Fitch Ratings has assigned Sri Lanka-based conglomerate, Richard Pieris & Company PLC (RICH), a National Long-Term ‘A(lka)’ rating.
The Rating Outlook is Stable. Fitch has also assigned RICH’s outstanding senior unsecured debentures National Long-Term Ratings of ‘A(lka)’ as they represent senior unsecured obligations of the company and would rank equally with the company’s other senior unsecured debt.
RICH’s rating reflects the diversified nature of its business, strong market leadership in most product categories and its well-established operating history.
The rating is supported by Fitch’s expectation that the group is likely to maintain leverage, measured by net adjusted debt/operating EBITDAR (excluding its finance company subsidiary, Richard Pieris Finance Limited), at less than 3.0x over the medium term, compared with 2.04x in the financial year ended 31 March 2015 (FY15).
High debt at the holding company level, challenges in the tea and rubber sectors and plans for aggressive growth in the financial services sector constrain the rating in the medium term.
Growth in Retail Business: RICH’s strategy of adopting a larger store format that sells grocery items, merchandise and consumer durables, compared to stores that sell mainly grocery items operated by its peers, has enabled the company to generate higher revenue per customer and also maintain better margins. We believe rising disposable income levels, rapid urbanisation and currently low supermarket penetration in Sri Lanka provide strong growth opportunities for the company to expand this segment.
Intense competition among peers remains a key risk. Expansion in Latex Mattresses, Tyres: In the medium term, RICH aims to almost double its capacity in the natural foam latex mattress segment to meet growing demand from key export markets in the US and Europe.
RICH has a competitive advantage in this segment because it sources quality rubber from its sister company Kegalle Plantation PLC.
RICH also plans to enter into production of tyres for two- and three-wheeler vehicles to tap the significant demand for tyres from both the replacement market and vehicle manufacturers in the medium term.
The Rating Outlook is Stable. Fitch has also assigned RICH’s outstanding senior unsecured debentures National Long-Term Ratings of ‘A(lka)’ as they represent senior unsecured obligations of the company and would rank equally with the company’s other senior unsecured debt.
RICH’s rating reflects the diversified nature of its business, strong market leadership in most product categories and its well-established operating history.
The rating is supported by Fitch’s expectation that the group is likely to maintain leverage, measured by net adjusted debt/operating EBITDAR (excluding its finance company subsidiary, Richard Pieris Finance Limited), at less than 3.0x over the medium term, compared with 2.04x in the financial year ended 31 March 2015 (FY15).
High debt at the holding company level, challenges in the tea and rubber sectors and plans for aggressive growth in the financial services sector constrain the rating in the medium term.
Growth in Retail Business: RICH’s strategy of adopting a larger store format that sells grocery items, merchandise and consumer durables, compared to stores that sell mainly grocery items operated by its peers, has enabled the company to generate higher revenue per customer and also maintain better margins. We believe rising disposable income levels, rapid urbanisation and currently low supermarket penetration in Sri Lanka provide strong growth opportunities for the company to expand this segment.
Intense competition among peers remains a key risk. Expansion in Latex Mattresses, Tyres: In the medium term, RICH aims to almost double its capacity in the natural foam latex mattress segment to meet growing demand from key export markets in the US and Europe.
RICH has a competitive advantage in this segment because it sources quality rubber from its sister company Kegalle Plantation PLC.
RICH also plans to enter into production of tyres for two- and three-wheeler vehicles to tap the significant demand for tyres from both the replacement market and vehicle manufacturers in the medium term.
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