Business

Fitch rates CEAT Kelani ‘AA+ (lka)/Stable’

CEAT Kelani Holdings has been assigned a National Long-Term rating of “AA+ (lka)/Stable” by Fitch Ratings, reflecting the company’s market position as the largest manufacturer and distributor of pneumatic vehicle tyres in Sri Lanka.

Notifying the company of the rating, Fitch said CEAT Kelani Holdings has a strong financial profile with low leverage and solid liquidity. “Fitch expects CEAT Kelani Holdings’ cash to continue to exceed debt in the next few years,” the agency said.

The AA+ credit rating is the second highest rating assigned by Fitch Ratings to reflect an entity’s ability to meet financial commitments. A key ratings driver for CEAT Kelani Holdings was the company’s leading market position with an overall market share of around 50%.

Fitch said it expects CEAT Kelani Holdings’ revenue to rise in FY22, as it believes competition from imports will not swiftly return to levels prior to the pandemic. Increased radialisation efforts should enable CEAT Kelani Holdings to gain a stronger foothold in the radial (car, van, and sports utility vehicle) market, where 60% of sales volumes are by imported brands, the agency said, noting that “CEAT Kelani Holdings hopes to increase the contribution of radial tyres to 30% of sales in FY22 from 20% in FY21, and settle at around 40% in FY23 by expanding production capacity. This should mitigate the long-term structural decline in demand for bias tyres”.

Commenting on the rating, CEAT Kelani Holdings Managing Director (MD) Ravi Dadlani said: “We are pleased to receive an AA+ rating from Fitch, which reflects the financial strength of the business based on market leadership in multiple product segments, our value proposition, low level of leverage, and the impacts of our investments to expand production. We are extremely positive about the prospects for the business, and expect to continue to invest in capacity and range expansion as well as quality improvements.”

CEAT Kelani Holdings is considered one of the most successful India-Sri Lanka joint ventures. The joint venture’s cumulative investment in Sri Lanka to date totals Rs. 8 billion, inclusive of Rs. 3 billion invested since January 2018 for expansion of volumes, technology upgrades, and new product development. The company’s manufacturing operations in Sri Lanka encompass pneumatic tyres in the radial (passenger cars, vans, and SUVs), commercial (nylon and radial), motorcycle, three-wheeler, and agricultural vehicle segments.

The CEAT brand accounts for market shares in Sri Lanka of 48% in the radial segment, 80% in the truck category, 84% in the light truck tyre category, 51% in the three-wheeler tyre segment, 36% in the motorcycle tyre segment, and 72% in the agricultural vehicle tyre category. CEAT Kelani exports about 20% of its production to 16 countries in South Asia, the Middle East, Africa, and the Far East.