Bonds & Forex

Sri Lankaâ€™s Hemas Holdings retains ‘AA-(lka)’ Fitch rating

Tuesday March 27, 2018 5:06 pm

ECONOMYNEXT – Sri Lankan conglomerate Hemas Holdings has retained its ‘AA-(lka)’ Fitch rating with a stable outlook, with its stationary firm acquisition seen boosting cash flows while strong logistics and drugs businesses offset a slowdown in consumer goods and hotels.

Fitch said in a statement it has also confirmed the National rating on Hemas’s outstanding senior unsecured debentures at ‘AA-(lka)’.

The full statement follows:

Fitch Ratings-Colombo-27 March 2018: Fitch Ratings has affirmed Sri Lanka-based conglomerate Hemas Holdings PLC’s (Hemas) National Long-Term Rating at ‘AA-(lka)’ with a Stable Outlook. Fitch has also affirmed the National rating on Hemas’s outstanding senior unsecured debentures at ‘AA-(lka)’.

Hemas’s rating reflects Fitch’s view that the group’s business risk profile has improved from the acquisition of Atlas Axillia (Private) Limited (Atlas), the largest domestic manufacturer and distributor of exercise books, pens, colour products and other school stationery, early this year. However, the benefits are offset to an extent by the operational pressures in its fast moving consumer goods (FMCG) segment that accounted for 40% of EBITDA in the financial year ended March 2017 (FY17) and its leisure business (12%), which we expect to persist in the next 12-18 months. The affirmation takes into account Fitch’s view that significant expansion plans in the next couple of years could limit further improvements in Hemas’s leverage, defined as adjusted debt/operating EBITDAR (FY17: 1.3x), as internally generated funds may not be sufficient to fully fund planned capex and shareholder returns.

KEY RATING DRIVERS

Atlas Boosts Defensive Cash Flows: We expect Hemas’s LKR5.7 billion Atlas acquisition to improve cash flow stability as the latter’s business is defensive across economic cycles. Fitch expects demand for school stationery to grow over the medium term, supported by government and private-sector investments in the education sector and rising per capita income in the country. We believe this acquisition is in line with Hemas’s strategy of using its significant cash balance to expand its core businesses through M&A.

Atlas’s stationery business fits into Hemas’s FMCG segment and Atlas will be able to leverage on Hemas’s established distribution network once the integration is completed. We expect Atlas to contribute around 15% and 25% to group revenue and EBIT, respectively, in FY19, its first year of full consolidation.

Expansion Limits Leverage Improvement: We do not expect Hemas to engage in any other large scale M&A that is similar to Atlas in the medium term, but the company will continue to spend LKR3 billion-4 billion on organic expansion in its core segments in the next few years. We estimate Hemas will generate around LKR4 billion per annum in cash flow from operations in the next few years but this may be insufficient to fully cover the planned capex and shareholder returns. We do not expect an improvement in company leverage in the medium term amid higher borrowings and a moderating operating performance.

FMCG Pressures: We expect the FMCG segment slowdown to continue in the next 12-18 months due to pressures in Bangladesh (around 15% of FMCG revenue in FY17) arising from the restructuring of Hemas’s distribution network and increased competition. Bangladesh was the segment’s growth driver in the last three years with revenue CAGR of over 50% but we expect the growth to materially decelerate in the near term as the company’s moves to resolve the issues may take time. We believe Hemas may have to keep investing in its Bangladesh distribution network and marketing efforts to support its bigger operational scale and counter competition, which would keep margins below historical levels in the medium term.

We don’t expect a recovery in domestic FMCG volumes in the near term as weak personal income and inflationary pressures may force consumers to continue to cut down on personal and home care spending. Domestic margins may also remain pressured due to a pickup in input costs and currency depreciation, which the company may find difficult to fully pass on to customers amid weak demand. However, steps taken by the company to streamline its supply chain operations are likely to generate cost savings to offset margin pressure to an extent. Hemas’s FMCG revenue was flat yoy in 9MFY18 while EBIT margin contracted 270 bp over the same period.

Leisure Slowdown to Persist: We expect Hemas’s hotel (around 50% of leisure sector EBIT) performance to continue to weaken in the medium term on declining occupancy and room revenue due to a slowdown in tourist arrivals, oversupply of graded accommodation and competition from the informal sector. Hemas’s hotel sector revenue was flat in 9MFY18 while EBIT margins contracted almost 5 percentage points yoy.

