Ratings agency Fitch has given Singer Sri Lanka's senior unsecured notes a long-term rating of "A(lka)," with stable outlook, stating that 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."
Additionally, Fitch also noted that Singer's rating also benefitted from an "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 sameperiod, combined with tax incentives granted to the consumer durables industry that reduced the impact from the gray-market."
Meanwhile, Fitch also highlighted that, over the period under review; "Singer's revenue increased by an annualised 29% to Rs. 15.4 billion (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%)."
At the same time, Fitch also indicated: "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" while also pointing out that 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."
Also emerging was; "Any weakening of SFL's financial profile may also exert downward pressure on Singer's rating, given the strong linkages between the two entities."
Fitch also added that a "positive rating action over the medium term" was unlikely, citing the industry's "susceptibility to economic cycles." However, it was also suggested that "profit margins and market position [were] likely to broadly remain stable."