Sri Lanka fabric maker rating downgraded

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Feb 02, 2011 (LBO) – Fitch Ratings Lanka has downgraded Hayleys MGT Knitting Mills (HMGT) to ‘BBB(lka)’ from ‘BBB+(lka)’ with a negative outlook, a statement said. HMGT’s liquidity was adequate based on unutilised facilities of 8.3 million dollars as at end-September 2010. “The downgrade primarily reflects HMGT’s lower operating margins,” it said.

“The company’s inability to increase sales prices in the face of significantly increased cotton prices is a key concern for the rating.”

Fitch also noted that HMGT’s operations management may require strengthening due to lapses in the debtor and inventory management areas as recently indicated in a company announcement.

The nonvalue adding expenses – provisions for bad debts and for slow moving stock – escalated to sizable proportions in the first half of the financial year and amounted to over 1.25 million US dollars, “indicating a significant leakage of the company’s profits,” Fitch said.

“The Negative Outlook indicates that Fitch is concerned for HMGT’s ability to improve its margins in the face of high competition and high input costs,” it said.

It also reflects a possible loss of bargaining