ICRA Nepal Rates Ncell's Long Term and Short Term Loans; Telecom Company Reports Low Average Revenue Per User (ARPU)

ICRA Nepal has given Ncell "A" credit ratings. The company was given a long-term rating of [ICRANP] LA for long-term loans of NRP 18,645 Million and a short-term grade of [ICRANP] A1 for NRP 10,000 Million. Despite its modest revenue improvements in recent years, the rating agency gave the carrier a favorable rating due to its good financial standing. 

The ICRA draws attention to Ncell's declining revenue market share over the previous three years. Ncell held a 64% market share in terms of revenue in FY 2019 but fell to 56% in FY 2021. The analysis also notes that Ncell has a sizable market share in industry revenues and continues to have a high ARPU, but it also emphasizes that the "continuous pattern of mismatch in subscriber base growth" is cause for concern. In 2021, Ncell's Average Revenue Per User (ARPU) was Rs 205, a 17% decrease from the previous year.

In FY 2018, Ncell reported a Total Operating Income of nearly Rs 60 billion. Over time, the number has been steadily declining. The private telco declared an operating income of Rs 40,424 million for the fiscal year 2021.

Over the 21-month period ending in mid-April 2022, Ncell reported a moderate 37% Compound Annual Growth Rate (CAGR) in its 4G subscriber base. The amount has "impacted Ncell's revenue performance for FY 2021. Also, the business's overall revenues shrank by 14%.

Ncell has been keeping a sizable reserve position despite having a large dividend pay-out (based on annual profits). As a result, its capitalization and coverage metrics, with gearing of 1.2 times and TD/OPBITDA of 1.0 times as of mid-July 2021, remain robust.

Additionally, the company generally maintains large cash holdings, so as of mid-July 2021, its net debt to OPBITDA remained at a comfortable 0.4 times. With the gradational reduction of term debt, these indicators are anticipated to further improve.

Key Strengths

• Healthy capitalization and coverage indicators
• Steady financial profile and comfortable liquidity profile
• Strong promoter profile and experienced directors/management

Key Weakness

• Declining market share amid largely steady subscriber base
• High commitment to shareholder returns
• High CAPEX payables leading to weak current ratio
• Risk of regulatory changes and technological obsolescence

About the Company:

Following the group's acquisition of 100% of Reynolds Holding Limited of the West Indies, which owns 80% of Ncell, Ncell joined Axiata Group Berhad in 2016. The Nepalese company Sunivera Capital Venture Private Limited owns the remaining 20% of the stakes.

The company was first incorporated as Spice Nepal Private Limited, a business founded in 2001, launched its commercial operations in September 2005 as the country's first private GSM telecom operator under the name "Mero Mobile." Later in September 2008, the dominant European telecom operator Teliasonera purchased a majority ownership in the business. In March 2010, the brand name was changed to "Ncell," and the business was renamed to Ncell Private Limited.