May 12, Colombo: Fitch Ratings has affirmed Sri Lanka-based Sunshine Holdings PLC’s National Long-Term Rating at ‘AA+(lka)’. The Outlook is Stable.
The affirmation reflects Sunshine’s increasing exposure to the defensive healthcare segment and the export market through measured acquisitions, while maintaining a strong financial profile. Sunshine’s rating reflects its leading positions in healthcare, fast-moving consumer goods, such as packaged tea and confectionary, as well as in protected sectors, such as palm oil plantations.
The rating is constrained by Sunshine’s small operating scale and a more moderate competitive position versus higher-rated peers. The company’s scale will temporarily rise largely on account of high global palm oil prices, but we expect this to moderate over the medium term.
The Stable Outlook reflects our view that Sunshine will be able to navigate Sri Lanka’s weak economy in the next 12-18 months, supported by an exceptionally strong balance sheet and defensive cash flows.
KEY RATING DRIVERS
Acquisitions to Boost Scale: Sunshine’s acquisitions in healthcare and in the export market in the second half of the financial year ended March 2022 (FY22) increased its exposure to defensive cashflows. The increase in Sunshine’s stake in Akbar Pharmaceuticals (Private) Limited (ABPL) to 100% provides Sunshine with manufacturing and R&D capabilities in healthcare, which will reduce its reliance on imports. Prospects for domestic manufacturing are high as the government seeks to reduce imports to save on foreign exchange.
Meanwhile Sunshine will benefit from the acquisition of Sunshine Tea (Private) Limited (STL), a tea exporter, with its foreign-currency earnings supporting the healthcare and consumer segments’ import requirements to an extent. We expect STL to account for around 15% of Sunshine’s revenue in FY23.