Lankem’s ratings upheld due to diversity, market dominance : RAM
View(s):The corporate credit ratings of Lankem, a top player in the agrochemicals and paints industries and a major player in terms of bitumen, used for road surfacing; were upheld recently due to its diverse business interests, market dominance in key business lines and resilient agrochemicals demand.
According to ratings agency RAM, Lankem controls 60 per cent of the paint thinner market locally, a result of exclusive dealership agreements and its distribution fleet.
However, while upholding Lankem’s long term “A-”, with stable outlook, and short term “A-” corporate credit ratings, as of March 2013, RAM also cautioned that ratings could be “pressured by its exposure to the volatility in the plantation segment and its vulnerability to fluctuations in raw material prices as well as the below-average liquidity profile”.
At the same time, RAM also indicated that “[group] performance deteriorated significantly in fiscal 2012, in line with a drop in revenue of its plantation segment and sluggish sales growth in chemicals and hardware”.
On the other hand, RAM also opined that, while Lankem’s liquidity profile was “deemed below-average”; it derived “comfort from its unutilised funding lines [that] amounted to more than Rs. 1 billion”. Further, RAM also noted that “Lankem, through its subsidiaries, is mainly engaged in the manufacture and distribution of agrochemicals as well as the cultivation of tea and rubber, with a presence in the consumer goods and paints sectors. Its other business ventures include interests in hotels, agriculture, construction and trade. The diversity has enabled the Group to better withstand downturns in a particular sector, as weaker showing in one sector can be offset by a better performance in another”. (JH)
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