Metrocorp (Private) Limited

ICRA Lanka reaffirms the issuer rating of Metrocorp (Pvt) Limited

Instrument Rated Amount (LKR Mn)Rating Action
Issuer RatingNA[SL] A+ with Stable outlook; reaffirmed

Rating action

ICRA Lanka Limited has reaffirmed the Issuer rating of [SL]A+ (pronounced SL A Plus) with Stable outlook for Metrocorp (Private) Limited (“Metrocorp”/“the Company”).

Rationale

ICRA Lanka has taken a consolidated view on Metrocorp (Pvt) Ltd and its subsidiaries, given the significant operational and financial linkages among them. The rating primarily factors in Metrocorp’s position as a diversified group in Sri Lanka operating in six sectors such as, Agro Industry & Tea Marketing, Renewable & Sustainable Energy, Water Management, Office Automation & ICT, Leisure, and Asset Management. And the rating also factors the Group’s leading market position in some of the core sectors such as power generation.

ICRA Lanka notes that the diversified business profile has enabled the Group to maintain healthy profitability, capitalization and liquidity profiles, notwithstanding the challenging operating environment. The Group recorded a healthy financial performance in FY2021, with 15% revenue growth and 52% OPBITDA growth largely backed by the core power-generation segment. Moreover, despite the increase in overall debt levels in FY2021, Metrocorp’s leverage (total debt/EBITDA) stood at healthy 2.8x and gearing (total debt/total equity) at 0.5x. While the rating notes the recent increase in debt levels, with the acquisition of Metropolitan Holdings (Private) Limited in 4QFY21, ICRA Lanka expects the debt levels to remain somewhat stable in the short to medium term as the Group does not have significant capex plans in the medium term.  The rating also factors the healthy liquidity profile of Metrocorp, with over LKR 10 Bn in cash and other liquid financial assets, at Group level. 

These rating strengths are partly offset by Metrocorp Group’s revenue concentration risks as Power and Plantation Sectors collectively accounted for over 80% of the consolidated revenue in FY2021. However, this risk is mitigated to a larger extent by the vertical diversifications of the Power sector into overseas markets and the Plantations sector diversifying into value added tea, oil, spices, and herbs. ICRA Lanka also envisages the subsidiaries maybe susceptible to macro-economic volatility slowing down overall cash flow generation and profitability in the short to medium term. Operating performance of the core sectors such as power generation and plantations would be a key monitorable, going forward.  

Outlook: Stable

The Stable outlook reflects ICRA Lanka’s expectations that Metrocorp Group will continue to benefit from the segment and geographic diversification, while the group leverage and coverage indicators would remain stable in the short term.   

Key Rating Drivers

Credit strengths

Diversified Investment Holding Company with synergistic benefits within the Group: Metrocorp group has diversified business interests in 6 key sectors namely Agro Industry & Tea Marketing, Renewable & Sustainable Energy, Water Management, Office Automation & ICT, Leisure, and Asset Management. The company’s core business segments such as plantations and mini hydro power segments are leading entities in their respective industries. Eco Power, the Group’s power sector subsidiary is the largest mini hydropower producer in Sri Lanka with around 37 MW installed capacity, supplying power to the National Grid. The Company’s Magal Ganga MHPP (9.9 MW) is the only tunnel MHPP project that was undertaken by a private company in Sri Lanka. In addition, Eco Power currently has two operational SHPPs in Uganda, with the total power generation capacity of 12 MW. Eco Power is also the first Sri Lankan Company to expand into Uganda in 2009 with its first overseas small hydropower project – Ishasha SHPP. ICRA Lanka views positively the Bogawanthalawa tea, which is synonymous with high quality Ceylon Tea (High Grown tea) and the leading position in the Sri Lankan tea plantation industry. The rating also factors in the Group’s leading market position in the office automation and ICT sector with the recent acquisition of Metropolitan Holdings (Private) Limited.

