Fitch Ratings – Colombo: Fitch Ratings has affirmed Ceat Kelani Holdings Pvt Limited’s (CKH) National Long-Term Rating at ‘AA+(lka)’ with a Stable Outlook. The rating reflects CKH’s established leadership in the domestic pneumatic tyre manufacturing sector and a resilient financial profile. These strengths are balanced by exposure to price-sensitive, cyclical and highly competitive end markets, which increase margin volatility.
The Stable Outlook reflects Fitch’s expectation that CKH will maintain its market position amid rising input costs and intensifying competition from imported tyres. It also indicates that the company will preserve adequate credit metrics despite periods of weaker earnings and increased investment requirements.
Key Rating Drivers
Macro and Sector Risks Remain: CKH faces demand and margin volatility due to its exposure to cyclical and price-sensitive end-markets and geographical concentration to Sri Lanka. Higher energy and input costs following the Iran war will put pressure on near-term tyre demand, despite a high share of replacement demand.
Resilient Financial Profile: Fitch believes that CKH’s robust financial profile, characterized by low leverage and sound liquidity, will cushion the company against the risks from a challenging operating environment. Fitch expects CKH’s EBITDA net leverage to remain well below the negative sensitivity of 1.0x over the next 24 months, despite Fitch anticipating lower earnings in the near term, significant capex and dividend distributions.
We expect CKH’s EBITDA net leverage to peak at 0.6x in the financial year ending March 2028 (FY28), leaving a buffer against sector risk before gradually declining.
Near-Term Margin Pressure: Fitch expects CKH’s gross profit margin to decline below 20% in FY27 from 24% in FY26 due to higher costs for imported and local raw materials and increased conversion costs driven by rising energy prices. This reflects CKH’s limited ability to fully pass through cost increases to end-users amid intense competition from imports. EBITDA margin is projected by Fitch to remain below 10%. Fitch expects a recovery in volumes and margins from FY28 on a gradual recovery in demand and stabilization in input costs.
Maintain Market Leadership: Fitch expects CKH to maintain its leading position in Sri Lanka’s pneumatic tyre manufacturing industry. The company’s established brand and extensive dealer network should aid market share, despite exposure to price-sensitive, cyclical end markets and intense competition. CKH uses adaptive pricing strategies to mitigate market volatility and preserve market share across key segments. Planned production facility upgrades are likely to enhance product quality, particularly radial tyres, and strengthen CKH’s competitive positioning.
Peer Analysis
CKH is rated one notch below Hemas Holdings PLC (AAA(lka)/Stable), reflecting CKH’s smaller operating scale and limited revenue diversification. This exposes CKH to greater cyclicality. Hemas benefits from significant exposure to defensive sectors, namely pharmaceuticals and fast-moving consumer goods, which collectively contribute over 90% of EBITDA and provide stable cash flow. In addition, Hemas holds strong market positions in pharmaceuticals, home and personal care as well as stationery.
Sunshine Holdings PLC (AA+(lka)/Stable) is a mid-sized conglomerate with presence in healthcare and consumer goods. Sunshine faces volatile cash flow and regulatory risks, whereas CKH is subject to cyclical demand and competitive pressures from imports. Both companies display comparable credit metrics, resulting in the same ratings.
CKH’s business risk profile is comparable to domestic footwear and tyre manufacturer DSI Samson Group (Private) Limited’s (AA(lka)/Stable). Both companies are exposed to cyclical end-market demand and competitive pressures from imports, despite holding strong market positions locally. However, CKH is rated one notch above DSG, reflecting CKH’s stronger financial profile.
CKH and domestic paint manufacturer JAT Holdings PLC (AA(lka)/Stable) have broadly similar business profiles. JAT’s cash flow is primarily generated from the cyclical construction sector, and it faces competition from both domestic and imported products. However, CKH’s lower leverage and larger operating scale underpin a stronger financial risk profile, supporting a rating one notch above JAT.
CKH’s credit profile supports a higher rating than large domestic banks, non-bank financial institutions and insurance companies, which are more exposed to sovereign stress due to holdings of large sovereign-issued securities for regulatory reasons. The large financial institutions also have a broader exposure to the various economic sectors.
Fitch’s Key Rating-Case Assumptions
– Revenue to decline by 0.3% in FY27 due to lower volumes and a slowdown in land transportation, partially offset by higher average selling prices. Revenue to recover from FY28, achieving a 4.8% CAGR by FY30.
– EBITDA margins to fall to 9.5% in FY27 due to an increase in cost of goods sold.
– Working capital cycle to remain around 100 days for the next 24 months.
– Annual maintenance capex of LKR700 million for the next four years and growth capex of LKR2.5 billion in FY27 and LKR1.5 billion in FY28.
– Dividend payout to be LKR1.5 billion in FY27 and LKR1.0 billion in FY28.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
– An increase in EBITDA net leverage above 1.0x for a sustained period.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
– No upgrade in the medium term, given CKH’s exposure to more volatile cash flow and its small scale relative to higher-rated peers.
Liquidity and Debt Structure
CKH’s liquidity position is supported by LKR3.3 billion in cash and cash equivalents at end-March 2026, comfortably covering LKR929 million of debt maturing over the next 12 months. Over 83% of FY27 maturities comprise short-term loans and overdraft facilities used for working capital, which we expect the company will roll over.
We expect free cash flow to turn negative over the next 24 months, reflecting increased capex and shareholder distributions. CKH has already approved bank loans to fund the capex. It had LKR16.0 billion in uncommitted short-term facilities as of July 2026, of which LKR14.0 billion was unused, further supporting liquidity.
Issuer Profile
CKH is a leading manufacturer of pneumatic tyres in Sri Lanka, with an extensive distribution network. It is a joint venture between India’s Ceat Limited and Sri Lanka’s Kelani Tyres PLC.
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.