The manufacturing and industrial sector of Nepal has been brought to a grinding halt due to the ongoing Terai bandh. The industrial sector has been hardest hit as almost all industries are located in the Terai region of Nepal. The results of this unrest are being seen in the Q1 report of the publicly listed companies. Unilever Nepal Limited (UNL), whose shares are trading at Rs.26,250 per unit (as of November 03, 2015) shows a very negative outlook in its first quarter report.
ShareSansar team put Q1 report of UNL under the microscope. The results we found were astounding. We were unable to reach UNL’s representatives for comment.
The company’s current ratio and quick ratio are dangerously low. Current ratio between 1.5 and 2 and quick ratio between 1 and 1.5 are considered healthy. Unilever’s current ratio stands at 0.72 and its quick ratio stands at just 0.37. At best, the company has resources to service only 72% of its current obligations. Its net working capital is negative by Rs.49.56 crore. This amount is equivalent to the net profit of Unilever for approximately seven months.
The inventory turnover ratio of Unilever stood at 0.87 times which means that the company sold only 87% of its inventory during the first quarter of FY 2072/73. The company is not effectively selling the inventories it has bought which suggest that this problem has aroused due to disruption in supply chain caused by unrest in Terai.
The company may be forced to use long term assets or income producing assets to pay off current obligations. This can lead to decreased operations and is an indicator of severe organizational and financial problems.
The company’s Return on Equity decreased by 26.89% and its Return on Assets decreased by 25.21% compared to the same period last year.
The company’s operating margin and profitability however, are within acceptable boundaries; but these too will be severely hampered if the company cannot increase sales.
The company’s sales decreased by 20.16% compared to the same period last year. It’s operating profit declined by 20.45% and net profit by 21.96%. It’s EPS too has decreased 22.14% from Rs.271 to Rs.211. This data from the unaudited first quarter report of this fiscal year indicates that the company may face severe financial crisis if the situation does not improve soon.
Published on: Shareshansar (November 5, 2015)