Healthcare Stability: We believe the healthcare segment can offset most of the other segments’ earnings volatility. We expect the drug distribution arm to continue winning market share from distributors exiting the market on price regulations, primarily on branded drugs. Hemas, which focuses on generic drugs, saw its market share rising to 30% in FY17 (22% in FY16) due to the lack of branded drugs in the market and acquisition of competitor brands. We expect the pharma segment and its hospital chain to continue growing in the medium term, supported by a rapidly ageing population, rising incidence of non-communicable diseases and undersupply in public healthcare services. However, the hospital sector may face regulatory pressure on pricing of certain services.

We expect Hemas’s local drug manufacturing business to be the key growth driver for the segment. Less than 15% of Sri Lanka’s drug requirements are produced locally with the government looking to increase it to 100% in the medium term with private-sector participation. Hemas plans to double its capacity by FY20 to cater to this demand. Hemas currently sells most of its output to the government under a long-term buyback program and we believe the company will be able to secure a similar contract for most of the new capacity. Any excess capacity can be used to produce its own branded products or for contract manufacturing.

Increased Mobility Contribution: We expect the mobility segment contribution to group EBIT to increase to 17% by FYE20 from 10% in FY17, supported by capacity expansion and exposure to high-margin businesses. The company is setting up a container yard and integrated logistics park to cater to the increased transhipment activity at the Colombo port and the growing demand for third-party logistics service. The new facility should contribute to the segment’s top line and EBIT from FY19 when it is fully operational.

We expect Hemas’s ship agency business to continue its growth, helped by extended service offerings and new partnerships. We do not believe the recent de-regularisation of foreign ownership in ship agency and freight forwarding businesses will have an immediate impact on the sector as it will take time and effort for foreign shipping lines to set up operations with similar service offerings provided by their local partners such as Hemas.

DERIVATION SUMMARY

Hemas is a well-diversified conglomerate similar to Richard Pieris & Company PLC (A(lka)/Stable) and Sunshine Holdings PLC (A-(lka)/Stable). Hemas is rated two notches above Richard Pieris to reflect its low leverage and higher exposure to defensive end-markets compared with the latter’s modest presence in the cyclical plantation sector. Hemas is rated three notches above Sunshine due to its stronger business profile stemming from substantially higher cash flows from its defensive pharmaceutical and FMCG businesses and its larger operating scale. Sunshine’s financial profile has weakened compared with Hemas due to its debt-funded acquisition in the cyclical plantation sector.

Hemas is rated one notch above leading beer manufacturer Lion Brewery (Ceylon) PLC (A+(lka)/Negative) to reflect its cash flow diversity, lower regulatory risks and strong financial profile.

KEY ASSUMPTIONS

Fitch’s Key Assumptions Within Our Rating Case for the Issuer

– Excluding acquisitions, organic revenue growth to average in the high single digits in FY19 and FY20 on expansion in the pharmaceutical and mobility segments, offset to an extent by the continued weakness in the FMCG and leisure segments.
– EBITDAR margin to contract and stabilise at around 12.5%-13% in the next two years amid cost pressures, competition and price regulation across most segments.
– Capex to average around 7% of revenue in the next two years to support the planned expansion.
– Dividend payout ratio of about 30% of net income to be maintained over FY18-FY21.
– Three months of Atlas results taken into consideration in FY18 with the full 12-month results consolidated from FY19.
– No M&A activity in the next two to three years.

RATING SENSITIVITIES

Developments that May, Individually or Collectively, Lead to Positive Rating Action

– Improvement in business risk profile while maintaining the current financial profile.
Developments that May, Individually or Collectively, Lead to Negative Rating Action
– Group gross adjusted debt/EBITDAR rising above 2.0x on a sustained basis
– Any significant integration issues or deviation from the company’s conservative approach to new investment.

LIQUIDITY

Strong Liquidity Position: As at end-December 2017, Hemas had about LKR10.3 billion of unrestricted cash and LKR5.8 billion in unutilised credit facilities to meet LKR2.0 billion of debt maturing in the next 12 months. We do not expect Hemas to generate positive free cash flow in the next 12 months due to working capital investments, high capex and the acquisition of Atlas but its large cash reserves at hand places the company in a strong liquidity position. Hemas has another LKR1.9 billion of short-term working capital-related debt, which we expect to be rolled over by lenders in the normal course of business.
(COLOMBO, March 27, 2018)

FILED UNDER: Sri Lanka

Bonds & Forex

Sri Lanka rupee closes at 332.53/59 to US dollar spot, bond yields edge up

Monday November 9, 2026 5:05 pm

ECONOMYNEXT – Sri Lanka’s rupee closed at 332.53/59 to the US dollar spot on Monday, from 332.55/60 the previous day, while bond yields closed higher, dealers said.

