Top rating for Hayleys amidst caution on debt levels
View(s):Hayleys has received a top rating assessment from RAM Rating but with a cautionary note, “ … the ratings are tempered by the Hayleys Group’s moderately high debt levels”.
The rating agency said this week that it reaffirmed Hayleys ratings at AA-/P1 with a stable outlook.
It said the ratings are upheld by the group’s diversified business portfolio, strong market positions in several key businesses coupled with the group’s adequate debt protection indicators.
“Nevertheless, the ratings are tempered by the Hayleys Group’s moderately high debt levels, tight liquidity as well as its exposure to fluctuations in commodity prices and foreign-exchange risk,” RAM said.
The ratings continued to be supported by the group’s diversified business profile, which has enabled it to withstand adversities affecting a particular industry sector, as weaker showing in one business can be balanced off by the strong performance in another.
Hayleys, RAM said, enjoys strong positions in several of its key businesses. It is the world’s largest producer of coconut-shell-based activated carbon with an estimated market share of around 15-16 per cent; accounts for around 5 per cent of the global market for non-medical gloves; and is a sizable player in plantations, makings up around 4.5 per cent and 2 per cent of the country’s tea and rubber production, respectively.
“That said, the group’s key businesses are sensitive to fluctuations in commodity prices, which are in turn governed by a range of factors including global supply, demand and weather conditions. Thus, commodity prices directly affect the group’s margins, as demonstrated in the past.”
Hayleys is also exposed to foreign exchange rates given its reliance on exports.
“During the initial rating, RAM Ratings Lanka had raised concerns on the group’s loss-making textile arm, Hayleys MGT Knitting Mills PLC which had weighed down on group performance. Although Hayleys MGT continued to be in the red during fiscal 2012, we note that performance had improved during the 1st half of FYE 31 March 2013 with the division breaking-even at operational level, supported by a capital infusion by Hayleys.”
RAM said however the group’s debt burden continues to be high, reflective of its debt-funded acquisitions over the past few years. Total debt continued to be on the rise, increasing nearly 30 per cent y-o-y during fiscal 2012 to Rs 21.56 billion (end-September 2012 was Rs 23.04 billion).
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