Ram Ratings reaffirms BB/NP ratings of Arpico Finance
RAM Ratings has reaffirmed the respective long and short-term ratings
of Arpico Finance Company Limited ("Arpico" or "the Company") at BB and
NP, with a stable outlook.
The ratings reflect Arpico's improving but weak asset quality, weak
performance, moderate liquidity and marginal capitalisation. While
Arpico's gross non-performing-loans ("NPL") ratio had improved to 7.01%
as at end of FYE March 31, 2007 ("FY Mar 2007") from 15.06% the previous
year, it still remained weaker than the industry average (provisional)
of 4.46% as at that date.
The improvement in the ratio was achieved largely due to Rs. 41.10
NPL write-off against loan loss provisions. Consequently, the gross NPL
coverage had shrunk from 94.43% to 71.61% over the same period, albeit
still marginally above the industry average (provisional) of 68.13%.
Meanwhile, bad debt recoveries, which had previously contributed
significantly to asset quality and performance, slowed down during the
year affecting both rating factors. The company's margins narrowed in FY
March 2007 as a result of heftier funding costs and lower recoveries.
Pre-tax profit fell 22.57% year-on-year ("y-o-y") to Rs 20.93 million
while net interest margin ("NIM"), return on assets ("ROA") and return
on equity ("ROE") all dropped to 5.88%, 2.69% and 14.58%, respectively,
though the latter was partly affected by the revaluation exercise
carried out during FY Mar 2006.
The respective industry averages (provisional) were 6.37%, 3.79% and
24.56%. Meanwhile, the cost-to-income ratio improved marginally to
83.12%, but remained far above the industry's (provisional) 57.85% as at
end-FY Mar 2007. |
