ICRA Nepal assigned Autoways Private Limited Rs 1.38 billion loan and East Link Motors Rs 875 million loan Ratings Watch with Negative Implications
Fri, Jun 19, 2020 1:54 PM on Credit Rating, Latest,
ICRA Nepal has placed the ratings assigned to the bank loan limits of Autoways Private Limited(APL or the company)on watch with negative implications.These ratings include the long-term rating of [ICRANP] LBB@(pronounced ICRA NP L double B) assigned to the company’s long-term loans and the rating of [ICRANP] A4+@(pronounced ICRA NP A four plus) assigned to the company’s short-term loans (including non-fund-based limits).
The ratings for APL 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 elongated lockdowns and the aftereffects are 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, resulting in demand contraction and lower sales for the automobile dealership industry.The passenger vehicle (PV) industry was already showing signs of stagnancy due to increased taxes and stringent financing norms. Hence, 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. APL’s working capital intensive nature of operations is likely to witness a further elongation in the overall working capital cycle.The company’s ability to manage the expected liquidity pressures over the near to medium term, remains to be seen.Amid the continuation of the lockdown, the impact of the pandemic on the revenue stream of APL could not be fully ascertained. ICRA Nepal will continue to monitor further developments of the company’s performance to ascertain whether further rating action is warranted.
Credit strengths
- Diversified presence across multiple automotive segments with strong presence in its area of operations
- Established track record in auto dealership business and well-networked promoter/management
Credit challenges
- Revenue likely to remain muted; externalities from pandemic could affect other key operating parameters
- Leveraged capital structure and modest coverage indicators
- High working capital intensity
- Increased taxes and tighter bank financing impact growth in PV segment
- Intense competitive pressures, especially in domestic CV industry
About the company
Incorporated in 2002, Autoways Private Limited (APL) is a regional dealer for Toyota and Eicher vehicles and Komatsu construction equipment. The company holds dealerships of Toyota vehicles for the Gandaki & the Narayani Zones and additionally for Butwal City. However,for Eicher vehicles, it holds the dealership of the Gandaki, Narayani, Dhaulagiri and Lumbini Zones. The company is a Komatsu dealer for construction equipment covering the Gandaki and the Dhaulagiri Zones. Mr. Narayan Prasad Poudel is the Managing Director and the sole shareholder of the company. APL works in collaboration with its sister companies which sells genuine spares/accessories and services Toyota, Eicher and Komatsu vehicles. The company has three showrooms/sales outlets (one each in Pokhara, Narayanghat and Butwal) while its sister concerns operate service centres in conjunction with the showrooms. It has a relatively strong foothold in the Gandaki region from where it began its operations.
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ICRA Nepal has placed the short-term rating of [ICRANP] A4+@(pronounced ICRA NP A four plus) assigned to the bank loan limits of East Link Motors Private Limited (EMPL or the company)on Watch with Negative Implications.
The ratings for EMPLhave 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 elongated lockdowns and the aftereffects are 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, resulting in demand contraction and lower sales for the automobile dealership industry.The passenger vehicle (PV) industry was already showing signs of stagnancy due to increased taxes and stringent financing norms. Hence, 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. EMPL’s working capital intensive nature of operations is likely to witness a further elongation in the overall working capital cycle.The company’s ability to manage the expected liquidity pressures over the near to medium term, remains to be seen.
Credit strengths
- Long track record of operations and experienced promoters
- Established position of Toyota-brand vehicles
Credit challenges
- Revenue likely to remain muted; externalities from Covid-19 could also affect other key operating parameters
- Financial profile to witness stress
- Increased taxes, revised financing norms and high borrowing rates could impact PV segment growth
- Intense competition and high dependence on a few models
- Working capital intensive operations
About the company
Established in 2007, East Link Motors Private Limited is the regional dealer of Toyota passenger vehicles for the Bagmati Zone, Nepal under a dealership agreement with United Traders Syndicate Private Limited, the distributor of Toyota vehicles in Nepal. EMPL’s registered office is in Lainchaur, Kathmandu and it currently operates two self-owned showrooms-one in Lainchaur, Kathmandu and the other in Kupondole, Lalitpur. The company is owned by Mr. Narayan Prasad Poudel,Mr. Rajendra Bikram Poudel and Dr. Dhananjay Regmi,each holding one-third of its shares. Dr. Regmi is the Managing Director of the company.
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