May 14, Colombo: Fitch Ratings has affirmed Sri Lanka-based conglomerate Hemas Holdings PLC's (Hemas) National Long-Term Rating at 'AA-(lka)' with a Stable Outlook.
The affirmation of Hemas' rating reflects the company's improved business risk profile after the successful integration of Atlas Axillia (Private) Limited (Atlas), a leading school and office stationery manufacturer, which it acquired in early 2018. The acquisition has helped to increase the EBITDAR contribution from the defensive fast-moving consumer-goods (FMCG) segment from 35% to around 55%.
However, this positive development is counterbalanced by profitability pressure on Hemas' pharmaceutical-distribution business, a slowdown in its Bangladesh FMCG operations and weak demand for its leisure segment, which limit any positive rating action in the short term.
The affirmation also reflects Fitch's view that Hemas' net leverage, defined as adjusted net debt/operating EBITDAR, will remain comfortably below 1.0x over the next two years (nine months ended 31 December 2018 (9MFY19): 0.8x) amid moderating capex, barring any significant M&A activity.
"We believe Hemas has successfully consolidated Atlas with its FMCG operations over the past 15 months with Atlas contributing around 16% of the group's topline and around 25% to EBIT in 9MFY19, in line with our expectations. Management has said there is room for further synergies as the combining of Atlas' distribution network with that of its parent has yet to be completed. Atlas has introduced a degree of seasonality to Hemas' operations but we believe management has been able to successfully manage the implications by efficiently managing working capital and finance costs," the rating agency said.
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