Pioneer Moto Corp set to raise short term loans worth Rs.1.51 Arba; ICRA Nepal assigns ‘ICRANP A3’ to the facility

ICRA Nepal has assigned the short-term rating of [ICRANP] A3 (pronounced ICRA NP A three) to the existing short term loans worth Rs.1,350 Million as well as proposed short-term loans (including non-fund based limits) worth Rs.165 Million of Pioneer Moto Corp (Pvt.) Ltd. (PMC).

Incorporated in August 2014, Pioneer Moto Corp (Pvt.) Ltd. (PMC) is Nepal’s sole authorized dealer for Nissan and Datsun brand vehicles. PMC was promoted by Mr. Sandeep Kumar Sharda, who is also the sole shareholder and managing director of the company. It is also involved in selling the genuine spares/accessories and servicing of the Nissan and Datsun brand vehicles. PMC has three showrooms/sales outlets of its own (two in Kathmandu and one in Biratnagar) and 13 dealership outlets across major cities of Nepal.

The assigned rating factors in the healthy sales growth recorded by PMC over the last few years and the improving market presence despite limited track record (approximately four years) in Nepalese automobile dealership industry. The addition of Nissan dealership in FY2018 and the upcoming models is expected to support sales growth going forward. The rating action also takes into consideration PMC’s satisfactory profitability and debt coverage indicators, despite high leverage. The rating further takes comfort from the fact that PMC is promoted by the Sharda Group, which has diversified presence across multiple business sectors in the country. The consequent financial flexibility is reflected in the form of short-term advances and equity infusion by the promoter, based upon incremental business requirements. ICRA Nepal expects promoter group to provide timely financial support in case of financial exigencies.

The ratings, however, are constrained by the intense competition from established players/brands in the automobile dealership industry, where in PMC is a relatively new player. The rating is also constrained by the recent increase in taxes in the passenger vehicle (PV) segment and the reduced regulatory cap on the bank financing at 50%, which could slowdown demand growth. Liquidity in the banking sector is currently volatile. Hence, the increasing cost of bank borrowings and slowdown in the loan disbursements could deter prospective customers. Additionally, the dealership business is characterized by high working capital intensity and hence the recent increase in interest rates across the banking sector could pressurize PMC’s profitability and debt coverage indicators.

Given the increasing business volume, the company’s working capital requirements would be growing further. Hence, its ability to timely manage both debt and equity funding to fund incremental working capital requirement would remain a key monitor able. Going forward, the company’s ability to sustain growth and profitability amid challenges imposed by increased taxes, reduced bank financing ratio and tight liquidity conditions in banking will remain the key rating sensitivities.