Sarbottam Cement (NEPSE: SARBTM) — Investment Report

Executive Summary

Sarbottam Cement Ltd. (NEPSE: SARBTM) is Nepal's first cement company to list via a book-building IPO (March 2024) and operates Nepal's first Vertical Roller Mill (VRM) technology plant at Sunwal, Nawalparasi. The company is part of the Saurabh Group (Neupane family). Its FY2081/82 reported standalone revenue of NPR 9,537.3 million and +49.7% growth attracted significant market attention — but the analytical reality is more subdued: approximately NPR 4,066.8 million (42.7% of standalone revenue) represents intercompany sales to subsidiaries, meaning external (genuine) revenue growth was only approximately +3.6%. This is the central finding that reshapes the assessment of SARBTM's competitive position. Group net profit was NPR 1,313.9 million; standalone net profit NPR 1,028.2 million (a 6.9× recovery from the NPR 149.4 million FY2080/81 trough). Balance sheet leverage is real: borrowings of NPR 3,813.8 million against equity of approximately NPR 10.1 billion (D/E 0.38×, Derived) — modest at the group level, but meaningfully higher than competitor Shivam Cements (SHIVM), which carries near-zero debt.

Business Overview

Sarbottam Cement Ltd. manufactures OPC cement using a Vertical Roller Mill (VRM) plant at Sunwal, Nawalparasi — approximately 115 km west of Kathmandu on the road to India. The company was listed on NEPSE in March 2024 as Nepal's first book-building IPO, a milestone in Nepal's capital market development.

Plant and capacity. SARBTM's own plant capacity is approximately 1.0 MTPA cement and 1.0 MTPA clinker (standalone). The VRM technology is theoretically more energy-efficient than ball mills, though the per-tonne cost advantage versus integrated peers is not independently verifiable because SARBTM does not disclose production tonnage. (Source: SARBTM FY2081/82 Annual Report — Primary, company self-reported.)

Subsidiaries acquired (FY2081/82). SARBTM acquired three entities in FY2081/82:

• Jagdamba Cement Pvt. Ltd. (Ramechhap) — acquired at NPR 15 per share (below book value based on available data)
• Shubha Shree Jagdamba Cement Mills Pvt. Ltd. (Ramechhap) — acquired at NPR 100 per share
• Sarbottam Cement East (new greenfield in Koshi Province, in progress)

The acquisitions were related-party transactions: promoter Tika Ram Neupane holds ownership positions on both sides of the Jagdamba acquisition. Combined chairman-and-MD roles are held by Bishnu Prasad Neupane. (Source: New Business Age — "Sarbottam Cement Acquires Shubha Shree Jagdamba Cement Mills and Jagdamba Cement" — Secondary; SARBTM FY2081/82 Annual Report notes — Primary.)

NEA electricity contingent liability. SARBTM carries an unprovided NPR 862.7 million contingent liability for electricity tariff disputes with NEA — representing approximately 8.6% of standalone equity and still growing. The liability is sub judice at the Supreme Court. (Source: SARBTM FY2081/82 Annual Report contingent note — Primary.)

Financial Performance

All figures NPR millions, standalone unless noted. Source: SARBTM audited annual reports FY2079/80–FY2081/82 and FY2082/83 Q1–Q3 quarterly reports — Primary, company self-reported.

Five-Year Standalone Financial Summary

Source: SARBTM verified financial file; standalone data FY2079/80–FY2081/82 from audited annual reports. Earlier years from published indicator tables. Intercompany revenue of NPR 4,066.8 million sourced from SARBTM FY2081/82 Annual Report related-party disclosure notes — Primary.

The intercompany reality. SARBTM's standalone reported revenue includes NPR 4,066.8 million of sales to Jagdamba, Shubha Shree, and Sarbottam East — entities it now owns or controls. These revenues are eliminated at consolidation; on a like-for-like (external) basis, standalone revenue grew only approximately +3.6% in FY2081/82 versus +18.4% in FY2080/81. The group gross revenue (NPR 14,850 million) captures the full picture but includes internal flows. The underlying external business grew modestly — not at the 49.7% headline. (Source: SARBTM FY2081/82 Annual Report, intercompany transactions note — Primary.)

Margin recovery. Gross margin recovered from 11.9% (FY2080/81) to 21.1% (FY2081/82) — a genuine improvement driven by lower coal costs and some volume recovery, not just the accounting effect of subsidiary acquisitions. Power and fuel intensity at 35.7% remains approximately 9–10 percentage points above peer SHIVM (26.1%), a structural cost disadvantage. (Peer comparison: SHIVM FY2081/82 Annual Report — Primary.)

Leverage versus peer. SARBTM carries NPR 3,814 million in interest-bearing debt (D/E 0.38×, Derived) with finance costs of NPR 296 million. SHIVM carries approximately NPR 10 million in interest-bearing debt. In a commodity industry experiencing a demand downturn, leverage differentiates the survivable from the distressed.

