ECONOMYNEXT – Sri Lankan consumer-durable retailer Singer (Sri Lanka) PLC’s national long-term rating of ‘AA-(lka)’ has been affirmed by Fitch Ratings as consumer demand in the island nation recovers. The outlook is stable.
“We expect Sri Lanka’s GDP growth to average 3.5% during 2025-2026, supporting a recovery in consumer spending over the next 12-18 months,” the rating agency said.
“Singer has experienced pent-up demand for consumer durables following the removal of import restrictions in October 2023.
“In addition, the company is positioned to gain market share as smaller competitors faced difficulties or exited in the last few years.”
Singer is a subsidiary of the Hayleys conglomerate.
The full statement is reproduced below:
Fitch Affirms Singer (Sri Lanka) PLC at ‘AA-(lka)’; Outlook Stable
Fitch Ratings – Colombo – 10 Mar 2025: Fitch Ratings has affirmed Sri Lankan consumer-durable retailer Singer (Sri Lanka) PLC’s National Long-Term Rating at ‘AA-(lka)’ with a Stable Outlook.
The rating reflects Singer’s strong market position, supported by its extensive retail and distribution network and established brands. These strengths are balanced by high leverage due to debt and deposits at its finance subsidiary, Singer Finance (Lanka) PLC (SFL, BBB+(lka)/Stable).
The Stable Outlook reflects Fitch’s expectations that Singer’s financial profile will remain adequate for its rating in the medium term.
Key Rating Drivers
Consumer Demand Recovers: Fitch expects Singer’s revenue to grow by 18% in the financial year ending March 2025 (FY25) and 10% in FY26, driven by increased sales volumes. We expect Sri Lanka’s GDP growth to average 3.5% during 2025-2026, supporting a recovery in consumer spending over the next 12-18 months. Singer has experienced pent-up demand for consumer durables following the removal of import restrictions in October 2023. In addition, the company is positioned to gain market share as smaller competitors faced difficulties or exited in the last few years.
Profit Margins Improve: We forecast Singer’s EBITDAR margins to average 10% in FY25-FY26, up from 8% in FY24. Margins came under pressure in FY24 when Singer liquidated at discounted prices high-cost inventory it imported during Sri Lanka’s 2022-2023 currency crisis. Average selling prices have continued to fall in FY25, as competition led Singer to pass on benefits from an appreciating rupee to consumers. Still, its profitability has improved due to higher sales volumes, which have helped to offset Singer’s significant fixed costs, which include showroom rent.
Higher Fixed-Charge Coverage: Fitch expects Singer’s EBITDAR fixed-charge coverage – including interest costs and rent – to average 1.9x during FY25-FY26, which is healthy for the rating. We anticipate a continued reduction in Sri Lanka’s policy rates to reach an annual average of 7.3% by 2026, which will likely reduce borrowing costs further. Singer’s EBITDAR fixed-charge coverage increased to 1.7x on a trailing 12-month basis as of December 2024 (FY24: 0.9x), supported by lower borrowing costs and improved profitability.
Finance Subsidiary Weighs on Leverage: Singer’s debt amounted to LKR70 billion as of December 2024, with LKR40 billion comprising SFL’s borrowings and customer deposits. We believe Singer will support SFL if required, given the subsidiary’s strategic importance. Fitch includes all of SFL’s borrowings and deposits when calculating Singer’s leverage, in accordance with our criteria and taking into consideration Sri Lanka’s weak operating environment. We forecast Singer’s EBITDAR net leverage to improve to 7.8x in FY25 from 12.5x in FY24, driven by improving profitability.
No Notching for Parental Support: Singer’s rating is not notched for support from its stronger parent, Hayleys PLC (AAA(lka)/Stable), as we believe Hayleys has limited incentive to provide support based on our Parent and Subsidiary Linkage Rating Criteria.
The ‘Low’ legal incentive stems from the absence of corporate guarantees from Hayleys on Singer’s debt, as well as the lack of cross-default clauses between the two entities. Competitive advantages to Hayleys from Singer remain weak according to our criteria, resulting in a ‘Low’ strategic support incentive. Hayleys is a highly diversified group, resulting in limited operational synergies with Singer. We also regard the operational incentive to support as ‘Low’ because Singer has an independent management team and its brand is separate from that of Hayleys.
Peer Analysis
Abans PLC (AA(lka)/Stable), the second-largest consumer-durable retailer in Sri Lanka, is rated one notch above Singer. Both companies benefit from an extensive showroom and distribution network across the country, as well as strong brand recognition, but Singer has a larger scale and a more diverse product portfolio. However, Singer’s leverage is considerably higher than Abans’, primarily due to its sizeable finance subsidiary SFL, which we believe more than offsets its stronger business profile.
Leading engineering, procurement and construction contractor Lakdhanavi Limited (AA-(lka)/Stable) is rated at the same level as Singer, based on its parent LTL Holdings Limited’s consolidated profile under the Parent and Subsidiary Linkage Rating Criteria. Lakdhanavi has larger operating scale and stable cash flow, supported by long-term agreements with Ceylon Electricity Board (CEB, A(lka)/Stable). These agreements involve thermal power plants vital to Sri Lanka’s baseload. Payment delays from CEB have largely eased, but remains subject to state support and a cost-reflective electricity tariff policy. The rating is constrained by CEB’s weak credit profile.
Steel cable manufacturer Sierra Cables PLC (A+(lka)/Stable) is rated one notch below Singer. Despite operating on a significantly smaller scale than Singer, Sierra has a strong financial profile and cash flow generation. Long-term cyclicality in the construction sector is balanced by medium-term growth due to pent-up demand. Sierra has shown resilience during the last few years, benefiting from import restrictions favouring local steel cable manufacturers.
Singer, given its credit strength, is rated higher than a number of large banks, non-bank financial institutions and insurance companies in the country. The large financial institutions are more exposed to sovereign stress despite their individual credit strengths, due mainly to substantial sovereign-issued securities held for regulatory reasons, while the banks and non-bank financial institutions have broader exposure to numerous sectors in the local economy amid the weak operating environment.
Key Assumptions
– Revenue growth of 18.0% in FY25, moderating to an average of 10.0% in FY26-FY28
– EBITDAR margin to improve to 10.0% in FY25 and remain stable thereafter
– Decline in borrowing costs in FY25-FY27, factoring in Fitch’s projections for policy rates
– Capex to average LKR1.2 billion, or approximately 1.5% of revenue, in FY25-FY28
– Working capital cycle to moderate to 165 days in FY25 from 195 days in FY24, and remain stable thereafter
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
– EBITDAR fixed-charge coverage remaining below 1.5x on a sustained basis.
– Material weakening in the credit profile of Singer’s licensed finance company subsidiary
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
– EBITDAR net leverage sustained below 5.5x, reflecting lower risk from its licensed finance company subsidiary or an improvement in Singer’s corporate leverage to compensate for the finance company’s risks.
Liquidity and Debt Structure
Liquidity is manageable, with current maturities well-covered by net working capital. The cash conversion cycle has moderated amid more benign operating conditions. Singer has a healthy record of managing liquidity despite the challenges it faced since 2020, including the currency crisis and the sovereign default in April 2022. It has above-average access to banks as a local blue-chip company. We expect Sri Lankan banks to be in a better position to lend to the wider corporate sector as risks to their balance sheets diminish with the sovereign’s recovery.
Issuer Profile
Singer is the largest domestic consumer-durable retailer by revenue in Sri Lanka with a network of over 400 stores.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch’s latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch’s macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
Not applicable.
(Colombo/Mar11/2025)
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