Fitch views the impact on utilities companies such as the Ceylon Electricity Board (CEB: A+(lka)/Negative), telecommunications providers such as Dialog Axiata PLC (Dialog: AAA(lka)/Stable) and Sri Lanka Telecom PLC (SLT: AA+(lka)/Negative), and companies exposed to the healthcare and pharmaceutical sectors such as Hemas and Sunshine Holdings PLC (Sunshine: A-(lka)/Stable), to be largely neutral, given the essential nature of these services.
CEB’s cash flows should benefit from the prevailing low oil prices which could help bridge the gap between the tariffs stipulated by the government and generation costs, reversing the EBITDA losses seen in the past. However further pressure on the domestic currency could offset such gains to an extent. Around 35% of CEB’s power generation is based on imported heavy fuel oils. The telecoms sector will benefit from strong demand for 4G data and fixed-broadband as online connectivity and remote access will be boosted due to the COVID-19 pandemic. However, both SLT and Dialog would need to increase their capex investments to address the demand for 4G data and fixed-broadband, should social distancing rules continue over an extended period.
The healthcare sector continues to benefit from rising demand for both in- and out-patient care and demand for pharmaceuticals and diagnostics. The lockdown has curtailed the pharmaceutical distribution business to an extent, but the distributors together with the government are looking at alternative methods to deliver drugs directly to the consumer.
“The large pharmaceutical distributors say they hold three to four months of inventory, and are yet to experience significant supply-chain disruptions.”
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