Fitch affirms Singer (Sri Lanka) PLC at ‘A’; Stable

Fitch Ratings Lanka has affirmed the National Long-Term rating on Singer (Sri Lanka) PLC’s (Singer) senior unsecured notes at ‘A(lka)’ . The Outlook is Stable.

The rating reflects Singer’s market position as one of Sri Lanka’s largest consumer durables retailers, its established franchise and extensive distribution network, a multi-brand product portfolio that is diversified across price points, and well-managed financing operations.
The rating also reflects Singer’s improved credit profile over 2010 and the nine-months to end-September 2011 (9M11) as expected. This was supported by the economic upswing that prevailed locally during the same period, combined with tax incentives granted to the consumer durables industry that reduced the impact from the grey-market.
In 9M11, Singer’s revenue increased by an annualized 29% to LKR15.4bn (2010: 34.5%, 2009: -13%). Much of this growth was driven by same-store sales, as the industry benefited from lower duties on imported consumer goods and benign interest rates and inflation. Its EBITDAR margin remained healthy at 15.4% in 9M11 (2010: 15.6%, 2009: 15.4%).
The company’s financial leverage (defined as adjusted net debt/operating EBITDAR), excluding its subsidiary Singer Finance (Lanka) Plc (SFL; ‘BBB+(lka)’/Stable), remained under the 4.5x guideline at 3.6x at end-2010. Fitch expects Singer to generate strong funds from operations (FFO) to support its high working capital needs over the medium-term, enabling it to sustain financial leverage below the 4.5x guideline. FFO to fixed charge coverage improved to 2.8x in 9M11(2010: 1.9x, 2009: 1.2x)
Singer’s liquidity position remained comfortable. As at end-September 2011, it had cash and cash equivalents of LKR374m and undrawn facilities of LKR2.5bn, against medium-term debt maturities of LKR440m due within one year and LKR698m due within one-two years. Singer has access to funding from banks, and continues to access local capital markets for medium-term bonds.
Negative rating action may result from a weakening of Singer’s liquidity position or risk profile, or a sustained increase in its financial leverage beyond 4.5x.
 Any weakening of SFL’s financial profile may also exert downward pressure on Singer’s rating, given the strong linkages between the two entities. Noting the susceptibility to economic cycles with profit margins and market position likely to broadly remain stable, Fitch does not expect positive rating action over the medium term.