Agni Incorporated looking to raise long term and short terms loans worth more than Rs.8 Arba; ICRA Nepal assigns top ratings to the facility

ICRA Nepal has assigned the long-term rating of [ICRANP] LA to the NPR 50-million long-term loans of Agni Incorporated Private Limited. ICRA Nepal has also assigned the short-term rating of [ICRANP] A1 to the short-term loans (including non-fund-based limits) of AIPL.

The rating assignment factors in the company’s long track record (>25 years) in the Nepalese automobile dealership industry and strong market positioning in the utility vehicles (UV) segment. The rating also takes into consideration AIPL’s healthy sales growth trend, supported mainly by a strong demand for UV segment. The rating also takes comfort from the company’s robust return indicators, comfortable capital structure and coverage indicators (interest cover of ~17x in FY2018).

The ratings, however, are constrained by the intense competitive pressures in the industry with the presence of many established players/brands. ICRA Nepal also takes note of AIPL’s high dependence on top two models, which together accounts for over 90% of total sales. The ratings are also constrained by the recent increase in taxes for the passenger vehicle (PV) segment, along with the reduced regulatory capon bank financing at 50%, which could slowdown demand growth.

Moreover, the increasing cost of bank borrowings and slowdown in loan disbursements could deter prospective customers. The dealership business itself is characterized by high working capital intensity and hence the recent increase in interest rates across the banking sector might impact AIPL’s profitability and debt coverage indicators. Going forward, AIPL’s ability to diversify its revenue streams while sustaining growth and profitability along with judicious working capital management, will remain the key rating sensitivities.

Incorporated in 1991, Agni Incorporated Private Limited (AIPL) is the sole authorized dealer of Mahindra automotive products (utility vehicles, passenger vehicles and tractors) for Nepal. Mr. Cabinet Shrestha, Ms. Susan Vaidya Shrestha and Mr. Arjun Prasad Sharma are the shareholders as well as the directors of the company. AIPL has its presence across the country through an extensive network comprising five showrooms/sales outlets of its own (four within Kathmandu valley and one in Birgunj) and 22 regional dealership outlets.