Well experienced management team and strong partnerships with the global funds to support global expansions: Given the Company’s carbon neutrality and sustainable business objectives, Metrocorp has been able to maintain healthy partnerships with funds (such as NorFund and Belgium Investment Fund) that have already helped and will continue to support the Power sector to access concessionary funding facilities for its overseas expansions

Healthy capital structure of the Group with adequate leverage, coverage and liquidity metrices: Historically, Metrocorp as a group and holding company, had low to moderate debt levels with healthy coverage and leverage indicators backed by liquid assets. This was mainly due to the conservative investment policy of the management, with less appetite for debt funded capex projects.  However, ICRA Lanka notes that the total debt at the holding company level has increased to about LKR 10.2 Bn as in Mar-21, from about LKR 6.3 Bn as in Mar-20, due to the acquisition of Metropolitan Holdings in 4QFY21.  Despite the rise in debt levels, the Group leverage stood at 2.8x and gearing at 0.5x as in Mar-21. And the coverage indicators also remained healthy at interest cover increasing to 5.8x times as in FY2021, vis-a-is 3.7x times in FY2020. Going forward, ICRA Lanka expects the debt coverage and leverage indicators to remain healthy, due to the improved operational cashflows from the newly acquired entity. Moreover, at the group level, Metrocorp had a healthy liquidity position of over LKR 10 Bn in FY2021 including cash and other liquid financial assets, strengthening the company’s debt repayment capacity. 

Credit challenges

Risks of revenue concentrations from the core business segments: Despite ongoing diversification initiatives, Metrocorp (at the group level) are dependent on the performance of its subsidiaries, where Eco power and BTE together accounted for over 80% of group revenues. This lends less diversity to revenue streams and exposures the revenues to risk of concentration/high dependence on these sectors. However, this risk is mitigated to a greater extent by vertical diversification through overseas expansions of the Power sector as well as diversification initiatives under the plantation sector into other crops such as oil palm, herbs, and spices.

Subsidiaries are susceptible to macro-economic volatility, which could slow down group’s overall cashflows and profitability: ICRA Lanka notes that some of the core segments of the Group are affected by the challenging operating environment characterized by high input prices, material shortages and import restrictions. The plantation sector, represented by Bogawanthalawa Plantations is affected by the shortages and the sharp increases fertilizer prices. However, the supply-side pressures on the plantation sector are somewhat off-set by healthy tea prices in the market. Metropolitan Holdings is also affected by the forex shortage in the market, as bulk of the products are imported. ICRA Lanka also notes that the sharp increase in systemic interest rates will affect the power generation sector as the project funding cost is likely to increase with the market rates. ICRA Lanka will continue to monitor the operating performance of the group companies of Metrocorp as the same is a key rating sensitivity.

Analytical approach: For arriving at the ratings, ICRA Lanka has applied its rating methodologies as indicated below.

Links to applicable criteria: https://www.icralanka.com/issuer-rating-methodology/  

About the Group:

Metrocorp (Pvt) Ltd, formerly known as Metropolitan Investment (Pvt) Ltd, was established in 1994. Today, Metrocorp Group has diversified into six sectors and the company’s core business segments, plantations and mini hydro power segments are the market leaders in their industries. Currently, the Power segment (through Eco Power Holdings (Pvt) Ltd), is the largest contributor to Metrocorp Group’s operating profit. The Group’s plantation segment – Bogawantalawa Tea Estates PLC (BTE) (rated SL BBB, with Stable Outlook by ICRA Lanka), is one of the leading Regional Plantation Companies (RPCs) in Sri Lanka, predominantly operating in the high grown premium tea market. BTE’s tea estates are located in the Golden valley of Sri Lanka, globally famous for the tea plantation estates of the premium tea industry. During the recent past, the group continuously expanded its businesses through organic as well as inorganic growth strategies to diversify into synergistic businesses such as water management/consultancy and leisure sectors. In the leisure sector, the group operates villas/holiday bungalows by the beach, in the hills and by rivers and waterfalls, which offers homestyle stay for local and foreign travelers. As of FY2021, Metrocorp Group had a total asset base of LKR 35.9 Bn and consolidated operating income of LKR 9.2 Bn. Moreover, in FY2021 Metrocorp acquired the 100% stake of Metropolitan Holdings (Pvt) Ltd and the 100% stake of Ceylon Bungalows.

Key financial indicators (Consolidated)
Revenue and profitability indicators-Figs are in LKR MnFY18FY19FY20FY21
Operating Income4,346.57,132.87,930.149,151.87
OPBDITA1,417.01,898.22,413.783,672.91
PAT1,749.31,649.8729.761,816.96
ROCE (%)16.3%14.3%7.9%11.2%
NWC / OI (%)21.1%21.5%21.3%47.7%
Total Debt4,353.84,624.76,278.3710,229.64
Networth12,724.914,315.715,016.5019,367.17
Gearing (x)0.340.32           0.42           0.53
OPBDITA/Interest & Finance Charges(x)5.423.81           3.72           5.76
Total Debt/OPBDITA (x)3.072.44           2.60           2.79

 Source – Company/Audited Financial Statements

Rating history for last three years:

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