ICRA Nepal assigned LBBB-/A3 rating on watch with negative implications to Tundi Construction Private Limited
Mon, Jun 8, 2020 12:53 PM on Credit Rating, Latest,
ICRA Nepal has assigned a long-term rating of [ICRANP] LBBB-(pronounced ICRA NP L triple B minus) to the fund based long term limits of NPR 1,559.29 million and non-fund based long term limits NPR 7,700.32 million(interchangeable with short-term non-fund based limits)of Tundi Construction Private Limited (Tundi). ICRA Nepal has also assigned a short-term rating of [ICRANP] A3 (pronounced ICRA NP A three) to the short-term fund-based limits of NPR 174 million.These ratings remain on watch with negative implications amid the Covid-19 impact.
The watch on assigned ratings with negative implications, mainly factor the expected impact of Covid-19.Because of the lockdowns, Tundi’s FY 2020 financials are likely to be affected, putting pressure on the debt servicing capacity of the company. The reduction in government of Nepal (GON) capital expenditure budget (~15% lower in FY 2021 vs FY 2020) could mean a lower rate of addition of new contracts to the contractor companies, including Tundi. The pressure on GoN’ revenue could increase the debtor recovery period for Tundi, affecting its liquidity. However, the relaxations accorded by the central bank and banking sector players by deferring immediate payments of interest/principal(for quarter ending mid-April 2020)remains a cushion. Although the long-term outlook of the company remains intact for now, Tundi’s ability to withstand short to medium term liquidity pressure will be a monitorable. Sustained deterioration in operating environment and financial profile of Tundi could warrant further rating actions.
Credit strengths
- Long track record of operation
- Healthy revenue growth, comfortable coverage ratios
- Low counter-party risk, though long receivable cycle is a challenge
- Strong and diversified order book position and adequate headroom in the bidding capacity
Credit Challenges
- Covid-19 created externalities to remain a challenge; immediate relief measures eliminate default risk for now
- Sizeable proportion of slow moving projects
- Intense competition amid the bidding requirement for the public contract projects
- Regulatory risk
About the company
Tundi Construction Private Limited (Tundi) is one of the large and established players in the Nepalese construction sector. It was started in the in the year 1984 by Mr. Rishi Prasad Subedi, the current chairman and the managing director of the company.
The company is involved in the different segments such as bridges, roads, irrigation and water supply projects, buildings and sanitation projects, among others. Tundi mainly deals in the public contracts and it reported an annual consolidated turnover of ~NPR 6.5 billion (provisional) in FY2019 with pending order to be executed remaining at ~NPR 12 billion.
Tundi is a family owned business wherein Mr. Rishi Prasad Subedi holds 28% of the stake while rest being held by his wife Mrs. Laxmi Devi Subedi (12%),three sons viz. Mr. Sushil Subedi (18%), Mr. Anand Prasad Subedi (18%) and https://www.icranepal.com/Mr. Suman Subedi (18%) and daughter Mrs. Manju Subedi (Acharya) (6%).These six shareholders are also the directors of the company.
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