Sunshine Holdings rating revised to ‘A(lka); Outlook Stable

• Rating revision follows recalibration of Fitch’s SL national rating scale 

Fitch Ratings has revised the National Long-Term Rating of Sunshine Holdings PLC to ‘A(lka)’, from ‘A-(lka)’ and has simultaneously affirmed its Outlook Stable. 

The rating revision of the diversified conglomerate, along with two other non-financial corporates, follows the recalibration of Fitch’s Sri Lankan National Rating scale, to reflect the changes in the relative creditworthiness among the country’s issuers, following the downgrade of the sovereign rating to ‘B-’, from ‘B’ in April.

Sunshine’s ‘A(lka)’ rating reflects the group’s leading positions in defensive sectors such as healthcare, fast-moving consumer goods such as packaged tea retailing and protected sectors such as crude palm oil. 

Fitch expects Sunshine to maintain its leverage commensurate with an ‘A(lka)’ rating in the medium term, despite the vulnerability of some of its segments to the coronavirus pandemic.
Fitch expects the financial impact, stemming from social-distancing measures and the ensuing economic downturn, to be manageable for Sunshine, due to its exposure to defensive sectors. 

Fitch expects the group’s healthcare segment revenue to decline by around 5 percent year-on-year (YoY) in FY21, stemming mainly from its pharmacies, due to the temporary store closures and less consumer footfall. 

However, the rating agency expects the pharmaceutical distribution and medical device sub-segments to see their revenue remain quite resilient, in light of the essential nature of their products. Healthcare retail is expected to pick up in late FY21, as social-distancing measures begin to ease.

Fitch expects the palm oil segment revenue to remain flat in FY21, on a decline in cultivation in the 1HFY21, as a result of labour shortages at plantations. 

Nevertheless, the domestic demand for palm oil is expected to remain resilient, due to the lack of domestic supply brought about by the regulatory pressures and high tariffs on imported palm oil. 

Fitch expects the consumer goods segment, which is comprised of branded tea retailing, to see a sharp fall by around 15 percent YoY in FY21, due to the disruptions in the general retail trade channels.

Fitch expects Sunshine’s leverage to remain below 1.0x over the rating horizon of FY20-FY23. A slight increase in leverage is expected from an estimated 0.8x in FY20 to 1.0x in FY21, as a result of its expectation in lower profitability and to improve to 0.5x in FY22 upon a recovery in earnings. 

Fitch expects Sunshine to pay dividends in FY21, however to defer some of its discretionary capex plans at least till next year, as a means to conserve cash, which should help contain any increase in its leverage.