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Mar 11, Colombo: Fitch Ratings has affirmed Sri Lanka-based Sunshine Holdings PLC’s National Long-Term Rating at ‘AA+(lka)’. The Outlook is Stable.
The affirmation reflects Sunshine’s increasing exposure to the defensive consumer goods and healthcare segments through M&A while maintaining a healthy balance sheet. Sunshine’s rating also reflects its leading position in its respective markets, such as healthcare, fast-moving consumer goods such as packaged tea and confectionary, as well as protected sectors such as palm oil.
We expect Sunshine’s leverage, measured as total debt net of cash to EBITDA, to remain comfortably below 4.0x in the next 12-24 months, and EBITDA interest coverage to remain above 2.3x, which are the levels beyond which Fitch would consider negative rating action.
Enhanced Healthcare Value Chain: Fitch views the acquisition of Akbar Pharmaceuticals (Private) Limited (ABPL) as complementing Sunshine’s healthcare segment, which comprises pharmaceutical distribution, medical devices and health retail. ABPL provides Sunshine with manufacturing and R&D capabilities in healthcare, which will diversify the segment’s cash flows. Prospects for domestic manufacturing are high as the government seeks to reduce imports to save on foreign exchange. Fitch expects ABPL to contribute 13% to the healthcare segment’s cashflows in the medium term.
We expect Sunshine’s healthcare EBITDA margins to shrink by around 90bp in the financial year ending 31 March 2022 (FY22) to 10.6% due to higher costs from local-currency depreciation in the price-regulated pharma distribution segment. The addition of ABPL, which generates around 70% of its revenue from relatively low-margin pharma distribution, is also likely to dilute the healthcare segment’s margins. However, segment EBITDA will increase due to higher volumes in medical devices and larger basket-size sales in health retail, as a result of rising hospital occupancy and footfall.
Conservative Approach to M&A: Sunshine has been gradually reducing its exposure to the volatile agriculture segment - primarily tea - since 2019 in favour of more defensive sectors, such as consumer goods and healthcare, through M&A. Sunshine added confectionary maker Daintee Limited to its portfolio in late 2020. Sunshine has sufficient headroom under its current rating sensitivities to engage in M&A. We do not expect the company to grow outside its core business segments in a manner that would weaken its business risk profile.
Source: http://www.colombopage.com/archive_21A/Mar11_1615441301CH.php
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