Business Times

RAM upholds "A-" for Lankem

Ratings agency RAM has upheld its corporate credit ratings of "A-", for the long term, with a stable outlook, and "P2", for the short term, for Sri Lanka's Lankem, a group best recognised locally for its brand of paints. RAM also maintained Lankem's "A-" long term issue rating for the company's Rs. 500 million unsecured unsubordinated redeemable debentures (2010/2015).

According to RAM, the group, which also comprises business interests in the agrochemical manufacturing and distribution, tea and rubber cultivation, hotels, agriculture, construction, trading and consumer (C.W. Mackie PLC) segments, had its ratings uphel as a result of its "diversity in business operations, major market positions in most of its business lines, the resilient demand for agrochemicals, and adequate debt-protection metrics."

On the other hand, the agency also noted that ratings were negatively affected by Lankem's "exposure to the volatility in the plantation segment and its vulnerability to fluctuations in raw material prices."
While indicating that Lankem's revenues were "chiefly derived" from the plantations segment, RAM also pointed out that the company was "one of the top three players in the agrochemicals industry. Its market presence is fortified by its extensive marketing efforts and exclusive rights for some of its products.

Furthermore, Lankem is also among the top three players in the paint industry; this has been achieved through its extensive distribution network and high product quality. The group also controls 60% of the thinner market owing to its exclusive dealership agreements and distribution fleet. Elsewhere, Lankem is a major player in the bitumen industry aided by its established brand name and distribution network." RAM also commented that Lankem's plantation revenue number were "closely followed" by those from its chemical manufacturing operations, further stating that "steady revenue for the latter is derived from its herbicidal products, which are a crucial input in paddy cultivation. As such, the demand for herbicides is anticipated to remain relatively resilient."

Also noted was a "stronger showing in FYE 31 March 2011 ('FY Mar 2011'), Lankem's funds from operations ('FFO')strengthened to Rs. 2.80 billion (FY Mar 2010: Rs. 1.29 billion) with its FFO debt coverage ratio improving to 0.49 times (FY Mar 2010: 0.27 times) despite the increasing debt levels."

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