A protracted downturn could weaken Abans’ leverage vs Singer: Fitch Ratings

Dec 16, 2020 (LBO) – Fitch Ratings believes Sri Lanka-based consumer-durables retailer Abans PLC’s (BBB+(lka)/Negative) leverage will rise faster than that of its peer Singer (Sri Lanka) PLC (BBB+(lka)/Negative) if the coronavirus-led economic downturn worsens.

This is because of Abans’ higher exposure to higher-risk non-core businesses. However, the ratings of both companies are currently the same, reflecting Abans’ lower leverage than Singer, which provides a buffer against Abans’ higher business risk.

Singer’s better business risk profile reflects its market leadership in consumer-durable retailing in the country, its more diversified product portfolio, and higher mix of locally manufactured products, which support more stable profit margins during periods when the local currency weakens.

Abans’ stronger financial profile stems from its cost rationalisation and working-capital efficiencies which it has achieved in the last 24 months. However, Abans’ investment in the USD184 million Colombo City Center (CCC) mix-development project could weigh on the rating if it requires further capital infusion. CCC needs to sell the remaining apartments by early 2022 in order to complete construction and to start repaying project debt.

Consumer-durable retailers have seen better-than-expected demand for products in the last six months, despite the pandemic, driven by demand for IT and related products amid increased telecommuting and home-based learning and the complete freeze on informal imports as part of ongoing import controls. However, demand could weaken further if the current downturn is deeper and/or lasts longer than expected, as we believe unemployment will rise, weakening household income.