ICRA Nepal assigned LBBB-/A3 rating on watch with negative implications to Tundi Construction Private Limited

ICRA Nepal has assigned a long-term rating of [ICRANP] LBBB-(pronounced ICRA NP L triple B minus) to the fund based long term limits of NPR 1,559.29 million and non-fund based long term limits NPR 7,700.32 million(interchangeable with short-term non-fund based limits)of Tundi Construction Private Limited (Tundi). ICRA Nepal has also assigned a short-term rating of [ICRANP] A3 (pronounced ICRA NP A three) to the short-term fund-based limits of NPR 174 million.These ratings remain on watch with negative implications amid the Covid-19 impact.

The watch on assigned ratings with negative implications, mainly factor the expected impact of Covid-19.Because of the lockdowns, Tundi’s FY 2020 financials are likely to be affected, putting pressure on the debt servicing capacity of the company. The reduction in government of Nepal (GON) capital expenditure budget (~15% lower in FY 2021 vs FY 2020) could mean a lower rate of addition of new contracts to the contractor companies, including Tundi. The pressure on GoN’ revenue could increase the debtor recovery period for Tundi, affecting its liquidity. However, the relaxations accorded by the central bank and banking sector players by deferring immediate payments of interest/principal(for quarter ending mid-April 2020)remains a cushion. Although the long-term outlook of the company remains intact for now, Tundi’s ability to  withstand short  to  medium  term  liquidity  pressure  will  be  a  monitorable. Sustained  deterioration  in  operating environment and financial profile of Tundi could warrant further rating actions.

Credit strengths

• Long track record of operation
• Healthy revenue growth, comfortable coverage ratios
• Low counter-party risk, though long receivable cycle is a challenge
• Strong and diversified order book position and adequate headroom in the bidding capacity

Credit Challenges

• Covid-19  created  externalities to remain  a challenge;  immediate  relief  measures  eliminate  default  risk  for  now
• Sizeable proportion of slow moving projects
• Intense  competition amid  the  bidding  requirement  for  the  public  contract  projects
• Regulatory risk

About the company

Tundi Construction Private Limited (Tundi) is one of the large and established players in the Nepalese construction sector. It was started in the in the year 1984 by Mr. Rishi Prasad Subedi, the current chairman and the managing director of the company.

The company is involved in the different segments such as bridges, roads, irrigation and water supply projects, buildings and sanitation projects, among others. Tundi mainly deals in the public contracts and it reported an annual consolidated turnover of ~NPR 6.5 billion (provisional) in FY2019 with pending order to be executed remaining at ~NPR 12 billion.

Tundi is a family owned business wherein Mr. Rishi Prasad Subedi holds 28% of the stake while rest being held by his wife Mrs.  Laxmi  Devi  Subedi  (12%),three  sons  viz. Mr.  Sushil  Subedi  (18%),  Mr.  Anand  Prasad  Subedi  (18%) and https://www.icranepal.com/Mr. Suman Subedi (18%) and daughter Mrs. Manju Subedi (Acharya) (6%).These six shareholders are also the directors of the company.

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