Fitch Affirms Abans at 'A-(lka)'; outlook stable
Fitch Ratings Lanka has affirmed Abans Pvt Ltd's (Abans) National
Long-Term rating at 'A-(lka)' with a stable outlook. A full list of
rating actions is provided at the end of this commentary.
Aban Pestonjee |
The affirmation reflects Fitch's view that despite a slowing
macro-economic environment and higher inflation levels, Abans is likely
to maintain a satisfactory credit profile and strong market position in
the domestic consumer durables segment over the medium term. The rating
also factors in the improved financial performance of Abans Financial
Services Ltd (AFS, 84% owned by Abans) in 2011, partly in line with the
performance of the domestic non-bank financial institutions.
The rating is constrained by Abans' relatively weak corporate
governance compared with listed peers. This includes (but is not limited
to) concerns such as the lack of key board sub-committees, the existence
of a complex group structure, and the presence of a high level of
related party transactions with companies outside the Abans consolidated
group.
Liquidity is adequate with unutilised debt facilities of Rs 2.2 bn
and cash of Rs1.86 billion as at end-9M12, compared with the current
portion of long-term debt of Rs1.34 billion (excluding AFS debt). At
end-2011, the company raised a further Rs 5.5 billion of debt for
short-term working capital financing. However, Fitch does not expect a
structural weakening in Abans' working capital cycle given its strong
bargaining power with distributors and the strength of its main supplier
- LG Corp. Revenue grew by an annualised 34% to Rs 17.6 bnbillion in the
nine month ended December 2011 (9M12) off a higher base (FY11: 51.5% yoy),
due to record-low import duties and taxes in the consumer durables
industry since 2010.
Hence, profitability measured by operating EBITDAR margin improved to
15.7% in 9M12 (FYE11:12.5%). Nevertheless, the risk of a hike in import
duties or taxes on consumer durables exists, given the weaker outlook on
Sri Lanka's weak balance of payments in the near term when compared with
the 2010-2011 period.
Further sharp depreciations of the local currency continue to pose
risk to Abans' credit profile as majority of its inventory is imported.
However, the company's strong market share, wide retail presence and
distribution network, and its established brands mitigate any
significant risks to its profitability. |