Quarterly Snapshot

Standalone, unaudited, cumulative YTD. Source: SARBTM Q1–Q3 FY2082/83 quarterly reports — Primary (unaudited).

Source: SARBTM Q3 FY2082/83 quarterly report — Primary.

9M FY2082/83 standalone PAT of NPR 905.8 million is tracking ahead of FY2081/82's full-year standalone PAT of NPR 1,028.2 million. Gross margin at 25.1% through 9 months is above FY2081/82's full-year 21.1%, reflecting continued coal cost normalization and steady pricing. Q4 (Chaitra to Ashadh, the dry season peak construction quarter) typically provides additional uplift.

What is not in the quarterly filings. Group-level (consolidated) data — which includes Jagdamba and Shubha Shree — is not filed quarterly. The first full-year group view of the consolidated entity (including all subsidiaries) will appear in the FY2082/83 annual report (expected November–December 2026).

Market Position

Only two cement companies are listed on NEPSE: SARBTM and SHIVM. The sector operates at approximately 35–40% utilization nationally (approximately 22 MT installed capacity versus approximately 8 MT demand). (Source: Infomerics 2025, via +16 Capital cement industry report — Secondary.)

SARBTM versus SHIVM — same-basis comparison (standalone):

Source: Both companies' verified financial files — Primary.

SARBTM does not publish production tonnage, making a definitive per-tonne cost comparison impossible. On cost ratios and balance sheet, SHIVM is the structurally stronger standalone operator — lower power intensity, essentially zero debt, and higher external revenue on a same-basis comparison.

SARBTM's potential advantages over the medium term: (a) the VRM energy efficiency benefit, if it materializes at scale and is measurable; (b) the Sarbottam East greenfield in Koshi Province adds capacity in an underserved eastern market; (c) group scale from the acquisitions could provide logistics and purchasing synergies.

Regulatory and Macro Context

NEA electricity dispute. SARBTM carries NPR 862.7 million in unprovided contingent liabilities for NEA electricity billing disputes (NPR 862.7 million as of FY2081/82 — up from prior years and growing). The Supreme Court dispute covers overcharging claims from the load-shedding era when SARBTM used dedicated-feeder power at non-dedicated tariffs. Two companies (including SARBTM) have been paying dues in tranches following a Supreme Court ruling. (Source: Kathmandu Post, 24 March 2025; Fiscal Nepal, 28 October 2024 — Secondary; SARBTM FY2081/82 Annual Report contingent note — Primary.) An adverse outcome crystallizing the full NPR 862.7 million would represent approximately 8.6% of current standalone equity (Derived) and would hit earnings without a corresponding revenue offset.

Cement overcapacity. The sector structural context: approximately 22 MT installed capacity versus approximately 8 MT demand nationally; 13 Koshi-province plants halted in 2024–25; state-owned Udayapur Cement closed June 2025. The rationalization is ongoing. SARBTM's Nawalparasi location (near the Terai road network to India) provides geographic access to potential export markets, though Nepal-India cement trade flows are small and subject to tariff policy.

NRB easing cycle. The 140–150 basis-point fall in deposit rates benefits SARBTM's working capital financing costs (short-term borrowings are a significant component of SARBTM's NPR 3,814 million debt). This is a modest tailwind to finance costs in FY2082/83.

Governance and Capital Allocation

Promoter concentration and RPT complexity. The Saurabh Group and Neupane family control SARBTM through promoter holdings. The Jagdamba acquisition involved promoter Tika Ram Neupane on both sides of the transaction — SARBTM bought from related parties. Combined chairman-and-MD roles (Bishnu Prasad Neupane) without an independent committee reviewing the acquisitions is a governance concern. (Source: SARBTM FY2081/82 Annual Report — Primary; New Business Age — Secondary.)

Capital allocation record. SARBTM went public in March 2024 (book-building IPO) and acquired three entities in FY2081/82, partly debt-funded. The dividend record is short (only one to two years of post-IPO data); no track record exists yet for through-cycle capital return. The intercompany receivable (from subsidiaries to the parent) was NPR 1,856.8 million at FY2081/82 year-end — a large related-party receivable that is part IOU, part sales-financed inventory. Monitoring whether this receivable converts to cash in FY2082/83 is important.

Auditor. Priyank & Associates — an NRB-empanelled firm. Auditor opinion type (unqualified/qualified) for FY2081/82 was not confirmed in available extracted text.

Key Risks

Revenue quality is lower than headline suggests. External standalone revenue growth of ~3.6% versus the reported 49.7% is the foundational finding. Investors relying on headline revenue data from portals or the annual report summary table will systematically overestimate SARBTM's market position. The group accounts (first available for FY2082/83) will provide a cleaner picture of consolidated external growth.

Leverage in a cyclical downturn. NPR 3,814 million in borrowings with NPR 296 million annual finance cost creates breakeven risk if gross margins revert toward 12% (the FY2080/81 trough). SHIVM's fortress balance sheet (near-zero debt) allows it to buy distressed assets through the cycle; SARBTM's levered structure constrains optionality.

