Shivam Cements (NEPSE: SHIVM) — Investment Report

Executive Summary

Shivam Cements Ltd. (NEPSE: SHIVM) is Nepal's first publicly-traded cement company, incorporated in 2003 and listed on NEPSE after commencing commercial production in 2011. Its plant at Hetauda-16, Makwanpur is the integrated, closest-to-Kathmandu cement facility among listed peers. Through a subsidiary, Shivam Holding Pvt. Ltd., SHIVM holds 30% of Hongshi-Shivam Cement Pvt. Ltd. — Nepal's largest modern cement plant (6,000 TPD, approximately NPR 36 billion Chinese FDI). This stake is equity-accounted only at the Group level; SHIVM's standalone profit-and-loss — which is what portals quote and most investors price — carries NPR 0 for it. Understanding this structural distinction is the foundation of any rigorous analysis of SHIVM. Eight audited annual reports confirm the standalone "Investment in Associates" line is zero in every year. Standalone EPS (FY2081/82) is NPR 15.22; Group EPS is NPR 27.26 — a 79% gap that flows from this accounting structure. (Source: SHIVM Audited Annual Report FY2081/82, Note 41 — Primary.)

At NPR 621 (reference price, 14 July 2026 — Secondary), the analytical picture is a genuine tension between a high-quality, fortified business and a demanding price. A sum-of-the-parts valuation that fully credits the Hongshi-Shivam look-through at its Group carrying value produces a base fair value of approximately NPR 320 (Estimate). A reverse valuation implies the market prices approximately 12.7% perpetual growth in a standalone cement business whose revenue has declined 32% over eight years. That gap is the central analytical observation.

Business Overview

What the company does. SHIVM mines limestone from four self-owned quarries in the Makwanpur belt (Khortar, Jarua, Kalwan, Chakli), burns it into clinker at 1,900 TPD, and grinds it into OPC cement at 3,000 TPD (approximately 1.0 MTPA), selling primarily to a national dealer network serving Central Nepal. Virtually all standalone revenue is external cement sales — NPR 7,752.4 million of NPR 7,766.6 million FY2081/82 total revenue. There is no intra-group revenue inflation on the standalone accounts. (Source: SHIVM FY2081/82 Annual Report, Note 28 — Primary.)

The Hongshi-Shivam structure. In 2018, the Goel Group brought in China's Hongshi Holding Group, forming Hongshi-Shivam Cement Pvt. Ltd. at Sardi, Nawalparasi — a 6,000 TPD cement + 6,000 TPD clinker plant, approximately NPR 36 billion investment. Hongshi holds 70%; SHIVM's subsidiary Shivam Holding Pvt. Ltd. holds 30%. Because the stake sits inside a subsidiary, it flows into SHIVM's numbers only at the Group/Consolidated level via the equity method. On the standalone balance sheet, "Investment in Subsidiaries" (which includes Shivam Holding) appears at cost: NPR 4,755.2 million. At Group level, the same exposure is carried as "Investment in Associates" at NPR 5,258.8 million (equity-method carrying value), implying the Group book value understates the economic value versus standalone cost. (Source: SHIVM FY2081/82 Annual Report, Note 9 — Primary; Kathmandu Post, 27 April 2017 — Secondary.)

Standalone economic engine. SHIVM mines limestone, converts it to clinker and cement, and sells through a dealer network — funded almost entirely by equity with essentially no debt. Through the Shivam Holding subsidiary chain, it receives cash dividends from Hongshi-Shivam that are recorded in SHIVM's standalone "Other Income" as Dividend Income and are eligible for tax-free redistribution to SHIVM shareholders under the Income Tax Act 2058. (Source: SHIVM FY2081/82 Annual Report, Re-distributable Dividend note — Primary.)

Financial Performance

All figures NPR millions, standalone unless noted. Source: SHIVM audited annual reports FY2074/75–FY2081/82 and FY2082/83 Q1–Q3 unaudited quarterly reports — Primary, company self-reported. Eight years of audited data; three scanned years recovered from comparative columns in subsequent annual reports.

Eight-Year Standalone Financial Summary

Source: SHIVM verified financial file; standalone data from audited annual reports FY2074/75–FY2081/82 — Primary.

Three structural findings from eight years of data.

First, revenue has declined 32% from the FY2075/76 peak (NPR 11,345 million) to NPR 7,767 million (FY2081/82). This is a flat-to-declining mature cement business in a 35–40% utilization industry, not a growth business.

Second, SHIVM never fell to a loss in any of the eight years. Trough standalone PAT was NPR 259.6 million in FY2080/81 at 13.5% gross margin — the year when Hongshi dividend income of NPR 148.3 million represented approximately 57% of standalone profit. Operating cash flow remained NPR 681 million even at the trough (2.62× PAT), confirming the earnings-quality strength.