A bond maturing on 15.09.2029 closed at 190/98 percent, up from 10.85/95 percent.

A bond maturing on 01.08.2030 closed at 11.07/12 percent, up from 11.05/10 percent.

A bond maturing on 01.02.2031 closed at 11.30/40 percent, up from 11.10/15 percent.

A bond maturing on 15.12.2032 closed at 11.65/70 percent, up from 11.55/65 percent.

A bond maturing on 01.11.2033 closed at 11.95/12.00 percent, up from 11.90/95 percent.

A bond maturing on 15.10.2034 closed at 12.10/15 percent, up from 12.05/12 percent.

A bond maturing on 15.08.2036 closed at 12.40/50 percent, up from 12.30/40 percent. (Colombo/Nov9/2026)

Markets

Sri Lanka stocks close up 1.37-pct, banks lead turnover

Monday November 9, 2026 3:29 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed up on Monday, CSE data showed, with the benchmark All Share Price Index moving up 1.37 percent.

The ASPI was up 291.72 points at 21,531.37, while the more liquid S&P SL20 was up 1.67 percent, or 100.96 points, at 6,146.34.

Positive contributors to the ASPI were Commercial Bank of Ceylon (up 2.86 percent at 216.00 rupees), Hatton National Bank (up 1.52 percent at 399.75 rupees), Asiri Hospital Holdings (up 12.86 percent at 31.60 rupees), Tokyo Cement Company (up 5.22 percent at 84.70 rupees), and Access Engineering (up 3.93 percent at 81.90 rupees).

Carson Cumberbatch (down 4.24 percent at 712.00 rupees), Richard Pieris and Company (down 2.43 percent at 28.10 rupees), LOLC Holdings (down 0.62 percent at 400.00 rupees), Renuka Holdings (down 2.63 percent at 37.00 rupees), and Chevron Lubricants Lanka (down 0.61 percent at 204.25 rupees) were top negative contributors.

Market turnover was 3.33 billion rupees. The S&P/CSE Banks Industry Group led turnover with 667.76 million rupees.

The session saw heavy crossings, according to Raynal Wickremeratne, Head of Research and Strategy at NDB Securities. Significant crossings included Keells (23 million rupees), Distilleries Company (27.7 million rupees), Sunshine Holdings (30.6 million rupees), Commercial Bank (32.4 million rupees), Ceylon Tobacco Company (35.6 million rupees), Hatton National Bank (39.5 million rupees), Prime Lands (40.5 million rupees), and HAS Holdings (41.5 million rupees).

In corporate news, Hayleys Retail Holdings Ltd announced it has partnered with supply chain software provider Blue Yonder to build and scale an AI-native grocery supermarket chain across Sri Lanka. (Colombo/Nov09/2026)

Information Technology

Sri Lanka’s Hayleys Retail to launch supermarket chain with Blue Yonder

Monday November 9, 2026 3:12 pm

ECONOMYNEXT — Hayleys Retail Holdings Ltd has selected supply chain software provider Blue Yonder to build its grocery retail operations from the ground up, the two companies said in a joint statement.

Hayleys Retail, a member of Sri Lanka’s diversified conglomerate Hayleys Group, plans to open several stores in the near future to serve consumers across the country. The agreement marks Blue Yonder’s first retail customer in Sri Lanka.

“Our entry into supermarket retail is about bringing that same commitment to quality and reliability closer to everyday Sri Lankan consumers,” Mohan Pandithage, Chairman and Chief Executive of Hayleys PLC said.

“With Blue Yonder, our teams will have AI-driven insight to deliver a seamless, consistent shopping experience across every store,” he said.

Hayleys, which accounts for approximately 5 percent of Sri Lanka’s export income and operates across 17 business sectors, is entering the large-scale supermarket space by drawing on its group strengths in manufacturing, logistics, and services.

The company selected Blue Yonder to connect its data across merchandising and shelf space, deploy artificial intelligence agents to catch operational issues early, and scale its business into a national network without changing platforms.

The rollout will begin with merchandise operations to manage suppliers, items, costs, and pricing, followed by machine learning capabilities to forecast demand and balance store inventory during seasonal peaks.

“Hayleys Retail is choosing one where AI is the foundation rather than an add-on—connected data and agentic AI built into core merchandising operations, and planning that learns as the business grows,” Antonio Boccalandro, President, APAC at Blue Yonder said.

