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ICRA Lanka reaffirms Access Engineering ratings

05 Nov 2021

ICRA Lanka Ltd. reaffirmed the issuer rating of A+ with a Negative outlook for Access Engineering PLC (AEL). ICRA Lanka also reaffirmed the issue rating of [SL]A+ (pronounced S L A plus) with a Negative outlook for the company’s outstanding Rs. 1.59 million senior unsecured redeemable listed debenture programme. At the request of the company, ICRA Lanka has withdrawn the rating for the matured amount of Rs. 4,998.41 million of the senior unsecured redeemable listed debenture programme. The rating reaffirmations have considered the increasing revenue diversity, healthy order book position, and favourable industry outlook post the pandemic. AEL operates mainly in four sectors as civil engineering, construction material sales, commercial real estate, and automobile dealership. Accordingly, for the financial year 2021, the civil engineering segment contributed approximately 54% of AEL’s revenue, followed by the construction materials segment (27%), automobile segment (16%), and the commercial real estate segment (3%). AEL has further diversified its revenue base by expanding into material supply to construction segment in FY2021, in addition to the commercial real estate segment. However, when it comes to the Negative outlook, it reflects the expected increase in debt levels and moderation in the capital structure and debt servicing indicators in the near term due to increased working capital intensity on account of high inventory holding and receivables. The pressure on the capital structure would ease after the company receives Rs. 2.7 billion payment from the Bloemendhal housing project, which would be due in FY2023. In terms of credit strengths, AEL has diversified its revenue base by expanding into the construction material segment in addition to the commercial real estate segment. The construction material segment’s contribution increased to 36% in Q1FY2022 from 27% in FY2021 and 13% in FY2020. As a result, the segment reported a Year-on-Year (YoY) growth of 108% in FY2021 and annualised growth of 62% in Q1FY2022. On the contrary, when it comes to the credit challenges, the consolidated entity reported YoY revenue growth of -0.8% in FY2021 compared to -25.6% in FY2020 and 23.9% in FY2019. Accordingly, revenue drop in automobile and construction segments were the main contributors to the modest performance. The automobile segment was affected by the ban on the importation of motor vehicles from FY2020.


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