RAM Ratings Lanka reaffirms Lankem Ceylon A-/P2 ratings

RAM Ratings Lanka has reaffirmed Lankem Ceylon PLC’s (“Lankem” or “the Company”) long- and short-term corporate credit ratings of A- and P2 respectively. The outlook on the long-term rating is stable.

The ratings are supported by its diversity in business operations, dominant market positions in most of its business lines, the resilient demand for agrochemicals, and above-average debt-protection metrics. However the ratings are pressured by its exposure to the volatility in the plantation segment and its vulnerability to fluctuations in raw material prices as well as the below-average liquidity profile. Lankem and its subsidiaries are collectively referred to as “the Group”. Lankem, through its subsidiaries, is mainly engaged in the manufacture and distribution of agrochemicals as well as the cultivation of tea and rubber, with a presence in the consumer goods and paints sectors. Its other business ventures include interests in hotels, agriculture, construction and trade.

The diversity has enabled the Group to better withstand downturns in a particular sector, as weaker showing in one sector can be offset by the better performance in another. The ratings are upheld by the Group’s good market position in its key business lines. Lankem is one of the top three players in the agrochemicals industry. Furthermore, Lankem is also among the top three players in the paint industry while controlling 60% of the thinner market owing to its exclusive dealership agreements and distribution fleet.

Elsewhere, Lankem is a major player in the bitumen industry aided by its established brand name and distribution network.