Fitch affirms DSI Holdings at ‘A-(lka)’
Fitch Ratings Lanka has affirmed DSI Holdings Limited’s (DSIHL)
National Long-Term rating at ‘A-(lka)’ with stable outlook. Its senior
unsecured notes have also been affirmed at ‘A-(lka)’. The rating
reflects DSIHL’s leading market position in Sri Lanka’s footwear
industry, and the resilience of its business to economic cycles, which
has largely allowed the company to sustain its sales and profit margins.
DSIHL also benefits from a lack of strong competition in the footwear
market, helped by high import duties since 2005.
The rating is constrained by a lack of clarity on the credit profile
of its 100% parent D Samson Group (DSG), of which DSIHL accounted for
66% of revenue and 50% of profits at end-March 2010, due to delays in
producing consolidated financial statements of the group.
DSIHL’s revenues and EBITDAR grew 23% and 28% respectively in the
financial year ended March 2011, largely on account of a sharp increase
in average prices across its footwear business.
Footwear volumes grew 5% despite the sharp price increase, reflecting
inelastic demand for DSIHL’s products. EBITDAR growth was also helped by
cost curtailment measures implemented during the period.
Fitch expects DSIHL’s financial leverage (defined as net adjusted
debt / EBITDAR) to increase in FY12 on higher expansionary capex and
investments expected across most business lines.
However, capex is likely to normalize post-FY12 and Fitch expects
DSIHL’s financial leverage to remain within the 3.0x guideline for its
current rating, helped by expectations of strong operating cash flow
generation.
DSIHL’s liquidity position was sound at FYE11 with undrawn credit
facilities of Rs 80m and cash balances of about Rs 385m, against Rs 156m
of long-term debt due within a year and Rs 246m due within one to two
years.
Some 79% of DSIHL’s Rs 2.4bn total borrowings as at FYE11 comprised
short term loans and overdrafts that fund working capital. The company
enjoys strong access to local banks. |