Sierra Cables estimates over Rs.1bn hit on top line from COVID-19 pandemic

• Expects a turnover of around Rs.4.5bn, down from estimated over Rs.5.6bn last FY
• Banks agree for three-month moratorium and term-loan facilities 

Cable manufacturer Sierra Cables PLC expects an over Rs.1 billion hit on its top line from the impact of the COVID-19 pandemic, though the company expects to mitigate the impact with the potential government tenders and exploiting new market opportunities arising from the recently imposed import restrictions.

“Although we targeted a 10 percent hike in the group turnover in the FY 2020/21, as against the previous FY 2019/20, with the improvement of production and marketing capacity utilisation achieved in the previous FY 2019/20, due to the COVID-19 pandemic issue, we are compelled to revise our group turnover targets to revolve around Rs.4.5 billion in FY 2020/21,” the company said in a stock exchange filing.

Sierra Cables PLC revealed that it was able to record a Rs.5.59 billion turnover two weeks prior to end-FY 2019/20, due to their accelerated performance in the preceding three quarters and the early part of the fourth quarter of FY 2019/20.

Although the firm temporarily ceased operations of the factory on March 17, 2020, amidst islandwide curfew, it has recommenced the factory operations in stages from April 20.

“We recommenced factory operations with about 20 factory workers living in close proximity to the factory, having obtained the necessary approvals and having taken all the necessary preventive measures,” Sierra Cables noted. Further, the firm has also restarted its dealer sales operation in all districts except for Colombo, Gampaha, Kalutara, Puttalam and Kandy, where curfew is still in force.

Sierra Cables has so far seen over 50 percent of the usual daily sales in these areas. 

However, Fitch Ratings last week downgraded Sierra Cables’ National Long-Term Rating amidst the expected sharp decline in revenue and tight liquidity conditions, due to the COVID-19 impacts. 

Fitch Ratings downgraded Sierra Cables PLC’s National Long-Term Rating to ‘BB(lka)’ from ‘BB+(lka)’ and placed the rating on Rating Watch Negative (RWN).

With the new developments, the company stated that the cumulative outstanding to be collected from the Ceylon Electricity Board (CEB) would get delayed beyond the existing two-month credit period extended to the state entity. 

Sierra Cables also acknowledged that it might have a challenging period in the next three months, primarily due to the delay in the receivables from the CEB, project clients and dealer network customers.

“As for collections from the CEB, we have already spoken to the respective officials at the CEB to arrange a payment plan, mutually comfortable for both parties, in order to ease any possible cash flow issues,” the company said.

To address the potential liquidity issues, the company said it has sought moratoriums for the existing import facilities, term loans and the banks have agreed to extend the existing maturities, initially for three months and to reconsider for another three months at the expiration of the first three months. 

In addition, the banks have also agreed in principle to enhance some overdraft facilities and to provide fresh term loans from May onwards. 

The company noted that two of its subsidiaries have also been impacted by the COVID-19 pandemic.

The potential orders that were being negotiated with contractors by its subsidiary, Sierra Industries, engaged in the manufacturing of PVC pipes, are likely to get delayed now. 

Further, nearly US $ 2 million worth of contracts in Kenya is now on hold, which was secured through the group subsidiary, Sierra Cables East Africa Ltd, to supply Kenya’s Rural Electrification Authority with cables. 

Despite the negative outlook, Sierra Cables noted that it is on the verge of securing a Rs.850 million tender from the CEB to supply 1500 KM Aerial Bundled Conductors (ABC) as soon as the situation gets back to normalcy.
Sierra Industries is also negotiating Rs.570 million worth orders with contractors, including the National Water Supply and Drainage Board, which are likely to be awarded during FY 2020/21.

However, Fitch Ratings expects that new public infrastructure projects are likely to be deferred at least in the next six to 12 months, with significant delays in making payments for ongoing projects.

As the government introduced restrictions to discourage importation of non-essential items, including cables, to reduce foreign exchange outflows, Sierra Cables said it plans to seize the opportunity to tap new market segments in the country, which it could not have served before.