The credit rating agency Fitch has cut the outlook of Sri Lankan footwear and tire manufacturer and retailer DSI Samson Group to stable from positive but has confirmed the national long-term rating at ‘BBB(lka)’.
The outlook revision reflects Fitch’s view that a rating upgrade is not probable within the next 12-18 months, as the company’s financial risk profile will be strained by disruption to its retail and manufacturing businesses by the economic slowdown caused by the coronavirus pandemic. It estimates that DSI Samson’s leverage was around 3.5 times at the end of the financial year ending in March 2020, which provides the company with significant headroom at the current rating to weather the downturn. Fitch anticipates the leverage to temporarily increase to around 5.5 times the full year before falling to around 4.0 times in the fiscal year ending in March 2022, supported by a gradual improvement in economic activity and the company’s defensive footwear business.
Fitch forecast that DSI Samson’s revenues will drop by around 20 percent in the current fiscal year, with footwear sales faring slightly better than tire sales. It estimates that the company had a leading market share of 28 percent in the fragmented and competitive Sri Lankan footwear retailing sector, supported by a nationwide retail network of over 200 stores. In the 2018/2019 fiscal year, capacity utilization of DSI Samson’s footwear manufacturing base stood at 87 percent, but a shift to high-margin value-added products should mean existing capacity will be sufficient in the medium term, according to Fitch.