NEA liability crystallization. The NPR 862.7 million unprovided contingent liability is a real tail risk. Court proceedings are ongoing; the liability has not been diminished by partial payments to the extent of the full claim. An adverse ruling would require a large cash outflow and earnings impact simultaneously.

Governance opacity. Related-party acquisitions at prices not independently certified; combined chairman-MD role; no independent RPT-pricing committee; production tonnage not disclosed (making the VRM cost claim unverifiable). These do not indicate fraud, but they require investors to take management assertions on trust without independent verification.

Analytical Perspectives

The case for the business. SARBTM has real competitive assets: a VRM plant in a geographically advantaged location (Nawalparasi, closer to Terai demand centres), four self-owned limestone quarries, BIS export certification, and a first-mover advantage on VRM technology in Nepal. If the sector rationalizes and utilization improves, SARBTM's higher operating leverage (versus a nearly debt-free SHIVM) amplifies the upside. The Jagdamba/Sarbottam-East acquisitions, if the terms were fair, add capacity in geographies where SARBTM has structural advantage.

The analytical tension. At NPR 805 (24 July 2026 — Secondary), the reverse-valuation analysis implies the market is pricing approximately 12.8% perpetual growth in normalized owner earnings (Estimate, Derived: market cap NPR 42 billion, normalized group owner earnings base approximately NPR 1.2 billion at 16% COE — see calculation). External standalone revenue has grown at roughly 3.6% in the most recent year. The gap between what the price implies and what the external business has delivered is the central observation. (Estimate — inputs: see above; invalidated if COE is significantly lower or external revenue growth accelerates durably above 8%.)

Valuation Context

At reference price NPR 805 (24 July 2026 — Secondary); all multiples derived.

Weighted analytical base fair value: approximately NPR 360 (Estimate). Scenario range: Bear ~NPR 200 (no recovery, NEA crystallizes, re-rates to earnings multiple on trough earnings), Base ~NPR 360, Bull ~NPR 480 (FY2082/83 recovery sustains, group EPS ~NPR 28–30, 15–16×). (All Estimates — see inputs above; not investment recommendations.)

At NPR 805, the stock is approximately 2.2× the analytical base fair value. The main analytical support for the current price is the cyclically-elevated EV/EBITDA calculation — which requires caution in a 35–40% utilization industry where current EBITDA is above through-cycle normals.

Trailing multiples at NPR 805: P/E approximately 37.7× (805 / 21.35 standalone EPS, Derived) or approximately 29.5× on group EPS 27.27 (Derived). P/B approximately 3.97× if NAVPS is approximately NPR 202 (Derived based on equity from the five-year table). Dividend yield: limited history, not meaningful for this analysis.

What We Are Watching

1. FY2082/83 group annual report (expected November–December 2026). This will be the first full-year consolidated view including all subsidiaries — the key data points: external (non-related-party) group revenue growth, consolidated gross margin, net debt trajectory, and whether the NPR 1,856.8 million intercompany receivable has been collected.

2. NEA Supreme Court progress. Any ruling or settlement on the NPR 862.7 million electricity tariff dispute would resolve a material tail risk. A provision or cash payment would reduce standalone equity and earnings.

3. Sarbottam East production commencement. When SARBTM's Koshi-Province greenfield plant begins production (expected approximately late 2025 based on SARBTM public statements), it adds capacity in a new geography. Volume ramp and margin contribution will be visible in the FY2082/83 group accounts.

References

1. Sarbottam Cement Ltd. — Audited Annual Reports FY2079/80, FY2080/81, FY2081/82, sourced from SARBTM_primary_financials_VERIFIED.md and extracted text files. Auditor: Priyank & Associates. Accessible via SEBON filings. Primary, company self-reported.

2. SARBTM FY2082/83 Q1–Q3 Unaudited Quarterly Reports. Filed with SEBON. Primary (unaudited).

3. Sharesansar — SARBTM market price NPR 805 (24 July 2026), 52-week range 750–1,048. Accessed 2026-07-26. Secondary.

4. New Business Age — "Sarbottam Cement Acquires Shubha Shree Jagdamba Cement Mills and Jagdamba Cement." newbusinessage.com. Accessed 2026-07-26. Secondary.

5. Kathmandu Post — "Two companies pay dues in tranches to NEA…" 24 March 2025. NEA electricity settlement. Secondary.

6. Fiscal Nepal — "Sarbottam Cement begins dues settlement," 28 October 2024. Secondary.

7. Saurabh Group — Corporate site, saurabhgroup.com. Group structure. Secondary (company self-reported).

8. Cement Industry Report, +16 Capital internal research. Sector capacity, utilization, macro context. Secondary.

9. SHIVM Audited Annual Reports FY2081/82 — peer comparison data on power intensity and debt. Primary.