Kathmandu: In Nepal’s stock market, a familiar script has played out for years: promoters put in a token amount of their own money, load the company with bank loans, run it just long enough to look respectable, then cash out by selling shares to the public the moment the lock-in period ends. Insurance and hydropower firms pioneered the game, but now manufacturing companies are eagerly copying the playbook.
The latest example is Lumbini Ceramics, the country that claims to produce Nepal’s first fully vitrified tiles under the “Leminar” brand. Launched just over a year ago in Gulariya, Bardiya, with a total investment of around Rs 4 billion, the plant started commercial production in late 2024. Yet barely six months after tiles hit the market, the company has already appointed a sales manager for its initial public offering and is rushing toward a listing, a move that has raised eyebrows across the investment community.
Good businesses rarely sprint to the stock exchange. If a company is genuinely earning 20 percent returns on capital, promoters would happily wait five years or more to recover their billion-rupee investment privately.
The haste at Lumbini Ceramics tells a different story. Insiders linked to the well-known Mangalam Group, which has never taken its profitable pipe business public, suddenly seem desperate to offload this new venture onto retail investors.
The numbers explain why. The company is drowning in debt. Its gearing ratio has climbed to 2.32, meaning liabilities are more than three times net worth, and continuous losses have eroded the equity base. Operating profit covers just 34 percent of interest and principal repayments, forcing existing shareholders to keep injecting cash from their own pockets simply to service loans.
Working capital is another nightmare: over half the total capital is tied up in short-term bank borrowing, inventory sits unsold for seven months, receivables take three months to collect, and the factory relies on nearly nine months of supplier credit — a fragile chain that could snap the moment terms tighten.
In its first full year, the plant ran at less than 48 percent of capacity and still posted a loss despite an 8 percent gross margin, eaten away by sky-high interest and depreciation charges. Nepal’s tile market is small, brand awareness is low, and raw materials (special clay mixes) have to be imported from India, leaving little pricing power.
Investors who buy into the upcoming IPO will essentially be taking over a heavily leveraged startup that has yet to prove it can run profitably at scale. For the current promoters, the offering is less about raising growth capital and more about a graceful and highly profitable exit before the balance sheet becomes impossible to defend.
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