Financial Times

Singer gets A+(sri) rating from Fitch
Fitch Ratings Lanka Limited (FRL) has assigned ‘A+ (sri)’ for Sri Lanka’s consumer durable firm Singer Sri Lanka’s (SSL) proposed Rs 150 million 2005/2008 and Rs 250 million 2005/2009 debentures.

At the same time, the agency, in a statement, affirmed the ‘A+(sri)’ ratings assigned to Singer’s outstanding Rs 500 million 2005/2009, Rs 300 million 2005/2009, Rs 204 million 2004/2008, Rs 250 million 2004/2008 and Rs 300 million 2002/2005 unsecured debentures. The rating outlook is Stable. SSL has issued debentures amounting to Rs 950 million to date in 2005 which have been fully utilised to fund the growing consumer financing operations and the expansion programme of the company.

Part of the proceeds from the proposed debenture will be utilised to redeem a debenture maturing in October 2005. While the remainder will support the financing operations of SSL, the issue will also improve the debt maturity profile of the company.SSL reported robust growth in 1H-05, achieving a turnover of Rs 5.3 billion, a 30% growth over the corresponding period of the previous financial year. Earnings before interest taxation depreciation and amortization (EBITDA) margins however fell to 12% from 13% in FY04, largely as a result of the additional debtor provisions and write-offs relating to the Asian tsunami.

The company thus far has been able to pass-down the increases in duty/ value added tax and interest rates to its customers without eroding margins. However, the agency recognises that competition and inflationary pressures on consumer spending are intensifying and going forwards, retailers may find it difficult to readily pass-through further increases in costs.

Nevertheless, FRL does not expect severe price competition or a marked adverse change in the profitability of retailers. Singer’s leverage measured by Debt/ EBITDA increased to 3(x) at end-1H05 from 2.7(x) at FY04 owing to increased debt to fund the consumer financing operations and increased working capital stemming from sales growth and new store openings.

The agency expects Singer’s leverage to increase further with the growing consumer financing operations and retail network expansion making SSL a more levered entity overall. However, the forecast metrics for the company over the short- to medium-term are comfortable for the current rating category. At the same time the agency appreciates that a differing capital structure applies to the consumer financing operations of the company and takes comfort in the quality of the receivables portfolio.

Although debt maturity is skewed towards the short-term, liquidity is fair with Rs 387 million of cash and liquid marketable assets at end-1H05 backed by Rs 350 million of committed-undrawn credit facilities. In addition, SSL has good access to capital markets.

SSL is Sri Lanka’s largest consumer goods retailer with a network of over 650 points of presence. Broadly 55% of the Singer’s sales are on consumer financing schemes with interest earned on such sales accounting for 12% of the company’s top-line. The quality of receivables is high with defaults maintained below 2% consistently.

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