Kathmandu. Weak financial position, limited profit and high debt burden are the main challenges in the credit rating of Nepal Mountain Lodge Private Limited.
CARE Ratings has assigned Care NP a B minus rating based on its financial viability rating for long-term loans. This indicates that the company’s financial condition is very poor. It is a subsidiary of Sherpa Hospitality Group, a subsidiary of Yeti Group, which operates Yeti Airlines and Tara Air.
According to the rating, the operating income of the company is FY 2077. 78 to last fiscal year 2081. Profits have been volatile even though they have been growing slowly through the third quarter of ’82. The company continues to suffer a net loss. Once in the fiscal year 2079. Profits improved only briefly in the ’80s. The return on investment and net worth have also been negative or very low for most years. This indicates that resource management is not effective.
The company’s debt burden is very high. The total loan to capital ratio of the company had increased to 6.19 times in the previous financial year. In most of the years since the company’s inception, it seems that it is difficult to repay the loan from the earnings as the interest-to-interest ratio is less than 1 times. The loan-to-net cash flow ratio had increased to 35.33 times in the previous fiscal year. This indicates that the company’s internal cash flow is not sufficient to pay off debt.
The refinancing risk is also high as the company has not been able to generate sufficient cash income. On top of that, the lack of diversification of sources of income has added to the risk of transactions based on a single sector. All these factors have put pressure on the company’s credit rating, and the report has portrayed the financial situation as “stressful”.
In the future, the company’s ability to generate sufficient cash flow to repay debt from operations will be a key valuation, according to the rating agency.
Other Risks
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Geographical Risk and High Competition: Nepal’s hotel and lodge sector is highly competitive. Tourism, internal and external economic situation and other external shocks directly affect the income. Since Mountain Lodge operates its hotel in one location in the Annapurna region, the geographical location risk is high.
Risk of fluctuation in interest rates: Banks and financial institutions in Nepal offer loans at fluctuating interest rates that are updated on a monthly basis. Interest rates may rise as liquidity decreases or monetary policy tightens. This will make it more difficult to pay the company’s interest, the warning rating said. Given the company’s high debt load and weak profitability, the interest rate hike could be more risky for the company.
Positive side
The advantage of a strategic location is a company’s key strength, its location. Mountain Lodge is located in the Annapurna region. There are world-famous trekking routes like Annapurna Base Camp, Ghorepani-Punhill, Annapurna Circuit.
As the Gurung Cultural Village is close to religious sites like Ghandruk, Jhinu Danda Tatopani, Pun Hill View Point and Muktinath, the lodge can attract tourists of all groups of cultural, religious and adventure tourism.
Due to easy access from Pokhara, the market potential of the lodge is strong. These factors increase the lodge’s chances of having a steady tourist entry year-round. This will positively support long-term operational efficiencies and revenues.
Nepal Mountain Lodge Pvt Ltd operates medium and luxury lodge hotels in Birethani, Tomijing, Mazgaon, Ghandruk, Landruk and Dhampus in the Annapurna Himalayan region.
