Sarbottam Cement (SARBTM) — Investment Report

Executive Summary

Sarbottam Cement Ltd. is a vertically integrated cement manufacturer in Nawalparasi, running Nepal's first Vertical Roller Mill (VRM) plant. Standalone nominal capacity is approximately 990,000 MT/year cement and 990,000 MT/year clinker, with feedstock from four self-owned limestone mines in Palpa. Group capacity expanded materially in FY 2024/25 with the consolidation of Jagdamba Cement, Shubh Shree Jagdamba Cement Mills, and Sarbottam Cement East — these acquisitions were related-party transactions within the controlling Saurabh Group / Neupane family.

In FY 2081/82, standalone net profit rebounded to Rs. 1,028.2M (vs. Rs. 149.4M in FY 2080/81) — a ~6.9× increase — on standalone revenue of Rs. 9,537.3M (+50% YoY). Group revenue was Rs. 14,849.9M and group net profit was Rs. 1,313.9M (per AR FY 2081/82, line 1334 and 1351). Standalone basic EPS was Rs. 21.35; group basic EPS was Rs. 27.27.

Five-Year Financial Trend (Standalone, NPR Million)

Source: SARBTM Annual Reports FY 2079/80, FY 2080/81, FY 2081/82.

Group (Consolidated) FY 2081/82

Source: SARBTM AR FY 2081/82, line 1334–1377.

• Group Revenue: Rs. 14,849.9M (Rs. 9,537.3M standalone + acquired subsidiary contributions)
• Group Net Profit: Rs. 1,313.9M
• Group Basic EPS: Rs. 27.27
• Acquired subsidiaries (per AR disclosures): Jagdamba Cement (NP Rs. 129M, EPS Rs. 43); Shubh Shree Jagdamba (NP Rs. 134.5M, EPS Rs. 19.21); Sarbottam Cement East (NP Rs. 30M, EPS Rs. 74.87) — figures reflect their respective standalone financials.

DuPont ROE (Standalone, FY 2081/82)

• Net Profit Margin: 10.8%
• Asset Turnover: 0.64×
• Financial Leverage: 1.56×
• ROE ≈ 10.8%
• FY 2080/81 ROE: ~1.7%
• FY 2077/78 peak ROE: ~25%

Quality of Earnings Notes

• FY 2081/82 OCF Rs. 911M against Net Profit Rs. 1,028M (OCF/NP = 89%) — healthy but a portion is working-capital release after FY 2080/81's negative OCF of Rs. 335M (driven by inventory build).
• FY 2079/80 had extraordinary OCF Rs. 1,408M against Net Profit Rs. 214M (657%) — driven by working-capital release and the depreciation accounting change.
• 3-year average OCF ≈ Rs. 660M against 3-year average Net Profit ≈ Rs. 464M (142%) — acceptable.

Working-Capital Signal

• Trade receivables jumped 78% in FY 2081/82 to Rs. 3,133M (receivables days 120, vs. 101 in FY 2080/81). Revenue grew 50% but receivables grew 78% — the dealer-channel debtor stretch is outpacing revenue growth and warrants tracking.
• Inventory days improved from 180 to 106 (positive).
• The depreciation useful-life extension in FY 2079/80 (Plant & Machinery 15 → 35 years; Building 30 → 60 years) reduced standalone depreciation from Rs. 670M (FY 2078/79) to Rs. 230M (FY 2079/80) — a Rs. 440M non-cash boost to reported profit with no economic content.

Balance Sheet Stress Test (30% Revenue Decline, Illustrative)

A 30% revenue cut from FY 2081/82 levels: revenue Rs. 9.54B → Rs. 6.68B (roughly FY 2080/81 level). Gross margin compresses to ~12% → gross profit Rs. 801M. Operating expenses ~Rs. 564M. Operating profit ~Rs. 237M. Finance cost Rs. 296M. Pre-tax: small loss. Cushion: total equity Rs. 10.08B; long-term debt Rs. 23M; current ratio 1.18×. The company survives without financial distress but would suspend dividends.

