Dec 18, Colombo: Fitch Ratings has affirmed the largest distillery in the country, Distilleries Company of Sri Lanka (DIST) a National Long-Term Rating at 'AAA(lka)' and a Stable Outlook.
The key rating drivers for the AAA rating are the healthy operating profile and the strong market share of the company in a highly regulated sector.
Issuing the rating, the global rating agency said the company's strengths are reflected in a high EBITDA margin of over 30%, reflecting relatively inelastic demand for spirits and the group's ability to pass on tax increases.
DIST is the market leader in the manufacture of alcoholic beverages accounting for about 82% of arrack and 60% of local alcohol production in 2012. DIST has a portfolio with strong brands, diversification across price points, and good access to retail points across the country.
The spirits sector is highly regulated with restrictions on advertising and promotion, and issuance of retail licenses, the rating agency said.
The rating agency noted that these regulatory measures set high barriers to entry that benefit existing players like DIST but pointed out that the high and frequent increases in top-line taxes outweigh the advantages.
Although the tax increases only have a limited short term impact on consumption, nonetheless the increase in average selling prices has encouraged a large illicit spirits market, Fitch Ratings noted.
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