Third, de-levering is complete. Interest-bearing debt declined from 21.2% of equity (FY2075/76) to 0.2% (FY2081/82). Finance cost of NPR 9.2 million is effectively a rounding error. This fortress balance sheet separates SHIVM from all cement peers in Nepal.

Standalone versus Group EPS — the 79% gap. The retail feeds (Sharesansar, ShareHub, Merolagani) quote the standalone filing: EPS 15.22 in FY2081/82 and approximately NPR 14.76 on a 9M FY2082/83 annualized basis. The Group EPS — which captures the full Hongshi-Shivam equity-accounted earnings — is NPR 27.26 in FY2081/82. This Group figure is only available in annual audited consolidated statements, never in quarterly filings. (Source: SHIVM FY2081/82 Annual Report, Note 41 — Primary.)

Quarterly Snapshot

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

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

9M FY2082/83 standalone PAT of NPR 619.2 million is already 78% of the FY2081/82 full-year standalone PAT of NPR 798.2 million, with one peak-season quarter remaining. Gross margin at 23.1% for the 9M period is above the FY2081/82 full-year 22.2%, confirming the cyclical recovery is real. Q4 (Chaitra–Ashadh, the dry-season construction peak) typically contributes disproportionately — FY2081/82's Q4 alone contributed NPR 397.6 million of the full-year NPR 798.2 million.

Important limitation: the Hongshi-Shivam associate line does not appear in quarterly filings. Group-level earnings (including the Hongshi look-through) are only visible in the annual consolidated report, expected approximately August–October 2026 for FY2082/83.

Market Position

Nepal's listed cement universe consists of two companies: SHIVM and SARBTM. The sector operates at approximately 35–40% national utilization (approximately 22 MT installed capacity versus approximately 8 MT demand). Thirteen Koshi-Province plants were halted in 2024–25 and state-owned Udayapur Cement closed in June 2025 — a structural rationalization is underway. (Source: Infomerics 2025, via +16 Capital cement sector report — Secondary.)

SHIVM versus SARBTM — key standalone metrics:

Source: SHIVM and SARBTM verified financial files — Primary. SARBTM external revenue estimate excludes NPR 4,066.8 million intercompany sales (per SARBTM FY2081/82 Annual Report, RPT note — Primary).

SHIVM is the decisively lower-cost, lower-risk operator. Power and fuel intensity is approximately 9–10 percentage points below SARBTM's in every comparable year. Finance cost is effectively 3% of SARBTM's. At the FY2080/81 trough, SHIVM held a 13.5% gross margin versus SARBTM's 11.9% — the marginal cushion that determines survival in a rationalization cycle.

The Hongshi-Shivam position (look-through, not on SHIVM standalone): Hongshi-Shivam is Nepal's largest modern plant at 6,000 TPD, claims approximately 60% of the Nawalparasi local market, and holds BIS export-grade certification aimed at India. SHIVM's effective look-through interest is approximately 26.4% (30% via Shivam Holding, with approximately 88% SHIVM ownership of Shivam Holding based on Group NCI data). (Source: HR Goel Group website — company self-reported; SHIVM FY2081/82 Annual Report, Note 9 — Primary.)

Regulatory and Macro Context

NEA electricity dispute — live and escalating. SHIVM carries NPR 1,276.1 million as "Amount Payable to NEA for Electricity Over-Billing" — held flat for seven consecutive years with no provision movement, sub judice at the Supreme Court. This escalated in FY2082/83: NEA issued a follow-up demand for NPR 668.9 million, reiterated it with a 28-month EMI offer, and when SHIVM did not comply, cut power to the plant on Shrawan 4, 2082 (early FY2082/83), disrupting operations. SHIVM filed a writ of certiorari and, "solely to restore power and without acknowledgment of liability," deposited one EMI installment of NPR 23.89 million. The full NPR 1,276.1 million plus accumulated interest and penalties is unprovided. Management's stated view is that an adverse outcome is "remote." (Source: SHIVM FY2081/82 Annual Report, contingent liabilities note — Primary; Kathmandu Post, 24 March 2025 — Secondary.)

Additional regulatory friction. SHIVM is litigating at the Supreme Court: a Bagmati Province 0.25% "natural resource tax" on cement sales and a 25% "environmental fee" on limestone-extraction royalty, both challenged as ultra vires. Income-tax and VAT claims not acknowledged run approximately NPR 37–61 million — immaterial. (Source: SHIVM FY2081/82 Annual Report, contingent notes iii-b, iii-c — Primary.)

