shivam also has Tax Benefit. Normally, the tax rate for other entities range between 20%-30%, but the current tax for Shivam is around 18%. The corporate tax is 20% but since we have 300+ employees we can enjoy 10% discount on it. Similarly once we float the shares the tax rate is likely to drop down to 15% through the benefits provided by SEBON for going public.

Hongshi Shivam Cement - How did this venture came to be between Shivam and Hongshi to form Hongshi Shivam Cement?

Hongshi Cement is one of the largest cement producers in China. They have about 35 to 40 industries there and each has a production capacity of 5000 to 6000 tons of cement.

Hongshi cement wanted to establish one of their industry in Nepal through joint venture with one of the local company. They had gone all over the country in search of a partner and ultimately they chose us.

So on January 2017 we had a laying stone ceremony and in March 2018 we officially started the production. We were able to start production in about 15 months from the start date, so this is a great achievement for us.

With the world getting smaller and smaller, FDI has gained paramount importance in the nation’s development. You also have brought Hongshi Cement FDI, how difficult was it?

To be honest, it wasn’t very difficult. Hongshi cement has a very good reputation in China and Shivam is a good company of Nepal. Plus we had our contacts in places, which helped in overcoming some of the bureaucratic hurdles.

The past Honorable Prime Minister, Dr. Bhattarai had established Investment Board of Nepal (IBN), which would function as an independent body for large projects who had some level of autonomy in operation. However, in reality the IBN couldn’t perform in huge magnitude but it was very helpful to us in establishing Hongshi Shivam. Similarly, the other ministries were also very helpful.

So I want to recommend the current government to empower IBN and let it function as an independent body like it was planned to.

What is Shivam’s stake in it?

The ownership structure of Hongshi cement is 70:30. The 70% belongs to Hongshi cement and 30% belongs to Shivam Holdings. From the 30%, 88% belongs to Shivam cement.

Has the production started?

The commercial production of the plant has started from Jestha 2, 2075 with a capacity to produce 6,000 tons.

Economy

What are the challenges and opportunities for entrepreneurship in this economy?

Our country is full of opportunities and for me there are 5 major ones:

1. Hydropower ( Hydropower in real terms, not from political influence)
2. Mines Based Industries
3. Tourism
4. Education Hub near mountain region
5. Agriculture ( but a lot of our manpower is gone for foreign employment, so we’ll need high-tech machines and modern techniques)

If you ask me about the challenges, the main challenge is the Decision Time Taking. If this can be reduced or we can bring reforms in the policies the progress can be fastened.

What are your expectation from the upcoming budget and the monetary policy?

After two decades, we finally have a 2/3^rd majority government. So finally we can say that our country is out of the transition phase (sankraman kaal) and the only only only way ahead is towards economic revolution (aarthik kranti). This is not just me saying it, I represent Confederation of Nepalese Industries (CNI) when I say this and along with me we have commitments from our PM Oli, FM Dr. Khatiwada, Industry Minister Matrika Prasad and other people in higher positions too. So if this commitment is maintained, we can do something good in Nepal.

My expectation from the upcoming budget are:

• Decreasing the bureaucratic hurdles of the system
• Specific steps to control trade deficit by promoting import substitution based industries
• Facilitating policies to promote and empower Nepali industries like the way the Environment Impact Assessment (EIA/IEE) policies were relaxed for Hydropower and cement companies.

What is the impact of increasing interest rates in your business?

The impact we’re facing is the same everyone is facing in the economy right now. When we signed the rate was around 6 or 6.50% but when the time came for actual execution the interest is twice as high. So if the rising rates can’t be controlled then the NPA (Non Performing Asset) will go up too.

However, we have to also look at some positive changes happening in the industry. Recently, Energy Minister and NEA made it possible to eliminate loadshedding in industries too. So this has helped the industries to become more competent and efficient.