Bull Case

1. Operating leverage demonstrated in FY 2081/82. Standalone revenue rebounded 50% YoY to Rs. 9,537M; gross profit jumped 166% to Rs. 2,010M; net profit rebounded 6.9× to Rs. 1,028M; EPS recovered to Rs. 21.35. Group revenue is now Rs. 14,850M after consolidating three acquired subsidiaries, with group net profit of Rs. 1,314M.

2. Aggressive deleveraging. Debt/equity moved from 0.96 (FY 2076/77) to 0.38 (FY 2081/82). Long-term borrowings stood at Rs. 23M at FY 2081/82 close (vs. Rs. 322M three years earlier) — essentially debt-free on term loans. The book-building IPO (December 2023, NEPSE first) raised Rs. 2.26B (including Rs. 1.625B share premium), recapitalising the balance sheet.

3. Structural access. Self-owned limestone mines in Palpa (4 mines, ~20+ sq km of reserves), 17 MW dedicated-line NEA agreement, 5.5 MW captive thermal power plant, 10 MW diesel backup, BIS IS 269:2015 and IS 1489:2015 certifications enabling India export, 1,500+ dealers in 56 districts across all 7 provinces. The acquired subsidiaries position the group as one of the larger cement producers in Nepal by combined capacity.

Bear Case

1. Governance complexity. In FY 2079/80, related-party sales totalled Rs. 971M (~12.3% of revenue) and purchases totalled Rs. 886M. The Neupane family / Saurabh Group controls multiple connected entities (Laxmi Steels, Sarbottam Steels, Saurabh Photo International, Neupane Tower, Sarbottam Minerals, Siddheshwor Minerals, Jagdamba Cement, Shubh Shree Jagdamba, Jyamire Minerals, Dhading Cement). The FY 2079/80 report shows 40 board meetings in a single year. Chairman Bishnu Prasad Neupane was labeled "Executive Chairman" in FY 2080/81 — combining oversight with executive power. The FY 2079/80 balance sheet showed Rs. 285M payable to directors. The FY 2080/81 acquisitions of Jagdamba Cement and Shubh Shree Jagdamba — related-party companies — raise the question of fair-value pricing for minority shareholders.

2. Depreciation policy change and growing NEA contingent liability. The first-time NFRS adoption in FY 2079/80 changed depreciation from WDV to SLM and revised Plant & Machinery useful life from 15 to 35 years and Building from 30 to 60 years — reducing standalone depreciation from Rs. 670M to Rs. 230M (a Rs. 440M non-cash boost to reported profit). The NEA electricity over-billing dispute has grown from Rs. 611M (FY 2078/79) to Rs. 676M (FY 2079/80) to Rs. 774M (FY 2080/81) to Rs. 863M (FY 2081/82) — equivalent to ~8.5% of FY 2081/82 group equity. Management is paying a portion in installments — a partial acknowledgment that some portion will crystallise.

3. Industry overcapacity. Industry capacity 22–25 MT vs. domestic demand ~8 MT; national utilisation 35–40%. Multiple Koshi-province plants temporarily halted production in early 2025. SARBTM's expansion via acquisitions adds capacity at a time the industry is consolidating to absorb existing supply.

Moat Assessment

Verdict: Narrow.

• Cost advantages. Self-owned Palpa limestone mines eliminate third-party quarry pricing. VRM technology delivers lower energy use vs. ball mills (the company has cited energy savings around 20%; an earlier "50%" claim was scaled back in the FY 2081/82 report). Captive thermal + diesel backup eliminates load-shedding losses. Combined cost advantage is modest in absolute terms but real.
• Distribution. 1,500+ dealers across 56 districts in all 7 provinces with 100% secured-sales policy. SHIVM, Hongshi-Shivam, Arghakhanchi, and Ghorahi have similar reach — table-stakes scale rather than unique moat.
• Brand. "Sarbottam" is a recognised name positioned at a premium to local brands. Pricing power is limited because cement is a commodity. Selling commission rose 47% YoY in FY 2079/80 even as volumes contracted.
• Regulatory licences. BIS certifications for India export are scarce. ~20 sq km of licensed limestone mines is a permission the regulator is not in a hurry to reissue.

