G.O. Automobiles Private Limited looking to raise long-term and short-term loans worth Rs.1.71 Arba; ICRA Nepal rates the issue

ICRA Nepal has assigned a long-term rating of [ICRANP] LBBB to the NPR 74 million long-term loans of G.O. Automobiles Private Limited (GAPL). ICRA Nepal has also assigned a short-term rating of [ICRANP] A3+ to the short-term loans (including non-fund based limits) of GAPL worth NPR 1640 million.

The assigned ratings factor in the company’s conservative financial policy with modest leverage and satisfactory debt coverage indicators, its established dealership track record and the gradually improving position of its principal OEM, Ford vehicles, in the Nepalese market. The ratings take note of GAPL’s healthy sales growth trend during FY 2015-18, supported by new model launches by the principal as well as dealership expansion. GAPL is a part of Golchha Organization, which has a long presence (more than eight decades) across diverse business sectors in Nepal. This has also been considered while assigning the ratings.

The ratings, however, are constrained by the intense competition in the industry with the presence of many established players/brands. ICRA Nepal also notes GAPL’s high dependence on its top two models, which together accounted for over 75% of the total sales, exposing the company to high product concentration risk. The ratings are also constrained by the recent increase in taxes for the passenger vehicle (PV) segment, along with the reduced regulatory cap on bank financing to 50%, which could slowdown demand growth. Liquidity in the banking sector is currently volatile. Hence, the increasing cost of bank borrowings and slowdown in loan disbursements could deter prospective customers. The dealership business itself is characterized by high working capital intensity. As a result, the increasing interest rates across the banking sector will impact GAPL’s profitability and debt coverage indicators. Going forward, GAPL’s ability to reduce its dependence on the top models, while sustaining growth and profitability, along with judicious working capital management will remain the key rating sensitivities.

Incorporated in 2007, G.O. Automobiles Private Limited (GAPL) is the national dealer for Ford vehicles in Nepal. The company is promoted by three individuals from the Golchha family with a major stake (~70%) being held by Mr. Akash Golchha, the Managing Director of the company. GAPL is a part of the Golchha Organization, which has a presence of more than eight decades with operations across various manufacturing and trading sectors in Nepal. GAPL has a presence across the country through a network of 12 dealer showrooms and two own showrooms/sales outlets.

(Source: ICRA Nepal)