Yeti Airlines looking to raise long term and short term loans in NPR and USD; ICRA Nepal provides satisfactory rating

ICRA Nepal has assigned a long-term rating of [ICRANP] LBB to the long-term loans of Yeti Airlines Private Limited (Yeti or the company). ICRA Nepal has also assigned a short-term rating of [ICRANP] A4+ to the short-term loans (including non-fund based limits) of Yeti.

The assigned ratings factor in the long track record of Yeti of more than 16 years in the Nepalese domestic aviation industry with a stable market share of ~24% over the last three years, despite the entry of new players and overall market growth. Yeti is a part of the Thamserku Group, which has a presence across a diverse range of tourism-related businesses including aviation, hospitality, travel agencies, etc. This has created synergies at the Group level and has aided the company’s business generation. Yeti has been able to post good growth in revenues (~12% per annum in the last three fiscals), supported by healthy growth in domestic air passengers (CAGR of ~27% during CY2015 to CY2018). The company has added four ATR-72 aircraft over the last two years, factoring in the anticipated rise in tourist flow for the Visit Nepal Year 2020 campaign of the Government of Nepal. This is expected to provide adequate growth opportunities to Yeti. The ratings also consider the fuel economies that these aircraft offer compared to the existing Jet-streams of the company, which are likely to aid the profitability indicators going forward.

The ratings are, however, constrained by the intense price competition in the industry, leading to a decline in the revenue per available seat kilometer (RASK) in recent periods. Given the recent fleet addition by major players, the competitive landscape is likely to remain intense over the near term. Though Yeti’s ability to maintain a high passenger load factor (PLF), in excess of 90% during CY2016-CY2018, provides some comfort, the sustainability of the demand growth momentum remains to be seen. The ratings are also constrained by the high debt-funded purchase of the aircraft, which has led to a weak gearing of 8.0x as of mid-January 2019 (3.7x in mid-July 2017) and a stressed debt service coverage ratio (DSCR) of 1.1x for H1FY2019 (1.7x for FY2017).

Yeti is also considering the acquisition of its financially inferior sister concern, Tara Air P. Ltd. (Tara), which might create further stress on these indicators and could hence remain a rating monitorable. The company also has sizeable foreign currency loans and finance lease liabilities, which expose it to foreign currency risks. It also remains highly dependent on the top two routes, with ~41% of FY2018 revenues being derived from flights between Kathmandu and Pokhara and mountain flights. Being a domestic airline, Yeti’s operations are limited within Nepalese geographies, exposing it to the risks emanating from any economic and political turmoil in the country. Going forward, Yeti’s ability to attain healthy sales growth, commensurate with the fleet addition, maintain comfortable debt coverage indicators while withstanding competitive pressure, and improve the overall financial profile will remain the key rating sensitivity.

Yeti Airlines Private Limited is a domestic airlines company incorporated in 2002, with its registered office in Tilganga, Kathmandu. It is currently the second largest company in the industry in terms of the number of passengers carried. Yeti currently operates flights to eight trunk routes and mountain flights through a fleet of five Jet-streams (J-41) and four ATR 72-500 aircraft. Yeti belongs to the Thamserku Group, which has a presence in multiple tourism-related sectors including domestic and international aviation, expeditions, adventure travel, trekking, hotels/lodges, travel agencies, etc. The company was promoted by Mr. Lhakpa Sonam Sherpa and the Late Ang Tshiring Sherpa, both renowned tourism sector entrepreneurs of Nepal. Mr. Lhakpa Sonam Sherpa is currently the Chairman of Yeti while Mrs. Chanda Sherpa is the Managing Director.

Source: ICRA Nepal