Fitch affirms Abans at ‘A’; Outlook
stable
Fitch Ratings last week affirmed Abans (Pvt) Limited’
(Abans) National Long-term rating at ‘A(lka)’.
The outlook is stable.
Abans’ rating reflects its position as one of the
largest retailers of consumer electronics and household
products in Sri Lanka, backed by the exclusive agency
franchise of LG Electronics Inc (‘BBB’/Stable),
its market leader position in several product categories,
and its sizable distribution network.
Fitch notes the slowdown of revenue growth to around
5.5% for H109 compared to 7% growth for FY08 (LKR11.2bn
revenue in FY08) as driven by a slowdown in consumer
demand due to lower disposable income. Operating expenses
increased by 24% to LKR2,596m in FY08 compared to LKR2,097m
in FY07, which together with increased finance costs,
had a negative impact on net profitability. Fitch expects
these trends to continue, albeit with some degree of
costs containment and a stabilisation of interest expenses.
The increase in gross profit margins at its retail operations
- to above 30% in H109 versus 27.8% for FY08 - however,
has been significant in enabling the company to arrest
some of this deterioration. The coverage ratio (funds
form operations to gross interest expense) also deteriorated
to 2.3x in FY08 compared to 3.4x in FY07 and will be
key to retaining the rating at current levels.
Support shown by the Principal (LG) through enabling
imports on delivery vs payment terms, act as a strength
for Abans. Furthermore, the market strength of Abans
in the high value segment of the retail product range
and the volume leadership in duty free sales are further
positive factors on profitability.
Rating concerns for Abans include the concentration
of its debt facilities towards short term bank based
funds; approximately 90% of its debt maturities remain
skewed towards the short term with bank based financing
being the key source of funds (around 85%). As of September
08, Abans’s total debt was around LKR4.2bn and
the cash balance was approximately LKR190m (LKR4.2bn
and LKR335m, respectively, in FY08) while unutilised
facilities amounted to LKR1.4bn. However, Fitch notes
that these credit facility limits remain uncommitted.
The leverage (based on adjusted net debt to
Op.EBITDAR) on a group basis was 3.8x in FY08 (FY07:
3.6x).
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