Macro tailwinds. NRB rate cuts reduce working capital financing costs. Approximately 4,000 MW of hydropower under construction provides a multi-year infrastructure spending tailwind. No significant new greenfield cement capacity is expected to come online in 2026–28. These conditions support utilization recovery from the 35–40% trough — benefiting SHIVM's operating leverage, given the fortress starting position.

Governance and Capital Allocation

Ownership and board. SHIVM is the flagship listed vehicle of the H.R. Goel Group. Chairman Gaurav Goel (second generation) leads the board alongside directors Anjani Nandan Maru, Gaurav Sharda, and Shailaja Rai. Independent Director Shiromani Dhakal holds the single independent seat. CFO Jyoti Thapa has been a constant across all eight audited years. (Source: SHIVM FY2081/82 Annual Report — Primary; Shivam Cement website — company self-reported.)

Related-party purchases. Total related-party purchases were NPR 1,821.5 million (FY2079/80), NPR 2,544.9 million (FY2080/81), and NPR 2,185.7 million (FY2081/82) — approximately 24–33% of standalone revenue. The single largest counterparty each year is Hongshi-Shivam itself: SHIVM buys Hongshi-manufactured clinker/cement for resale. 9M FY2082/83 Hongshi purchases: NPR 839.4 million. The Goel Group has approximately 28 subsidiaries/associates and 15 other related entities, several of which are competing cement ventures. Transfer pricing on this material flow is unverifiable by outside parties. (Source: SHIVM FY2081/82 Annual Report, RPT schedules — Primary.)

Capital allocation record. Cash dividends paid totalled approximately NPR 5,215 million over FY2075/76–FY2081/82 against cumulative standalone PAT of approximately NPR 6,449 million — approximately 81% payout ratio (Derived). Standalone NAVPS has been essentially flat over seven years (NPR 194.9 to NPR 188.5), indicating retained capital at the standalone level did not compound per-share value. At the Group level, capital routed into Shivam Holding (which holds the Hongshi stake) produced a Group carrying value increase of approximately NPR 1.1 billion and recurring cash dividends upward — NPR 98.6 million (FY2081/82) and NPR 148.3 million (FY2080/81). (Source: SHIVM verified financial file — Primary.)

The 2018 Hongshi FDI. Allocating equity capital into a 30% position in the largest, most modern cement plant in Nepal created the embedded asset now carried at NPR 5,258.8 million and generating recurring cash dividends. This is the standout capital-allocation event of SHIVM's history. (Source: SHIVM FY2081/82 Annual Report, Note 9 — Primary.)

Key Risks

Valuation risk. At NPR 621, a generous sum-of-the-parts analysis produces a base fair value of approximately NPR 320 (Estimate). The reverse-valuation implies approximately 12.7% perpetual growth in a standalone cement business that has contracted 32% in revenue over eight years. The permanent-loss risk at this price is not operational failure but multiple de-rating from growth-pricing to cyclical-commodity pricing.

NEA dispute escalation. The NPR 1,276.1 million unprovided contingent liability is live and reached a new stage when NEA cut plant power. An adverse Supreme Court ruling requiring a large cash outflow and simultaneous earnings provision would materially impair standalone equity. Management classifies the risk as "remote."

Related-party opacity. Approximately 24–33% of standalone revenue flows through related entities including competing cement plants owned by the same promoter group. A single independent board member provides limited independent oversight. Transfer pricing is unverifiable.

Hongshi dividend uncertainty. Of Hongshi-Shivam's NPR 606.2 million FY2081/82 Group share-of-profit, only NPR 98.6 million was upstreamed as cash — approximately 16% payout. If the JV retains earnings to fund a Phase-2 doubling to 12,000 TPD, the cash cushion that protected standalone profitability at the trough could be reduced. (Source: SHIVM FY2081/82 Annual Report, Note 30 — Primary.)

Cycle and overcapacity. Nepal cement operates at approximately 35–40% national utilization. A second utilization leg down — without the Hongshi dividend cushion — would compress standalone margins significantly from the current 22–23% level.

Analytical Perspectives

The case for the business. The eight-year audited record establishes three facts that are difficult for competitors to replicate: (1) integrated limestone-to-cement production with own quarries closest to Nepal's largest demand basin; (2) power and fuel intensity of 26.1% versus SARBTM's 35.7% — a structural cost advantage that held through the entire downturn; (3) a near-zero-debt balance sheet providing the option to buy distressed cement assets as the shakeout continues. The embedded Hongshi stake is a real, cash-generative asset with independent strategic logic.

The analytical tension. At NPR 621, the price embeds growth assumptions that the standalone cement business — which produces flat-to-declining revenue — has not delivered over the eight-year history. A generous SOTP that fully credits the Hongshi look-through yields a base fair value of approximately NPR 320 (Estimate). The Group EPS of NPR 27.26 — at 22.8× — is more defensible than the standalone 40.8× trailing P/E, but still embeds a premium to normalized earnings given cycle-average ROE of 6–7%. The survivor thesis is intact. The valuation question is separate from the quality question.

