Agni Incorporated short term and long term loan ratings of Rs 8.42 billion is placed on watch with negative implications

ICRA  Nepal  has placed  the  ratings  assigned  to  the  bank  loan  limits  of Agni  Incorporated  Private  Limited  (AIPL  or  the company) on watch with negative implications.These ratings include the long-term rating of [ICRANP] LA@(pronounced ICRA NP L A) assigned to the company’s long-term loans and the rating of [ICRANP] A1@(pronounced ICRA NP A One) assigned to the company’s short-term loans (including non-fund-based limits). 

The ratings for AIPL have been placed on watch with negative implications in the backdrop of the business disruptions caused by the Covid-19 triggered lockdown and the expected impact of the pandemic on the Nepalese economy. The disruption due to the lockdown is likely to slow down economic growth and may alter the consumer spending pattern over  the  medium  term.Discretionary  purchases  like  cars  and  two-wheelers  may  witness  deferment  in  the  near  to medium  term,  resulting  in  demand  contraction  and  lower  sales  for the automobile  dealership  industry. Hence,  the resultant  subdued  demand and lower  scale  economies are likely  to  create pressure  on the margins,  increase  working capital  intensity,and  deteriorate the capitalisation  and  coverage  indicators. AIPL’s working capital intensive nature of operations is likely to stretch the overall working capital cycle.However, AIPL generally has good financial flexibility with relatively  low  dependence  on  working  capital  borrowings;  only  ~62%  of  its drawing  power was  utilised  as  short-term loans as of mid-July 2019. This could help the company in managing the expected liquidity pressures over the near to medium term.

Credit strengths

• Long track record and strong market presence; experienced management
• Comfortable  financial  profile

Credit challenges

• Stagnant sales in last few years;Covid-19 to impact revenue streams 
• Intense  competitive  pressure
• Working  capital  intensive  operations

About the company 

Incorporated  in  1991, Agni  Incorporated  Private  Limited  (AIPL)  is  the sole authorised dealer of  Mahindra automotive products (utility vehicles, passenger vehiclesand tractors)for Nepal. Mr. Cabinet Shrestha, Ms. Susan Vaidya Shrestha and Mr. Arjun Prasad Sharma are the shareholders as well as the directors of the company. AIPL has its presence across the country through an extensive network comprising five showrooms/sales outlets of its own (four within Kathmandu valley and one in Birgunj) and 22 regional dealership outlets.

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