ICRA Lanka Limited, a wholly owned subsidiary of ICRA Ltd, a group company of Moody’s Investors Service, has revised the Issuer rating of Orient Finance PLC (OFP) to [SL]BB+ (pronounced SL double B plus) from [SL]BBB- (pronounced SL triple B minus)1 . The outlook on the rating has been revised to stable from negative.
ICRA Lanka’s rating revision follows the continuous weakening in OFP’s key performance indicators. The company’s asset quality deteriorated significantly during the current financial year, with gross NPAs increasing to about 9.7% in Jun-2014 before moderating in Sep 2014 to about 8.5%, it continues to remain significantly higher than the systemic levels. The above had a cascading effect on the profitability of the company, with PBT/ATA2 moderating to 2.3% for FY20143 (1.2%, provisional in H1FY2015) as compared to 6.3% in FY2013, as the provision costs witnessed a steep increase. ICRA takes note of the robust growth in the company’s portfolio, with overall portfolio growing at 33% in FY2014 (36%, annualized in H1FY2015); consequently, the company’s gearing increased to 4.5 times in Mar 2014 (5.3 times provisional in Sep 2014) vis a vis 3.3 times in Mar 2013.. The rating continues to derive strength from the financial, operational and management support that OFP is expected to receive from the Janashakthi group. The rating also factors in the experienced and professional management team coupled with the improvements in overall risk management systems by the company in the recent past.
ICRA Lanka however believes that the impact of the above could be observed in a gradual manner and the key performance indicators are expected to remain under pressure till then. ICRA Lanka also notes that OFP’s liquidity position has weakened in the recent past due to increase in the share of fixed deposits (FDs; about 54% of the borrowing in Sep 2014 vis a vis 21% in Mar 2014) and higher concentration towards shorter term fixed deposits (about 63% of FDs Maturing in less than one year period as in Sep 2014) in its funding mix leading to high near term Asset-Liability mismatches. The key rating sensitivities for OFP, going forward, would be to improve its liquidity profile by diversifying its funding, arresting incremental slippages and to make effective recoveries, which in turn would result in a gradual improvement in the key profitability indicators.
OFP’s core lending operations continue to be focused on auto financing (approximately 83% of total portfolio). Factoring, being the second largest product segment, accounted for approximately 16% of the company’s total portfolio as of end Sep 2014. Pawning (introduced in FY2013) accounted for less than 1% of OFP’s total portfolio. The company has discontinued its equipment finance division due to high portfolio losses in this segment. ICRA Lanka notes the company’s strategy is to focus on higher end auto financing and factoring going ahead in order to improve the overall quality of the portfolio. OFP’s auto financing.
www.island.lk
ICRA Lanka’s rating revision follows the continuous weakening in OFP’s key performance indicators. The company’s asset quality deteriorated significantly during the current financial year, with gross NPAs increasing to about 9.7% in Jun-2014 before moderating in Sep 2014 to about 8.5%, it continues to remain significantly higher than the systemic levels. The above had a cascading effect on the profitability of the company, with PBT/ATA2 moderating to 2.3% for FY20143 (1.2%, provisional in H1FY2015) as compared to 6.3% in FY2013, as the provision costs witnessed a steep increase. ICRA takes note of the robust growth in the company’s portfolio, with overall portfolio growing at 33% in FY2014 (36%, annualized in H1FY2015); consequently, the company’s gearing increased to 4.5 times in Mar 2014 (5.3 times provisional in Sep 2014) vis a vis 3.3 times in Mar 2013.. The rating continues to derive strength from the financial, operational and management support that OFP is expected to receive from the Janashakthi group. The rating also factors in the experienced and professional management team coupled with the improvements in overall risk management systems by the company in the recent past.
ICRA Lanka however believes that the impact of the above could be observed in a gradual manner and the key performance indicators are expected to remain under pressure till then. ICRA Lanka also notes that OFP’s liquidity position has weakened in the recent past due to increase in the share of fixed deposits (FDs; about 54% of the borrowing in Sep 2014 vis a vis 21% in Mar 2014) and higher concentration towards shorter term fixed deposits (about 63% of FDs Maturing in less than one year period as in Sep 2014) in its funding mix leading to high near term Asset-Liability mismatches. The key rating sensitivities for OFP, going forward, would be to improve its liquidity profile by diversifying its funding, arresting incremental slippages and to make effective recoveries, which in turn would result in a gradual improvement in the key profitability indicators.
OFP’s core lending operations continue to be focused on auto financing (approximately 83% of total portfolio). Factoring, being the second largest product segment, accounted for approximately 16% of the company’s total portfolio as of end Sep 2014. Pawning (introduced in FY2013) accounted for less than 1% of OFP’s total portfolio. The company has discontinued its equipment finance division due to high portfolio losses in this segment. ICRA Lanka notes the company’s strategy is to focus on higher end auto financing and factoring going ahead in order to improve the overall quality of the portfolio. OFP’s auto financing.
www.island.lk
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