ICRA Nepal has upgraded the credit ratings of Chandika Distillery Private Limited (CDPL), citing guaranteed off-take arrangements with its sister company Yeti Distillery Private Limited (YDPL) and stronger alignment among the promoters.

According to the rating agency’s report released on August 20, 2026, CDPL’s NPR 1 billion long-term loan facility has been upgraded to [ICRANP] LBB from [ICRANP] LBB-. Its NPR 1.01 billion short-term loan limits have also been upgraded to [ICRANP] A4+ from [ICRANP] A4.

A key factor behind the upgrade is CDPL’s new six-year supply agreement with Yeti Distillery to provide extra-neutral alcohol (ENA). CDPL has also entered into a contract manufacturing arrangement for YDPL’s primary products, creating greater revenue visibility and operational synergies between the two companies.

Promoter support has strengthened following a restructuring of shareholding that brought representatives from both promoter families associated with YDPL into CDPL. YDPL’s promoters have received an average annual dividend of around NPR 688 million over the past five years, providing a potential financial buffer for supporting CDPL’s liquidity.

Domestic distillers also continue to benefit from high import duties. Imported finished liquor attracts customs duties of around NPR 2,000 per liter, while imported ENA faces duties of around NPR 1,500 per liter, offering protection to domestic producers from foreign competition.

CDPL’s operating performance is also improving. Provisional operating income increased to NPR 384 million in FY2026, from NPR 235 million in FY2025. However, its OPBDITA margin declined from 12.1% to 10.8%. At the same time, the company’s DSCR improved significantly to 2.7 times, from 1.7 times a year earlier, while total debt to tangible net worth declined to 3.8 times from 7.1 times.

The company is currently expanding its production capacity through a NPR 1.525 billion distillery project. The project is expected to increase annual production capacity by around 49%, to 27.4 million liters. However, the original January 2026 completion target has been pushed back to January 2027.

Working capital remains a major constraint. The company’s net working capital to operating income reached 218% in FY2026, partly because of capital tied up in aging maturation stock. Its TOL/TNW also stood at a relatively high 5.1 times.

CDPL also remains exposed to foreign exchange movements because of imported equipment and raw materials. Unhedged foreign exchange losses were equivalent to around 8% of FY2026 operating profit, creating an additional pressure on profitability.

ICRA Nepal said timely completion of the capacity expansion project and successful stabilization of the expanded operations will remain important factors in determining CDPL’s future ratings.