A/P2 rating for Tokyo Cement

RAM Ratings Lanka has reaffirmed Tokyo Cement Company (Lanka) PLC’s long and short-term corporate credit ratings of A and P2. The long-term rating carries a stable outlook. Ratings are supported by its sizable market share, its healthy balance sheet, and healthy debt coverage levels. The positives are, however, moderated by the inability to immediately pass on cost increases to the customer, funding mismatch and the exposure to the cyclical nature of the construction industry.

The Group is primarily involved in the manufacture and sale of Portland and ready-mix cement, to retail customers and large projects. Tokyo is one of the only two cement suppliers in Sri Lanka that operate local manufacturing plants. Together they supply around half of the cement requirement. The rest of the market is flooded with imported cement. The Group performed well in the retail and project-based segments during FYE March 31, 2011 (“FY March 2011), securing approximately the largest share of the domestic cement market during the same period.

Tokyo has been utilising its strong cashflow generation to pare down its debts.

The Group’s debt burden reduced from Rs 4.27 b as at end-March 2010 to Rs 3.56 b as at end-March 2011. Its gearing ratio eased from 0.75 times to 0.62 times. This further reduced to 0.57 times in end- June 2011. As the proposed bio mass plant is anticipated to be funded largely via internally generated funds, with only the remainder via debt the gearing levels are expected to remain at current levels.