ICRA Nepal grades proposed long term and short term loans of Batas Investment Company; total loans worth Rs.2.07 Arba rated

ICRA Nepal has assigned a long-term rating of [ICRANP] LBB to the existing and proposed long-term loans of Batas Investment Company Private Limited (BICPL) worth Rs.2.06 Arba. ICRA Nepal has also assigned a short-term rating of [ICRANP] A4+ to the short-term loans worth Rs.1.20 Crore of BICPL.

Batas Investment Company Private Limited (BICPL) is a hire purchase financing company which operates in line with broad guidelines of the Nepal Rastra Bank. It is part of the Batas Group which has long presence in Nepalese automobile sector. The company was established in 2003 by three brothers namely, Mr. Ananda Raj Batas, Mr. Shanta Raj Batas and Mr. Bipendra Raj Batas. As of now, these three promoters have an equal share in the company and are also its directors. BICPL currently operates through its head office in Pokhara and a branch office in Kathmandu.

The assigned ratings are constrained by BICPL’s subdued asset quality indicators with high delinquencies (90+ dpd of ~10% as on mid-July 2018) given the relatively modest borrower profile compared to the borrowers in the banking sector. ICRA Nepal also takes note of the recent reduction in spreads for hire purchase financing intermediaries like BICPL to 3% from 3.5%. This is likely to impact the company’s profitability profile, given its small scale of operations and competitive pressure from banks. Challenges in growth for BICPL are also a rating concern, given the tight liquidity conditions which have led to higher interest rates and muted portfolio growth of BICPL in FY2018 and H1 FY2019. The company’s evolving risk management practices along with the limited geographical diversification and high operating expenses constrain the ratings. The ratings also consider the company’s moderate capitalization with gearing of ~6x as of mid-January 2019 against the regulatory cap of 10x. ICRA Nepal expects the company’s gearing to remain at similar levels, given the recently increased capital requirements for the sector.

Nonetheless, the rating assignment factors in the company’s long track record (operating since 2003) along with its experienced promoter profile and management team. BICPL is one of the Group entities of the established Batas Group, which has along presence (>20 years) in the Nepalese automobile sector. Thus, BICPL can leverage on its group experience and presence in the auto sector for its business expansion. ICRA Nepal also expects timely support from the Batas Group for meeting the regulatory capital requirements and for supporting growth, if required. Going forward, BICPL’s ability to attain adequate portfolio growth amid the challenges and hence attain economies of scale as well as its ability to improve the delinquencies and earnings profile will remain the key rating sensitivities.