Financial News: Fitch Ratings has revised the Outlook on Sri Lanka-based footwear and tyre manufacturer and retailer DSI Samson Group (Private) Limited (DSG) to Stable from Positive and has simultaneously affirmed its National Long-Term Rating at ‘BBB(lka)’.
The Outlook revision reflects Fitch’s view that a rating upgrade is not probable within the next 12-18 months, as the company’s financial risk profile will be strained by disruption to its retail and manufacturing operation by the slowdown in economic activity precipitated by the coronavirus pandemic.
We estimate DSG’s leverage was around 3.5x at the end of the financial year ending March 2020 (FY20), which provides the company with significant headroom at the current rating to weather the downturn. We expect leverage to temporarily increase to around 5.5x in FY21 – the upper limit for DSG’s rating – before falling to around 4.0x in FY22, supported by a gradual improvement in economic activity and DSG’s defensive footwear business.
Fitch estimates that DSG had around LKR800 million of cash at FYE20 and undrawn but uncommitted lines of LKR6 billion, against debt maturities of LKR10 billion falling due in the next 12 months.
However around LKR9 billion of the maturities are working-capital loans from local banks, which we expect lenders to roll over in line with DSG’s record during previous economic downturns. We also expect local banks to stand by DSG’s uncommitted undrawn facilities due to the company’s leading market position in the domestic footwear and tire industry and the temporary nature of the downturn.
We may consider negative rating action if DSG’s liquidity tightens significantly.