ICRA Nepal assigned Ratings placed on watch with negative implications to G.O. Automobiles

ICRA  Nepal  has placed  the  ratings  assigned  to  the  bank  loan  limits  of G.O.  Automobiles Private  Limited  (GAPL or  the company) on  watch  with  negative  implications.These  ratings  include  the long-term  rating  of  [ICRANP]  LBBB@ (pronounced  ICRA  NP  L triple  B) assigned to  the company’s long-term  loans and the rating  of  [ICRANP]  A3+@(pronounced ICRA NP A three plus) assigned to the company’s short-term loans (including non-fund-based limits). 

The ratings for GAPL have been placed on watch with negative implications in the backdrop of the business disruptions caused  by  Covid-19  triggered  lockdown  and  the  expected  impact  of  the  pandemic  on  the  Nepalese  economy.  The disruption  due  to Covid-19  lockdown  is  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 a deferment in the near to  medium  term,  resulting  in  demand  contraction  and  lower  sales  for  automobile  dealership  industry. The  passenger vehicle (PV) industry was already showing signs of stagnancy due to increased taxes and stringent financing norms. This was also evident from the slight sales decline and reduced margins for GAPL in FY2019. Hence, the expected subdued demand and lower scale economies is likely to create further pressure on the margins, increase working capital intensity,and deteriorate the capitalisation and coverage indicators. GAPL’s working capital intensive nature of operations is likely to witness further elongation in the overall working capital cycle. Its ability to manage the expected liquidity pressures over the near to medium term, remains to be seen.In this front, ICRA Nepal takes comfort from the reputed background of GAPL’s Group (Golchha Organisation), which has a diverse presence across various sectors.

Credit strengths

• Improving market  presence  despite  relatively  moderate  track  record
• Financial flexibility as part of Golchha Organisation

Credit challenges

• Slowdown in sales in recent years; Covid-19 might accentuate the impact
• Sharp deterioration in margins
• Intense  competition and high  dependence  on  a  few  models
• Working  capital  intensive  operations
• Higher taxes, reduced bank financing ratio and high borrowing rates could impact demand growth

About the company 

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 Organisation, 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.

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https://www.icranepal.com/