Sri Lankan cement producer Tokyo Cement, the largest of only two local cement manufacturers, will continue its revenue growth over the short to medium term, according to ratings agency RAM. This is a result of a positive oulook for the construction industry, which is the cement industry's biggest customer, and follows economic growth, as well as the company's "revenue and the output of the country's construction sector [recording] a positive correlation of 0.85 for the past 6 years." RAM also noted that two local companies, Tokyo Cement included, "supply around half of the cement in Sri Lanka" while the rest is serviced by importers.
RAM's forecast was made in recent ratings announcement wherein the agency also upheld Tokyo Cement's corporate credit rating of "A," for the long term, with a stable outlook, and "P2," for the short term.
Further, RAM also stated that Tokyo Cement's ratings were "supported by its sizable market share, its healthy balance sheet, and the healthy debt coverage levels." However, also noted, ratings were further "moderated by the inability to immediately pass on cost increases to the end-customer, funding mismatch and the exposure to the cyclical nature of the construction industry."
Additionally indicated was Tokyo Cement's Operating Profit before Depreciation Interest and Tax (OPBDIT) rose to Rs. 2.06 billion during the financial year ending March 31, 2011. This follows a fall, from Rs. 2.30 billion, during the same period in 2009, to Rs. 1.63 billion in 2010.
RAM also cautioned that the cement manufacturer and seller "relied heavily on short-term borrowings to finance its capital expenditure. As a result, its short-term funds to total borrowings stood at 73.13% as at end-March 2011 compared to 66.25% last year. This together with the group's low cash holdings translated into a low short-term funds to cash and cash equivalents
('CCE') ratio of 0.08 times."
On the other hand, RAM also tempered this negative sentiment by stating that it "derives some comfort" from Tokyo Cement's "short operating cashflow cycle which has remained below one month and its healthy annual [funds from operations] generation of around Rs. 2 billion." |
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