Bhat-Bhateni Supermarket To Open 8 More Outlets In The Next 2-3 Years; Look At The Issuer Ratings Given To BBSM By ICRA Nepal

After evaluating various criteria, ICRA Nepal has assigned ratings of LLB to the fund-based long-term limits of NPR 5,258.17 million and A4 to the short-term fund-based limits of NPR 4,127.50 million and short-term non-fund-based limits of NPR 3,485 million to Bhat-Bhateni Supermarket and Departmental Store Private Limited (BBSM).

All essential aspects are considered, including industry features, the issuer's competitive position, operating efficiency, management quality, and funding policies.

The suitable operational history of The BBSM, which was founded in 1992 and is still the country's top and oldest departmental store, is credited with the rating element.

The ratings are also bolstered by the store's continually increasing revenue profile. In fact, BBSM's revenue increased at a CAGR of 14% from FY2017 to FY2021. The store's success, growth, and profitability throughout the pandemic also support the company's favorable demand outlook.

Financial Risk

ICRA Nepal investigates the company's profitability, leverage, coverage, cash flows, and liquidity situation in this risk. Similarly, the department store recorded a Debt-Service Coverage Ratio (DSCR) of 1.51 times in FY 21, an increase from the previous year's DSCR of 1.31 times. For FY 2021, the company's Net Working Capital was 18.3 percent, and the Current Ratio was 0.8 times (audited).

Business Risk

Similarly, ICRA Nepal collects the company's competitive positions, diversity, operating efficiency, and project hazards under the business risk criterion. BBSM faces competition from a variety of unorganized-sector firms as well as other local stores. The company's long-term issue is the continuing e-commerce trend.

BBSM operated 18 outlets across Nepal at the end of 2021. By the end of April 2022, the company had opened four new stores, with plans to open eight more in the next two to three years. Hence, the company has a total 22 outlets as of May, 2022.

BBSM’s operating revenue is Rs. 19.99 Arba for the financial Fiscal Year 2021. The operating profit increased by 3.28% as compared to the FY2020. The increase in the operating profit means that the company's management is generating more revenue while controlling expenses, production costs, and overhead.

Its EBITDA has increased by 2.20 % over the previous year. At the same time, its total debt to tangible net worth has decreased by 19.13%.

CAPEX has been financed with long-term bank debt, resulting in huge annual principal repayments, as well as a constant supply of dividends and relatively little revenue from newly built stores, putting pressure on the company's liquidity.

While the interest coverage ratio remained at an average of 4 times in FY 2021, due to high principle payback commitments on long-term loans, the DSCR remained under pressure at 1.5 times.

Due to its short-term debt investment plans and significant principal repayment commitments, the DSCR is likely to tighten further in the medium term. In the short to medium term, BBSM's coverage and capitalization rates are planned to be phased out until the company's overall profile stabilizes following expansion.

Growth Analysis

Even throughout the pandemic time (FY 2020-2021), the company's sales increased by an average of 15-20% year over year, indicating a healthy demand outlook.

Revenue growth has supported BBSM's operating profit due to economies of scale, which is expected to continue as new store operations stabilize.

The serving directors as well as the ownership of the departmental store lie with Mr. Min Bahadur Gurung and Mrs. Sabitri Gurung who own the company in a ratio of 60:40.