Yeti Distillery looking to raise long term and short term loans worth Rs.3.12 Arba; ICRA Nepal assigns top grade

ICRA Nepal has assigned the long-term rating of [ICRANP] LA to the ~NPR 178 Million long-term loans of Yeti Distillery Private Limited (YDPL or the company). ICRA Nepal has also assigned the short-term rating of [ICRANP] A1 to YDPL’s short-term loans (including non-fund based limits) worth NPR 2945 Million.

The assigned ratings factor in YDPL’s long track record of over 15 years in the liquor industry, healthy market share in the domestic liquor industry and strong market positioning within the whiskey and vodka segment, the two most consumed forms of distillery-based alcoholic drinks in Nepal. ICRA Nepal also factors the current promoters’ knowledge and experience in the sector which has led to rapid growth and expansion of YDPL’s business during a short time span. The rating also factors in the strong financial profile of the company with high revenue growth, healthy operating margins, and good debt coverage ratios. The rating also considers the established supply chain system, positive demand outlook and duty protection accorded to the domestic spirits industry by the Government of Nepal (GoN), through import barriers on finished liquors.

The ratings, however, are constrained by YDPL’s limited product diversification -over 90% revenue in the last two years is accounted by two product lines viz. Old Durbar Whiskey and 8848 Vodka, a segment introduced less than five years ago. The rating also remains constrained by the high working capital requirement for the company to support its sizeable inventory, which is currently met through the elongated creditor cycle, resulting in low external working capital financing. However, any change in the credit terms by the suppliers could lead to an increased requirement of working capital financing with commensurate impact on the liquidity profile and the financial flexibility of the company. The rating also remains constrained by the company’s high dividend pay-out, which results in moderate capitalization despite strong revenues and profitability. ICRA Nepal also notes the intense competition in the hard liquor segment and fresh capacity creation in the recent years which could increase the competitive intensity and consequently moderate industry margins going forward. Rating concerns also arise due to significant regulatory risks associated with the liquor industry.

Yeti Distillery Private Limited (YDPL) was incorporated in December 2003 as a liquor-manufacturing company dealing mainly in 70 UP low-end liquors till FY 2015. From FY 2015, the company also entered into 25 UP and 30 UP segments through its flagship products Old Durbar Whiskey and 8848 Vodka respectively, using imported raw materials (malt spirits and ENA) from European suppliers. With sales volume of ~9 lakh cases in FY 2018 and strong market share within the domestic whiskey and vodka market, YDPL is among the large players in the liquor industry in Nepal.

As of mid-April 2019, YDPL’s stake is owned by Mr. Rabi KC (50%) and Mr. Abhishek Shrestha and his family (50%) with a manufacturing facility that does the blending and bottling works. There are five processing lines used to produce different products with a combined bottling capacity of 9,000 cases per day. At present, the company’s distribution channel comprises a national distributor and a network of ~120 distributors across the country.

Source: ICRA Ratings Nepal