ICRA Nepal provides IPO Grade 4 rating to upcoming FPO of Pokhara Finance

ICRA Nepal, Nepal’s only credit rating agency licensed by SEBON, has assigned [ICRANP] IPO Grade 4 rating to the upcoming Further Public Offering (FPO) of Pokhara Finance Limited (PFL). This rating signifies below average fundamentals. PFL has received approval from SEBON to float 9,83,682 units FPO shares at Rs 220 per share (premium of Rs 120 added to the par value of Rs 100). As per ICRA Nepal, the grading factors in PFL’s long track record (operating since 1997), ability to maintain moderate portfolio growth and healthy asset quality indicators. The grading also takes into account PFL’s adequate current and savings account profile, which are further supported by higher interest rates on saving accounts and subsequently moderately higher cost of funds than industry average. Comfortable capitalization profile, experienced management team and plans of expansion in uncovered regions are expected to provide PFL with adequate growth opportunities going forward. However, the grading is constrained by the finance company’s small base of operations (7 branches in 3 districts), lack of institutional promoters, increasing competition from other national level finance companies and commercial banks. The grading is further affected by lack of diversity in income sources as it earns less than 1% from fees as compared to the industry average of 14%. Going forward, attaining requisite credit and deposit growth to ensure deployment of existing and incoming capital for generating adequate returns and also adequately diversifying its portfolio towards various sectors/geographies would remain key challenges for PFL. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. Pokhara Finance has earned net profit of Rs 7.02 crore in the third quarter of the fiscal year 2073/74. Its paid up capital currently stands at Rs 55.74 crore. After the issuance of FPO shares, its paid up capital will reach Rs 65.57 crore and its reserve will grow by Rs 11.80 crore. Finally, after proposed 15% right share issuance, its paid up capital will reach Rs 75.40 crore. As a national level finance company, it should hike its paid up capital to a minimum of Rs 80 crore by the end of FY 2073/74. Its last traded closing price (LTP) stands at Rs 245 as on July 5, 2017. Also See: Previous ICRA Ratings