Fitch Ratings has affirmed Sri Lanka-based consumer-durables retailer Singer (Sri Lanka) PLC’s National Long-Term Rating at ‘A-(lka)’ with a Stable Outlook.
Fitch has also affirmed the National rating on Singer’s outstanding senior unsecured debentures at ‘A-(lka)’. A full list of rating actions is at the end of this commentary.
The affirmation of Singer’s rating reflects our view that its net leverage, defined as lease-adjusted net debt/operating EBITDAR (excluding the finance subsidiary), will improve and remain below the negative trigger of 5.5x over the medium term after it deteriorated to 5.5x by end-2017 from 4.3x in 2016 amid a weak operating environment. We expect the improvement in its leverage to be supported by a recovery in sales volumes. Singer’s rating also reflects its leading position in the retailing of consumer durables, its extensive product and brand portfolio across different price points and its well-managed hire-purchase business.
Recovery in Sales Volumes: Fitch believes the demand for consumer durables will recover in the medium term as consumers adjust to higher costs, earnings in the agricultural sector recover, personal taxes stay low and interest rates remain stable. Singer’s consumer electronics and home appliance revenue growth slowed to 1% in 2017 after two years of double-digit growth on weak demand due to a prolonged drought in the country, which affected the livelihood of a significant proportion of the population, and an increase in indirect taxes. Fitch believe Singer was able to better respond to the weak demand compared with peers due to its more defensive product portfolio and strong brand presence.
Growth in IT, Digital Media: Fitch expects Singer’ IT and mobile segment to be the key growth driver in the medium term, aided by increasing smartphone penetration in the country and short replacement cycles compared with most other consumer durables. Singer is currently the largest smartphone retailer in Sri Lanka Singer’s IT and digital media revenue has grown at a CAGR of about 57% over the last five years.
0 comments: