Hansraj Hulaschand and Company Rs 5.79 billion loan Ratings placed on Watch with Negative Implications

Sun, Jun 14, 2020 1:43 PM on Credit Rating, Latest,

ICRA  Nepal  has placed the ratings  assigned  to  the bank  loan  limits  of Hansraj  Hulaschand  and  Company  Private  Limited (HHC or  the  company)on Watch with Negative Implications.These  ratings  include  the long-term  rating  of  [ICRANP]  LBBB+@(pronounced ICRA NP L triple B plus) assigned to the company’s long-term loans and the rating  of [ICRANP]  A2@(pronounced ICRA  NP A two) assigned to the company’s short-term  loans (including  non-fund-based limits).

The  ratings  for HHC have  been placed  on Watch with Negative Implications amid business  disruptions  caused  by the Covid-19 triggered lockdown  and  the expected impact  of the pandemic on  the Nepalese economy.The disruptions due to the Covid-19 lockdown are likely to  slow  down economic growth  and  may  alter the consumer spending  pattern to  an extent.Discretionary  purchases  like  cars  and  two  wheelers may be deferred in the  near  to  medium  term,  resulting  in demand  contraction and lower sales for the automobile  dealership industry. However, HHC derives the major  portion of its  revenues from  the two-wheeler (2W)  segment,  which is  likely  to witness  lower  demand  decline compared  to the three-wheeler segment (3W), and  hence  remains  a  comfort.However,  the expected subdued  demand and lower economies of  scale would create pressure  on  margins, increase  working   capital   intensity,and  deteriorate the capitalisation  and  coverage indicators. HHC’s working capital intensive nature of operations are likely to  witness  further elongation  in the overall working  capital  cycle. HHC’s ability to manage the expected liquidity  pressure over the near to medium  term remains  to  be seen.However, ICRA Nepal takes comfort from the company’s experienced management team and reputation of the promoter group (Golchha Organisation),  which has diverse presence, mainly in manufacturing and trading  sectors.

Credit strengths

  • Long  track  record  and strong market  presence
  • Diverse revenue base; 2W segment likely  to witness lower demand  constraints
  • Part  of the  Golchha Organisation 

Credit challenges

  • Covid-19  induced  lockdown  to result in lower revenues in FY2020 and  FY2021
  • Margins  and financial  profile expected to remain under pressure
  • Working  capital  intensive  operations
  • Intense competition and  high dependence  on variants  from a  single model

About the company   

Established  in  1959,  Hansraj  Hulaschand and  Company  Private  Limited  (HHC)  is  the  authorised  dealer  of  Bajaj  two-wheelers and  three wheelers,  KTM  brand  two-wheelers,  TVS  brand  tyres  and  Servo lubricants for Nepal.  Its  registered office  is  in  Biratnagar,  Morang.  The  company  operates  through three showrooms of  its  own in  Kathmandu  (one  Bajaj  showroom  and  two  KTM  showrooms),along  with 148 regional  dealerships. HHC is  a  part  of  the  Golchha  Group,which has a long  and  diverse presence across various  manufacturing  and  trading  sectors in  Nepal.  As  of  now, the company’s shares are held by 19 members  of the Golchha  family  with a majority stake  held by Mr. Shekhar  Golchha (53.8%),while the rest of the shareholders hold 3.75% or less. Mr.  Shekhar Golchha is  the Chairman  of the company.

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