Nakumatt’s profit drops to Sh305m after high costs

Mr Thiagarajan Ramamurthy, the Nakumatt
Mr Thiagarajan Ramamurthy, the Nakumatt Holdings Regional Director. The retailer bought three stores in Kakamega, Bungoma and Busia in October. PHOTO | DIANA NGILA 

Nakumatt Holdings, Kenya’s largest retailer, recorded a huge profit drop in the financial year ended February due to high financing costs, a new rating report shows.

The report by South African credit rating agency GCR shows the retailer posted profit before tax of Sh305 million this year compared to Sh823 million in 2013.

Nakumatt’s long-term credit rating was retained at BB with the outlook classified as stable.

“Profits have been heavily eroded by rising interest charges associated with the large quantum of debt that has been used to fund growth — moreover, net profit before tax has decreased from Sh823 million in 2013 to Sh305 million in 2015,” reads part of the document.

Nakumatt’s total debt more than tripled in the four years to Sh15 billion from Sh4.2 billion in 2011. The debt has been largely used to stock its new stores having increased its branches to 58 across the region with 43 in Kenya, nine in Uganda, four in Tanzania and two in Rwanda.


“Whilst capex costs have been high, the greater utilisation of debt has come from the working capital funding necessary to purchase stock for new stores,” said GCR.

Nakumatt’s net interest cover was 1.2 times compared to 1.8 times in 2013.

The lower the interest cover ratio the more a company is burdened by debt expense with a mark below 1.5 times seen as a red flag in terms of a firm’s ability to pay interest on its loans.

The retailer’s revenues stood at Sh51.6 billion last year riding on its regional diversification.

The revenue growth indicates the company has recovered well from the Westgate terror attack where Nakumatt was the anchor tenant.

The regional retailer has over the last five years been willing but unsuccessful to sell a minority stake to a strategic investor with the intention of raising capital and benefiting from the technical expertise that such an investor would bring.

Its management told the Business Daily it hoped to firm up matters with interested investors in the first quarter of next year, a shift from the year-end date they had given the rating agency.

“Negotiations are ongoing and hope by first quarter of next year we will know the direction they will take,” said Nakumatt head of strategy and operations Thiagarajan Ramamurthy in a phone interview.

Introduction of a strategic investor was identified as a factor that would be considered positively in the next rating process.

“The deal would see substantial capital injected into the business, which would markedly ease funding pressure and facilitate the further planned rollout of new branches” noted the rating agency, GCR.

Mr Ramamurthy said retail business enjoys slim margins and operates with largely fixed costs resulting to financial performance getting affected by interest rate changes.

Regional diversification helps the retailer deal with such challenges, he added.

Expanding its reach

Nakumatt has also been expanding its reach in the country, seeking to tap new cash flows in counties and the improving economic climate.

Devolution has raised the standard of living in counties, helping to grow disposable incomes by providing a market to the especially populous agricultural counties.

In October, Nakumatt bought three stores in Kakamega, Bungoma and Busia from Yako Supermarket. In the same month it acquired a building in Uganda which previously hosted South African Shoprite Supermarkets which closed in June citing poor location.

Nakumatt hopes to ride on a wide regional branch presence to stay ahead of fierce competitors Tuskys, Naivas and to some extent Uchumi.

Uchumi is the only listed retailer making it difficult to know the performance of the sector as the others are not obligated to publish financial accounts. Nakumatt and Tuskys have expressed intention to list at the Nairobi Securities Exchange.