Capital Market Downturn Resulted Huge Reduction In Profitability of Hathway Investment Nepal; Operating Income Drops by 22.45 Crores

In FY 2022, Hathway Investment Nepal Limited (Hathway), Nepal's first private-equity investment company, generated operating income (OI) worth Rs. 1277 million. The company has made a forecast/provisional operating income of around Rs. 116 Million for FY 23.

For Hathway, ICRA Ratings has assigned a long-term rating LBBB for the long-term loans amounting to Rs. 147.7 Million and A3 ratings for the short term fund around Rs. 852.3 Million.

Compared to FY 2021, the company's OI has dropped by Rs. 22.45 crores. For the fiscal year 21, the company was able to produce income totaling Rs. 3522 (Million). The recent downturn in the capital market has resulted in a large reduction in operating profits for the company for FY2022 while operating losses were also recorded for FY2022 due to trading losses from Hathway Stock Dealer (Subsidiary company -90% owned by Hathway).

Furthermore, one of the main ICRA rating concerns is the company's earnings' vulnerability to market risk, which is further made sensitive by economic, political, and social issues that influence the sentiments of institutional and individual investors.

Similar to how Hathway's business is still susceptible to regulatory policy changes that may impact the depth and liquidity of the capital market, such as those affecting tax rates, borrowing requirements for margin loans, interest rates, etc. The company's large investment in less liquid promoter shares of several companies, which could cause a liquidity constraint in unfavorable circumstances, is another factor raising rating concerns.

Although the decline in the stock market, recent change in regulation capping margin-nature loan to NPR 120 million and cash dividend pay-out of NPR 246 million out of FY2021 profits have stretched the company’s liquidity profile to some extent; the company continues to maintain adequate liquid asset coverage ratio of 125% (taking liquid assets and borrowing of Hathway Stock Dealer into account) as of mid-March 2023; which remains a comfort and is a positive sign for the company’s growth in future.

About the company

Hathway Investment Nepal Limited is an investment company which was registered as a public company in 2009 and commenced its operation from 2011. Hathway invests/trades in various listed, unlisted securities, and real estate, among others. The company’s registered and corporate office is in Hathway Complex, Lainchaur, Kathmandu. The major stake is held by Mr. Hem Raj Dhakal (30.1%), SR Hydro & Investment Pvt. Ltd (28.1%) and Mr. Ambika Prasad Poudel (8.7%) and Nimisha Investment Pvt. Ltd (5.7%). The remaining stake is held by 40 other individuals and institutions.