While affirming Hemas Holdings PLC’s National Long-Term rating at ‘AAA(lka)’, with a Stable Outlook, Fitch Ratings yesterday said the company’s recent exit from the leisure sector further reduced its business risk.
LOLC Holdings PLC’s strategic investment arm Browns Investments PLC (BI), in December, last year, acquired the controlling stake of 55.65 percent of Serendib Hotel PLC, a subsidiary of Hemas Group, for a consideration of Rs.792 million.
“The recent exit from the cyclical leisure sector has further reduced the company’s business risk,” Fitch Ratings said.
The leisure business accounted for around 7 percent of the group’s earnings before interest and taxes (EBIT) historically.
“We believe the exit was timely as the segment would have been a cash drain on the group because tourist arrivals to the country are not expected to normalise until at least 2023.
The segment has been posting operating losses since April 2019 and would have required continuous maintenance capex to compete with larger and newer properties entering the market,” Fitch Ratings said.
Meanwhile, explaining the rationale behind the rating affirmation, Fitch Ratings said it reflects the defensive nature of Hemas’ operating cash flows stemming from its pharmaceutical trading and manufacturing and fast-moving consumer goods business (FMCG), which accounts for more than 90 percent of the group’s earnings before interest and taxes (EBIT). “The rating also benefits from Hemas’ exceptionally strong balance sheet and high rating headroom, with net leverage likely to remain below 1.0x over the next two years, compared with the 4.5x leverage threshold for the current rating,” Fitch noted.