Fitch affirms AMW at ‘A(lka)’

Fitch Ratings Lanka has today affirmed the National Long-term rating on Associated Motorways PLC (AMW -previously known as Associated Motorways Ltd) at ‘A(lka)’.

The outlook has been revised to Negative.

The negative outlook primarily reflects the company’s weakened sales in the current high interest rate, high inflation macroeconomic environment. AMW derives around 73% of its revenues from its passenger-car business and increased pressure on vehicle sales will invariably lead to increased pressure on the company’s earnings.

Although Fitch acknowledges that a significant amount of vehicle registrations may come from permits issued to state employees, the increase is expected to be ‘one off’, mostly occurring in the next 12-18 months.

In addition, AMW’s negative outlook takes into account the high capital expenditure planned over the next 24 months, which is expected to increase leverage and reduce the debt service coverage ratio of the company further, given that most of the investments are unlikely to yield immediate returns.

In H108, AMW’s total revenue and operating profits amounted to Rs. 5,285 million and Rs. 451m respectively (representing an annualised decline in revenues of 14% from FY07 - broadly 73% of revenues and 80% earnings corresponded to the sale of passenger cars in the same period).