ICRA Nepal has assigned a long-term rating of [ICRANP] LB+ to the long-term loans of Hulas Investment Private Limited (HIPL) worth NPR 1980 Million. ICRA Nepal has also assigned short-term rating of [ICRANP] A4 to the short-term loans of HIPL worth NPR 10 Million.
The assigned ratings are mainly constrained by the delays seen in debt servicing by HIPL as the company prioritized credit growth during FY2019, which were funded from short term sources while the incremental lines of credit were from banks was under consideration for sanction; delays within 30 days was observed in servicing of its bank borrowings. HIPL also witnessed increased stress in asset quality indicators in the recent periods, which also remains an area of concern. The non-performing loans (NPLs i.e. 180+dpd) remained comfortable at 0.25% as of mid-July 2019 (0.40% as of mid-July 2018), which were mainly supported by write offs of ~91% of opening NPLs. ICRA Nepal also takes note of the reduction in spreads for hire purchase financing intermediaries like HIPL to 3% (3.5% earlier) from November 2018. This is likely to pressurize the company’s profitability profile, given its small scale of operations and competitive pressure from banks.
Additionally, the tight liquidity conditions in banking and the higher interest rates could hamper incremental growth and earnings. The company’s evolving risk management practices, relatively modest borrower profile, compared to the borrowers in the banking sector, relatively high operating expenses and the limited regulatory oversight for the sector also constrain the ratings. Going forward, HIPL’s ability to improve its liquidity profile and, achieve good quality portfolio growth amid the current challenges will remain the key rating sensitivities.
Nonetheless, the ratings assignment factor in the company being a part of the established Golchha Organization, which has had a long presence (>eight decades) in the Nepalese manufacturing and trading sectors. Hansraj Hulaschand and Company Private Limited (HH), which is a part of the Golchha Organization, holds 100% stake in HIPL and has infused capital and extended guarantees to the debt raised by HIPL. HIPL’s capitalization is comfortable with low gearing of ~2.3x as of mid-July 2019 as against the regulatory cap of 10x. ICRA Nepal expects the company’s gearing to remain under control, given the plans to increase capital levels, commensurate to the portfolio growth targets. HIPL can leverage on its group experience and presence in the auto sector for its business expansion. Additionally, the demand for Bajaj bikes and three-wheelers, which it primarily finances, remains healthy in their segment, which remains a positive.
Established in 2012, Hulas Investment Private Limited (HIPL) is a hire purchase financing institution which operates in line with broad guidelines of the Nepal Rastra Bank. The company is a part of Golchha Organization, which has a presence of more than eight decades with operations across various manufacturing and trading sectors in Nepal. HIPL was promoted by Hansraj Hulaschand and Company Private Limited (HH), a unit of Golchha Organization, which is authorized dealer of Bajaj Bikes for Nepal. HH holds 100% stake in HIPL at present. Mr. Shekhar Golchha is the Managing Director of the company.
Source: ICRA Ratings Nepal