ICRA Nepal considers all relevant factors that have a bearing on the future cash generation of the issuer. These factors include: industry characteristics, competitive position of the issuer, operating efficiency, management quality, commitment to new projects and other associate companies, and funding policies of the issuer. A detailed analysis of the past financial statements is made to assess performance under “real world” business dynamics. Estimates of future earnings under various sensitivity scenarios are drawn up and evaluated against the claims and obligations that require servicing over the tenure of the instrument being rated. Primarily, it is the relative comfort level on the issuer’s cash flows to service obligations that determines the Ratings.
The methodologies vary in accordance with the nature of the service. For IPO Gradings, the factors analysed include, among others, the prospects of the industry in which the company operates, its competitive strengths, and its financial position. For the Grading of MFIs, the evaluation covers, among other factors, the MFI’s operating environment, governance structure, management and systems, scalability, asset quality, liquidity position, funding policies, capitalisation profile and profitability. For the Grading of Construction Entities and Real Estate Developers and Projects, all the relevant risks are analysed under the two broad categories of business risk and financial risk, with the objective being to provide lenders and sector participants with an independent opinion on the quality of the entity/project graded.