Kathmandu. Care Ratings Nepal has downgraded Digital Home International Pvt. Ltd. (DHI Nepal) long-term loan facility rating to Care NP B. The rating of short-term loans has been kept unchanged as ‘NPA Fo’.
The rating change indicates increased financial risk to the company due to higher debt and limited profitability.
According to the report, the company’s revenue fell by 58 percent in the last financial year. According to the unrevised financial statements of the last FY, the total transaction was Rs 37.50 crore. In the previous fiscal year 2080/81, the company had posted an operating income of Rs. 89.60 crores.
Due to a significant decline in total operating income in the last fiscal year 2081. The profit margin before tax and depreciation stood at 10.31% in FY182 as against 11.22% in the previous year. The company reported a loss of Rs 80 million in the last fiscal year due to the shrinking business and comparatively high interest burden. It was also in deficit in the previous fiscal year. Its loss was Rs 5.90 crore that year.
Now, as the use of Set Up Box is decreasing, the share of Set-Up Box’s revenue in its total business is shrinking. This product had contributed Rs 70,000 to the total sales in the last fiscal year. In the previous fiscal year, the product had contributed Rs 44.59 crore to the total sales.
Since the ratio between total loans and total cash earnings is negative, the pressure to repay debt is great and can increase the risk of interest payments. The average loan recovery period of the company has also increased from 172 days to 419 days.
The company’s promoters have been regularly investing additional capital to run the business and meet the current capital requirements, which has given the company some stability in the short term.
There is a risk that the profit margin will be negligible due to higher production costs and operating costs if the company does not diversify its production and increase its business. In the case of low cash income, a financial crisis can cause major cash flow problems and run the risk of making it difficult to repay debt. Over-reliance on promoter financing can pose risks to long-term sustainability.
IME Group, a subsidiary of IME Group, is compelled to adopt new technology related to set-up box and continuously invest in technology to cope with the competition.
The company needs to increase revenue, expand production and sales, improve operational efficiency, and balance the capital structure. If the company manages to overcome these challenges, the rating may stabilize or even improve in the future. However, given the current economic situation, the risks are high.
