ICRA Nepal assigned Ratings placed on watch with negative implications to G.O. Automobiles
Thu, Jun 11, 2020 1:01 PM on Credit Rating, Latest,
ICRA Nepal has placed the ratings assigned to the bank loan limits of G.O. Automobiles Private Limited (GAPL or the company) on watch with negative implications.These ratings include the long-term rating of [ICRANP] LBBB@ (pronounced ICRA NP L triple B) assigned to the company’s long-term loans and the rating of [ICRANP] A3+@(pronounced ICRA NP A three plus) assigned to the company’s short-term loans (including non-fund-based limits).
The ratings for GAPL have been placed on watch with negative implications in the backdrop of the business disruptions caused by Covid-19 triggered lockdown and the expected impact of the pandemic on the Nepalese economy. The disruption due to Covid-19 lockdown is likely to slow down economic growth and may alter the consumer spending pattern over the medium term.Discretionary purchases like cars and two-wheelers may witness a deferment in the near to medium term, resulting in demand contraction and lower sales for automobile dealership industry. The passenger vehicle (PV) industry was already showing signs of stagnancy due to increased taxes and stringent financing norms. This was also evident from the slight sales decline and reduced margins for GAPL in FY2019. Hence, the expected subdued demand and lower scale economies is likely to create further pressure on the margins, increase working capital intensity,and deteriorate the capitalisation and coverage indicators. GAPL’s working capital intensive nature of operations is likely to witness further elongation in the overall working capital cycle. Its ability to manage the expected liquidity pressures over the near to medium term, remains to be seen.In this front, ICRA Nepal takes comfort from the reputed background of GAPL’s Group (Golchha Organisation), which has a diverse presence across various sectors.
Credit strengths
- Improving market presence despite relatively moderate track record
- Financial flexibility as part of Golchha Organisation
Credit challenges
- Slowdown in sales in recent years; Covid-19 might accentuate the impact
- Sharp deterioration in margins
- Intense competition and high dependence on a few models
- Working capital intensive operations
- Higher taxes, reduced bank financing ratio and high borrowing rates could impact demand growth
About the company
Incorporated in 2007, G.O. Automobiles Private Limited (GAPL) is the national dealer for Ford vehicles in Nepal. The company is promoted by three individuals from the Golchha family with a major stake (~70%) being held by Mr. Akash Golchha, the Managing Director of the company. GAPL is a part of the Golchha Organisation, which has a presence of more than eight decades with operations across various manufacturing and trading sectors in Nepal. GAPL has a presence across the country through a network of 12 dealer showrooms and two own showrooms/sales outlets.
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