(The following statement was released by the rating agency)
COLOMBO, November 21 (Fitch) Fitch Ratings says that lower borrowing rates, reduced electricity tariffs and an upcoming cut in the value added tax (VAT) will create a more favourable environment for retailers of consumer durables in Sri Lanka in 2015. With improvement in their purchasing power, Sri Lankan consumers are increasingly looking to upgrade to new, more efficient consumer electronics and household white goods. Fitch believes that a recovery is likely for the consumer durables sector in Sri Lanka in 2015. Demand for consumer electronics and white goods tend to be volatile across business cycles due to their non-essential nature and larger price tags. Fitch expects retailers of consumer durables to achieve modest revenue growth supported by increasing consumer purchasing power following a 25% reduction in domestic electricity tariffs from September 2014 and a cut in the VAT rate to 11% from 12% that will be implemented in 2015. The consumer durables industry faced a challenging environment in 2013 due to pressure on disposable income and introduction of the VAT, which retailers found difficult to pass on to consumers leading to a negative impact on margins. As a result, Fitch-rated retail corporates' revenue grew only by 2% in the financial year ended 31 March 2014 (FY14) against 11% in FY13. The sluggish demand also resulted in build-up of inventory, leading to higher working capital requirements. Higher working capital requirements coupled with lower profitability saw leverage of Fitch rated retail corporates deteriorate in 2014. Retailers usually have high leverage as they borrow to finance their in-house hire purchase operations. Fitch rated retail corporates' average net adjusted debt to EBITDAR increased to 6.4x at end-March 2014 from 4.3x at end-March 2013. Fitch expects higher sales and better working capital structure to have a positive impact on the retailers' leverage in 2015. The consumer durables industry is characterised by few key players, like Singer (Sri Lanka) PLC (A-(lka)/Stable), Abans Limited (BBB+(lka)/Negative) and Softlogic Holdings PLC, dominating the market. These companies have strong brand portfolios and extensive distribution networks, which are hard to replicate given the investment required and brand equity of established players. This protects the existing players from competition to a certain extent.
Contact: Dilranie Mudannayake +94 1 1254 1900 Analyst Fitch Ratings Lanka Limited Level 15-04, East Tower, World Trade Centre Colombo 01, Sri Lanka Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
COLOMBO, November 21 (Fitch) Fitch Ratings says that lower borrowing rates, reduced electricity tariffs and an upcoming cut in the value added tax (VAT) will create a more favourable environment for retailers of consumer durables in Sri Lanka in 2015. With improvement in their purchasing power, Sri Lankan consumers are increasingly looking to upgrade to new, more efficient consumer electronics and household white goods. Fitch believes that a recovery is likely for the consumer durables sector in Sri Lanka in 2015. Demand for consumer electronics and white goods tend to be volatile across business cycles due to their non-essential nature and larger price tags. Fitch expects retailers of consumer durables to achieve modest revenue growth supported by increasing consumer purchasing power following a 25% reduction in domestic electricity tariffs from September 2014 and a cut in the VAT rate to 11% from 12% that will be implemented in 2015. The consumer durables industry faced a challenging environment in 2013 due to pressure on disposable income and introduction of the VAT, which retailers found difficult to pass on to consumers leading to a negative impact on margins. As a result, Fitch-rated retail corporates' revenue grew only by 2% in the financial year ended 31 March 2014 (FY14) against 11% in FY13. The sluggish demand also resulted in build-up of inventory, leading to higher working capital requirements. Higher working capital requirements coupled with lower profitability saw leverage of Fitch rated retail corporates deteriorate in 2014. Retailers usually have high leverage as they borrow to finance their in-house hire purchase operations. Fitch rated retail corporates' average net adjusted debt to EBITDAR increased to 6.4x at end-March 2014 from 4.3x at end-March 2013. Fitch expects higher sales and better working capital structure to have a positive impact on the retailers' leverage in 2015. The consumer durables industry is characterised by few key players, like Singer (Sri Lanka) PLC (A-(lka)/Stable), Abans Limited (BBB+(lka)/Negative) and Softlogic Holdings PLC, dominating the market. These companies have strong brand portfolios and extensive distribution networks, which are hard to replicate given the investment required and brand equity of established players. This protects the existing players from competition to a certain extent.
Contact: Dilranie Mudannayake +94 1 1254 1900 Analyst Fitch Ratings Lanka Limited Level 15-04, East Tower, World Trade Centre Colombo 01, Sri Lanka Media Relations: Bindu Menon, Mumbai, Tel: +91 22 4000 1727, Email: bindu.menon@fitchratings.com. Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
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