Abhishek Kushwaha

The cement industry in Nepal has been showing impressive export figures. In the last seven months of the financial year 2023/24, Nepal exported cement and clinker worth NPR 2.6 billion to India. On average, the country exports cement worth NPR 295 million per month. At first glance, this suggests that the cement industry is performing well, making it an attractive sector for investment. However, a recent report from The Rising Nepal (December 2024) revealed that 13 cement industries in the Koshi state are on the verge of shutting down due to a shortage of clinker production.

Among the various cement companies in Nepal, some are highly profitable, while others struggle to generate profits even after launching IPOs. One of the key players in this industry is Sarbottam Cement. This article provides an in-depth financial analysis, a business overview, management insights, and a discussion on the company’s challenges and future strategies.

Business Overview:

Sarbottam Cement, established in 2010 under the Saurabh Group, specializes in manufacturing clinker and cement. The company operates its manufacturing plant in Sunwal Municipality, Ward No. 11, Nawalparasi, Province 5, while its corporate office is based in Tinkune, Kathmandu. The parent company, Saurabh Group, has extensive experience in industries such as cement, steel, tea, and fabric production. With an annual turnover exceeding NPR 30 billion, the group provides employment to over 3,000 people. Sarbottam Cement has a production capacity of 20 million cement bags and 1.1 million tons of clinker annually. The company’s portfolio includes three key products:

• Ordinary Portland Cement (OPC)
• Portland Pozzolana Cement (PPC)
• Clinker

One of Sarbottam’s technological advantages is the use of Vertical Roller Mill (VRM) technology, which reduces energy consumption by 50% compared to traditional cement mills. The company produces cement at a particle size of 0.3 microns, which meets global standards for quality. Additionally, Sarbottam Cement is certified by Nepal Standard Mark and ISO 9001:14001.

A key competitive edge is the company’s own limestone mines in Palpa and Chitwan, ensuring consistent quality production throughout the year.

IPO and Market Performance:

Sarbottam Cement made history as the first company in Nepal to issue an IPO through the Book Building Method. The company was valued at NPR 18.5 billion during its IPO and issued 6 million shares:

• 2.4 million shares were allocated to institutional investors at NPR 401 per share.
• 3.6 million shares were offered to the public at a 10% discount (NPR 361 per share), with a minimum requirement of 50 shares per applicant.

At the time of its IPO, ICRA Nepal rated the company "BBB" (Triple B), indicating a moderate credit risk. Sarbottam Cement was listed on NEPSE on March 18, 2024. The stock has traded at a high of NPR 1,083 and a low of NPR 556.

With the lock-in period for institutional investors ending on Asoj 6, 2083, the market may experience fluctuations as previously locked shares become available for trading.

Financial Performance:

Sarbottam Cement has demonstrated consistent profitability, though its net profit has been declining over the last three years:

• FY 2078/79: NPR 1.34 billion
• FY 2079/80: NPR 1.02 billion
• FY 2080/81: NPR 796 million

Despite this decline, the company’s reserves and surplus have been increasing:

• FY 2078/79: NPR 2.9 billion
• FY 2079/80: NPR 3.45 billion
• FY 2080/81: NPR 4.59 billion

Financial Ratios

• Earnings Per Share (EPS):
• FY 2078/79: NPR 11.55
• FY 2079/80: NPR 5.13
• FY 2080/81: NPR 3.75
• Price-to-Earnings (P/E) Ratio:
• FY 2080/81: 215.07
• Dividend Payouts:
• FY 2079/80: 15% cash dividend
• FY 2080/81: 7% bonus shares and 3% cash dividend

Industry Comparison:

Nepal's stock exchange (NEPSE) lists four major cement companies:

1. Sarbottam Cement
2. Shivam Cement
3. Sona Cement
4. Ghorahi Cement

Performance Comparison (FY 2081/82, Second Quarter)

• Net Profit:
• Sona Cement: NPR -120 million (Net Loss)
• Ghorahi Cement: NPR -660 million (Net Loss)
• Shivam Cement: NPR 560 million (Net Profit)
• Sarbottam Cement: NPR 240 million (Net Profit)
• Reserves & Surplus:
• Sona Cement: NPR 2.59 billion
• Ghorahi Cement: NPR 4.03 billion
• Shivam Cement: NPR 4.10 billion
• Sarbottam Cement: NPR 4.31 billion
• Earnings Per Share (EPS):
• Sona Cement: NPR -7.94
• Ghorahi Cement: NPR -29.21
• Shivam Cement: NPR 2.00
• Sarbottam Cement: NPR 9.07

Debt Position

Sarbottam Cement has long-term debt of NPR 117.3 million as per the latest quarterly report. Overall, the company’s financial health appears moderate, but compared to its competitors, it is performing well.

Challenges and Future Plans:

Challenges

1. Rising Production Costs: Increased fuel prices and load-shedding (up to 12 hours per day) have escalated production expenses.
2. Excess Supply: The cement industry in Nepal is experiencing overproduction, leading to higher inventory levels.
3. Clinker Shortages: The closure of 13 cement industries in Koshi state due to clinker shortages signals potential risks for the sector.

Future Plans

1. Capacity Expansion: The Company aims to increase production and enhance branding efforts in both Nepali and Indian markets.
2. Strategic Location Advantage: Since its factory is near the Nepal-India border, the company plans to increase exports to India, where demand for cement is growing.
3. Government Support: The Nepalese government has prioritized infrastructure development, which could boost the cement industry’s growth potential.

Sarbottam Cement presents itself as a strong player in Nepal’s cement industry with steady financial growth, strategic location advantages, and modern technology. While its net profit has declined, its overall reserves, surplus, and industry positioning remain strong. Investors should conduct thorough research before investing, as the cement industry is currently facing challenges such as high production costs and clinker shortages. However, Sarbottam Cement’s future growth strategy and industry trends suggest long-term potential for investors.