Fitch affirms Sierra Cables at ‘A+(lka)’; Outlook Stable

Fitch Ratings has affirmed Sri Lankan cable manufacturer Sierra Cables PLC’s National Long-Term Rating at ‘A+(lka)’. The Outlook is Stable.
The affirmation and Stable Outlook reflect the view that Sierra will be able to maintain adequate financial metrics in the next 12 months. The improving trajectory in Sri Lanka’s external finances and lower domestic interest rates should see more construction projects come back on to the market, in turn benefitting Sierra’s cash flow.

Sierra’s rating reflects its small operating scale and exposure to cyclical end-markets as well as foreign currency risk, which are mitigated by its prominent position in the domestic cable industry. Sierra has limited liquidity headroom, given high short-term debt and is exposed to lenders’ appetite to roll over working-capital facilities.

Fitch expects Sri Lanka’s GDP to expand by around 3.3 percent in 2024, following successive contractions over the last two years (2023: -2.3 percent; 2022: -7.4 percent).
“We expect a gradual resumption of infrastructure projects, both in the private and public sector, supported by falling interest rates and an improving trajectory in Sri Lanka’s external finances,” the rating agency said.

Sierra’s revenue from government tenders rose significantly by around 188 percent to Rs.1.6 billion by 9MFY24 (fiscal year ends March 31), from Rs.559 million a year prior. Furthermore, Sri Lanka’s construction sector achieved a third successive month-on-month growth in March, from a contraction of almost 12 months from January 2023, which Fitch believes signals a bottoming-out of sector activity.