Shree Airlines Limited (SAL), a leading domestic airline in Nepal, has submitted a proposal to the Securities Board of Nepal (SEBON) to issue 6,300,000 shares at a face value for the general public, along with a premium of Rs. 200 per share. If approved, the Initial Public Offering (IPO) is expected to raise Rs. 1.26 Arba for the airline. Himalayan Capital Limited has been appointed as the issue manager to oversee the process.
The IPO can only proceed after receiving official clearance from SEBON, after which the shares will be offered to the public. In anticipation of the offering, Infomerics Credit Rating Nepal Limited (Infomerics Nepal) has assigned the airline an issuer rating of IRN BBB(Is), indicating a moderate risk in the timely repayment of financial obligations.
Company Background and Operations of Shree Airlines Limited
Incorporated in 1999 as Air Ananya, the company later rebranded as Shree Airlines Private Limited and eventually converted to a public limited company in July 2023, adopting the name Shree Airlines Limited. Based in Kathmandu, the airline operates across various domestic trunk routes and offers helicopter charter services.
The airline currently maintains a fleet of 10 Bombardier fixed-wing aircraft, including three jets and seven turboprops (two on lease), and a rotor wing segment comprising six MI-8 helicopters and two Airbuses. Mr. Sudhir Mittal, the major shareholder, holds a 99.89% stake in the company.
Financial Strengths and Performance
Shree Airlines’ rating reflects its long operational track record since 1999 and a stable domestic market share of ~16% as of mid-July 2024, making it the third-largest airline in Nepal. The Shree Airlines Limited’s geographical coverage, online booking platform, and diversified operations across fixed-wing and rotor segments contribute to its revenue stability.
The acquisition of three additional Q-400 aircraft has expanded its fleet to 18 planes as of H1FY25, boosting total operating income (TOI) and improving occupancy rates. The airline reported an operating profit margin of ~27% in FY24 and ~34% in H1FY25, a significant rise from ~21% in FY21-22, driven by enhanced fuel efficiency from the new Q-400s and the limited use of fuel-intensive CRJ aircraft for charter flights.
This operational improvement resulted in net profit and gross cash accruals rising ~122% and ~53%, respectively, in FY24 over FY23, while interest coverage improved to 2.58x from 1.98x. Minimal foreign currency exposure also reduced the airline’s foreign exchange risk.
Debt and Operational Risks
However, the rating also factors in leveraged capital structure, with an overall gearing ratio of 3.24x as of mid-Jan 2025 (down from 4.03x in mid-July 2024) due to NPR 3 Bn capital investment in aircraft procurement. High Total Outside Liabilities to Tangible Net Worth (TOL/TNW) of 5.95x and moderate Debt Service Coverage Ratio (DSCR) of 1.27x in FY24 indicate financial stress.
The airline’s reliance on its top two routes (~59% of fixed-wing revenue) and modest rotor wing contribution (~11% of TOI) further highlights concentration risks. Additionally, volatile aviation turbine fuel (ATF) prices, intense competition, seasonal demand fluctuations, and regulatory uncertainties are considered partial risk factors.
Outlook and Rating Sensitivities
Looking ahead, Shree Airlines’ ability to scale operations efficiently while utilizing its expanded fleet, maintaining higher occupancy, generating adequate profits, and managing debt and foreign exchange exposure will be crucial for sustaining its credit profile. Effective execution of these factors will be key to the airline’s long-term financial stability and the successful performance of its upcoming IPO.
The IPO represents a strategic step for Shree Airlines Limited to raise capital for further expansion, enhance fleet operations, and strengthen its presence in Nepal’s competitive domestic aviation sector. If approved by SEBON, the public offering could provide investors with an opportunity to participate in the growth story of one of Nepal’s most established airlines.
