The long term rating has a 'stable' outlook. The firm's short term credit has been rate 'P2'.
Tokyo has been able to strengthen its market position, supported by its well brand and dealer network.
RAM said Tokyo has managed to maintain its premium pricing due to its strong branding.
Tokyo and Holcim, a unit of a Swiss firm operate local plants in a market where the others are importers.
RAM said domestic manufacturers enjoy some tariff protection and logistical advantage compared to importers, which faced the risk of hardening cement due to the product’s short shelf life.
Cement is classified as an essential commodity by Sri Lanka's Consumer Affairs Authority of Sri Lanka and approval is required from the CAASL prior to any revision in the retail price.
"Cement suppliers are therefore unable to pass on increasing costs to customers, and are thus exposed to potential margin compression," RAM Ratings said.
"As such, cement manufacturers are vulnerable to adverse price movements in its primary raw material, i.e. clinker, which accounts for around 74 percent of its total production cost."
Capital expenditure for capacity enhancement and investment in a new bio-mass plant had increased the group’s debt end March 2010.
With the completion of these projects, Tokyo has now begun repaying its debt facilities, thereby improving its overall financial profile.
The Group’s debt burden was reduced from 4.27 billion rupees as at end-March 2010 to 3.55 billion as at end-September 2010, easing its gearing ratio from 0.75 times to 0.64 times.
This, coupled with the environment of receding interest rates, had broadened Tokyo’s interest coverage to a 4.46 times by end-September 2010 from 1.94 times in March 2010.
At the same time, its funds from operations (“FFO”) debt coverage were at an annualised 0.74 times (end-March 2010: 0.49 times).
With no major capital expenditure planned, RAM expects the group’s financial profile to improve as its debt level is reduced further.
But RAM says the group is exposed to the cyclicality of the construction sector, which is the biggest consumer of cement. But the long-term outlook for the construction industry is positive.
The industry expanded 8.5 percent year-on-year in 1 first quarter of 2010 from 3.0 percent a year earlier followed by another 9.3 percent in the second quarter against 5.4 percent in 2009.
"Further growth is expected to emanate from government-led infrastructure projects, particularly in the recently liberated northern and eastern regions of the country," RAM said.
"Given that Tokyo’s production facility is located in the eastern part of the country, we believe that it is well poised to benefit from such an upturn."
"Moreover, the improving macroeconomic environment is also expected to propel demand for housing over the medium to long term."
source - www.lbo.lk
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