Recovery for Lanka corporates only beyond 2020 horizon: Fitch

• Expects double-digit revenue decline for most sectors barring telecom and healthcare 
• Construction sector companies will be badly hit due to project delays 
• Says pressure will be on “highest point”, if pandemic continues beyond next 6 months 

By Shabiya Ali Ahlam
Recovery is beyond the 2020 horizon for Sri Lankan corporates and expected is a sharp decline in revenue for most sectors, credit rating agency Fitch Ratings said.

With the ongoing restrictions imposed to contain the pandemic in the country showing direct impacts on local entities, the rating agency said some of the recovery could be expected only in 2021 but stressed that the forecast is dependent on the assumption that the health crisis would improve in the next six months.

“Full recovery is not likely till 2021 and we expect a double-digit revenue decline for most sectors, other than telecom and healthcare. We expect the lower volumes to translate to contracted operating margins.

Overall, we expect leverage to weaken to half a turn to two turn for most of our issuers in 2021, compared to our previous expectation,” said Fitch Ratings Director Corporates Nadika Ranasinghe.

However, companies that will continue to take the hit are those in the construction, as they will witness a prolonged impact in cash flows, since the state and private sector projects will face delays until the economic condition stabilises, she added.

While the export-oriented manufacturing sectors and logistics will feel the impact in FY2021, Ranasinghe said the impacts on other consumer-related sectors, such as food and beverage and fast-moving consumer goods (FMCG), are likely to be less, given the relative demand for these products even in period of sharp economic downturn.  With regard to the implication of the import restrictions imposed by the government, Ranasinghe said it is the consumer durable retailers who will be most impacted but they should be “OK” for the next three to six months, due to low demand. 

However, she warned that should the ban continue further, then there could be “issues”.

In terms of liquidity, Ranasinghe said that the working capital would be rolled over, given that most corproates are negotiating with the banks.  Stating the situation will be manageable for the next six months, the pandemic continuing further, till the end of this year, is likely to exert more pressure, she stressed.

“In about six months, if things don’t recover, the pressure will be at the highest point,” she warned.