The retailer plans to use the platform to automate routine store tasks and adjust inventory according to real-time sales and local market trends as its store footprint grows. (Colombo/Nov09/2026)

Stocks & Companies

Sri Lanka’s Citrus Leisure extends Lotus Tower management pact

Monday November 9, 2026 1:16 pm

ECONOMYNEXT – Sri Lanka listed hospitality firm Citrus Leisure said it has extended an agreement to manage consumer-facing and entertainment spaces at the Colombo Lotus Tower, which includes revolving restaurant Blue Orbit, until June next year.

The initial agreement signed between Citrus Leisure and Colombo Lotus Tower Management Company (Private) Limited (CLTMC) is due to expire on December 11.

“The Board of Directors of CLTMC at meeting held on 2nd November 2026 has resolved to extend the term of the Management Agreement and continue the existing Management Agreement until 30th June 2027, to which the company has given its concurrence,” the company said in a market filing.

Citrus Leisure Plc opened its revolving restaurant at the Lotus Tower in December 2023.

The company signed a 3-year agreement with CLTMC in May 2023 to provide services in the management of (l) the banquet hall 1 on the 25th floor, (2) the banquet hall 2 on the 26th floor, (3) the revolving restaurant on the 27th floor, (4) the 6 suites situated on the 28th floor and the kitchen in the basement floor of the Colombo Lotus Tower.

The 350-meter or 1,150-feet tower, the tallest in South Asia, was built at a cost 104.3 million US dollars with 80 percent of the money borrowed from Exim Bank of China.

Located in the commercial heart of Colombo, the tower has been called a symbolic landmark of Sri Lanka as well as a colossal white elephant and has been mired in controversy for years. (Colombo/Nov9/2026)

Markets

CIC Holdings Sept quarter net profit rises 20-pct to Rs1.7bn

Monday November 9, 2026 11:50 am

ECONOMYNEXT — Sri Lanka conglomerate CIC Holdings recorded a net profit of 1.66 billion rupees for the quarter ended September 30, rising 20.3 percent from 1.38 billion rupees in the same quarter last year, interim accounts showed.

The group posted basic earnings per share of 0.87 rupees for the September quarter, up from 0.73 rupees a year earlier.

Quarterly revenue grew 3.4 percent to 20.89 billion rupees from 20.20 billion rupees, supported by broad-based growth across industrial solutions, livestock, and healthcare segments, which counterbalanced relative demand moderation in agricultural inputs.

Cost of sales rose 5.3 percent to 15.20 billion rupees, outpacing revenue growth and causing gross profit to contract marginally by 1.2 percent to 5.68 billion rupees.

Results from operating activities dropped 7.3 percent to 2.66 billion rupees from 2.87 billion rupees, impacted by higher operating overheads.

Selling expenses expanded 6.8 percent to 2.15 billion rupees, and general and administrative expenses climbed 5.8 percent to 1.07 billion rupees, while other operating income dropped 29.6 percent to 117.40 million rupees.

However, operating profits were cushioned by an impairment reversal on trade receivables of 85.83 million rupees, turning around from an impairment provision of 23.38 million rupees in the corresponding quarter last year.

Net finance costs climbed 35.4 percent to 712.25 million rupees from 526.01 million rupees.

The increase was driven by a 30.8 percent rise in finance expenses to 771.46 million rupees, primarily reflecting higher interest expenses on loans to finance elevated working capital and inventory requirements.

The quarter’s bottom line was strongly bolstered by CIC’s equity-accounted investment in John Keells Holdings PLC (JKH).

Share of profit from equity-accounted investees surged more than fourfold to 590.50 million rupees from 257.87 million rupees, driven by JKH’s strong profit expansion during the period.

The group also recognized a gain on bargain purchase of 55.59 million rupees during the quarter resulting from additional share purchases in JKH where the proportionate net asset value exceeded acquisition cost, compared to no such gain a year earlier.

With associate income gains offsetting operating margin contraction and higher borrowing costs, group pre-tax profit held virtually flat at 2.59 billion rupees, down 0.11 percent.

Income tax expense fell 29.4 percent to 606.24 million rupees from 858.71 million rupees, driving total group profit for the period up 14.1 percent to 1.98 billion rupees.

Total group assets stood at 108.58 billion rupees as of September 30, up from 99.75 billion rupees at the end of March 2026.

Group net asset value per share increased to 25.52 rupees from 22.10 rupees a year earlier.

CIC Holdings’ ordinary voting shares closed at 27.80 rupees at the end of September.(Colombo/Nov09/2026)