Valuation Context

Reference price NPR 621 (14 July 2026 — Secondary; traded approximately 600–660 in late July 2026). All multiples and fair value estimates are labeled accordingly. Not investment recommendations.

Weighted base fair value: approximately NPR 320 (Estimate — Leg A blended approximately NPR 170, 65% weight; Leg B approximately NPR 70, 30%; Leg C approximately NPR 14, 5%; upward rounding for fortress optionality). Scenario range: Bear approximately NPR 200 (cycle rolls over, NEA crystallizes, Hongshi dividend cut, re-rates to 10× Group EPS) — Base approximately NPR 320 — Bull approximately NPR 440 (FY2082/83 recovery sustains, Group EPS approximately NPR 28–30, valued at 14–15×). (All Estimates — inputs and invalidation conditions stated; not investment recommendations.)

Trailing multiples at NPR 621: Standalone P/E approximately 40.8× (Derived); Group P/E approximately 22.8× (Derived); P/B approximately 3.35× (Derived — per ShareHub).

Reverse-valuation. Assign Hongshi full credit at Group carrying value (approximately NPR 4,630 million attributable, approximately NPR 83 per share). Residual value the market assigns to the standalone cement business = NPR 34,734 million market cap − NPR 4,630 million Hongshi = NPR 30,104 million. At normalized cement owner earnings NPR 630 million and COE 15%, the implied perpetual growth rate is approximately 12.7% (Derived: 30,104 = 630 × (1+g) / (0.15 − g)). (Estimate — inputs: market cap = 55,932,287 shares × NPR 621 = NPR 34,734 million; OE NPR 630 million; COE 15%. Invalidated if COE is significantly lower or standalone revenue growth durably exceeds 8%.)

What We Are Watching

1. FY2082/83 annual report (~August–October 2026). The only place the Hongshi-Shivam look-through appears. Key data points: Group share-of-profit (the line that swings from NPR −108 million to NPR 606 million in the eight-year history); cash dividend upstreamed to SHIVM standalone; standalone gross margin through Q4; any provision movement on the NPR 1,276.1 million NEA liability; net debt trajectory.

2. NEA Supreme Court proceedings. The power cut in early FY2082/83 confirms this dispute is active. A ruling requiring payment of all or part of the disputed liability plus accumulated interest/penalties would materially impair equity and current-year earnings.

3. FY2082/83 capex disclosure. The NPR 405.6 million step-up in FY2081/82 either reflects maintenance catch-up (neutral) or the start of a capacity expansion (would change the leverage trajectory if debt-funded). The full-year capex figure appears in the annual report.

References

1. Shivam Cements Ltd. — Audited Annual Reports FY2074/75–FY2081/82 (8 years); FY2082/83 Q1–Q3 Unaudited Quarterly Reports. Auditor: Subhash & Co. → UHY Suvod Associates. Key notes used: Note 1 (plant, capacity), Note 9 (Investment in Associates — Hongshi carrying NPR 5,258.8M), Note 28 (revenue by type), Note 30 (Other Income / Dividend Income NPR 98.6M), Note 41 (EPS Group Basic 27.26 / Diluted 25.56 vs Standalone 15.22/14.27), Re-distributable Dividend note, Contingent Liabilities note (NEA NPR 1,276.1M). Accessible via SEBON filings. Primary, company self-reported.

2. SARBTM Audited Annual Reports FY2079/80–FY2081/82 — peer comparison on power intensity, debt, and margin. Accessible via SEBON. Primary.

3. ShareHub Nepal — SHIVM company page (EPS 14.76, P/E approximately 42, P/B 3.35, NAVPS 185.31, 52-week 516–730, LTP NPR 621 at 14 July 2026). Accessed 2026-07-26. sharehubnepal.com/company/SHIVM Secondary.

4. Kathmandu Post — "Cement factory likely to be delayed due to govt apathy" (Hongshi-Shivam, 6,000 TPD, US$350M, 70:30 ownership). 27 April 2017. kathmandupost.com Secondary.

5. Kathmandu Post — NEA electricity overcharging / EMI settlement reporting. 24 March 2025. kathmandupost.com Secondary.

6. HR Goel Group — corporate website (group structure, Shivam Cement page, Hongshi-Shivam page). hrgoelgroup.org Company self-reported.

7. Shivam Cement — company website (board, management). shivamcement.com.np Company self-reported.

8. +16 Capital Cement Sector Report — sector capacity (~22 MT vs ~8 MT demand), 35–40% utilization, macro backdrop, rationalization. Internal research citing Infomerics 2025. Secondary.