Management

Capital Allocation

• Deleveraging trajectory: Debt/Equity 0.96 → 0.33 over four years, with long-term debt down ~90%.
• December 2023 IPO: Book-building debut on NEPSE, raised Rs. 2.26B (Rs. 1.625B share premium).
• FY 2024/25 acquisitions (Jagdamba Cement, Shubh Shree Jagdamba, Sarbottam East): expanded group capacity but were related-party transactions; minority shareholders rely on the audit and disclosure framework to verify pricing fairness.

Related-Party Transactions

• FY 2079/80: Rs. 971M related-party revenue (12.3% of standalone revenue).
• FY 2080/81 and FY 2081/82: Materially reduced as the previously related entities were absorbed and consolidated (eliminated in group accounts). Remaining related-party exposure with separate Saurabh Group entities (Laxmi Steels, Sarbottam Steels, Saurabh Photo) was approximately Rs. 50M by FY 2081/82.

Macro Setup

Industry headwind with selective tailwinds. Nepal's cement industry has structural overcapacity (22–25 MT installed vs. ~8 MT demand; national utilisation 35–40%). Multiple Koshi-province plants temporarily halted in early 2025. Government suspended export subsidies post-September 2025 protests, hurting India-bound sales.

Forward variables: federal capex cycle (post-September 2025 reconstruction); NRB rate cuts reviving credit-financed construction; consolidation absorbing marginal capacity; India BIS-mark resolution potentially unlocking the Tarai-UP-Bihar export corridor; NPR depreciation increasing the cost of imported Indian cement at the border.

Valuation

Current Multiples (May 2026)

Three-lens View

1. Earnings. Standalone five-year average EPS approximately Rs. 21.4. Mid-cycle cement multiples of 15–22× normalised earnings would imply a fair value range around Rs. 320–470 per share on standalone basis. Group basic EPS of Rs. 27.27 supports a higher absolute level but is partly attributable to the consolidation of acquired subsidiaries.

2. Book value. P/B ~4.15×. Historical sustainable range given a 10–12% normalised ROE would be 2.5–3.5×, implying a book-based fair-value range of Rs. 506–709.

3. EV/EBITDA. Group EBITDA FY 2081/82 ~Rs. 1,968M; market cap ~Rs. 41.84B; EV ~Rs. 45.96B. EV/EBITDA ~23×. Global cement benchmarks are 6–10×; India peers 10–14×. The implied multiple is high for a cement business in an oversupplied market.

4. Dividend yield. Cash yield approximately 1.8%. Nepal fixed deposits yield 7–9% — the dividend yield is below the risk-free rate, implying the price reflects growth expectations rather than current income.

Key Variables to Monitor

1. FY 2082/83 H1 group gross margin and receivables days. If group gross margin holds at 21%+ and receivables days stabilise below 110, the FY 2081/82 recovery is durable. If gross margin compresses below 15% and receivables days exceed 135, the recovery looks more like a channel-financed bounce.
2. NEA contingent liability trajectory. Currently Rs. 863M and growing. Any crystallisation would directly hit equity.
3. Governance signals. Auditor change, related-party transaction trajectory, share-pledging disclosures.
4. Industry capacity utilisation. Sector-wide signal of pricing recovery.

Sources

• SARBTM Annual Reports FY 2079/80, FY 2080/81, FY 2081/82 (primary). Key citations from AR FY 2081/82: line 1281 (Trade Receivables: standalone Rs. 3,133.3M, group Rs. 3,367.9M), line 1334 (Revenue: standalone Rs. 9,537.3M, group Rs. 14,849.9M), line 1351 (Net Profit: standalone Rs. 1,028.2M, group Rs. 1,313.9M), line 1377 (Basic EPS: standalone Rs. 21.35, group Rs. 27.27).
• Infomerics Credit Rating Nepal — Cement Industry Sectoral Report (August 2025)
• CemNet — Nepalese Cement Producers Under Pressure to Close (January 2025)
• NRB — FDI in Cement Study (2021)
• ShareSansar SARBTM company page

References

• SARBTM Annual Reports FY 2079/80–2081/82
• NEPSE Market Data
• SEBON Filings
• Nepal Trade Information System

Research date: May 10, 2026.