CEAT Kelani Holdings (CKH) has been assigned a National Long-Term rating of ‘AA+(lka)/Stable’ by Fitch Ratings for a third consecutive year, a rating the Agency says reflects the Company’s position as a leading domestic manufacturer of vehicle tyres and its strong financial profile.
In its announcement, Fitch Ratings said: “The affirmation and Stable Outlook reflect our view that CKH will maintain adequate credit metrics and liquidity despite its expansion plans and a still weak operating environment.”
“Import restrictions on tyres have largely eased, raising competition for domestic manufacturers, but we believe CKH will defend its market position owing to its strong brand and distribution network and modest cost advantage compared with imports,” the rating 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. Key rating drivers for CEAT Kelani Holdings included a projected gradual recovery in demand for tyres, growth from new markets, and strong market position.
Commenting on the rating, CEAT Kelani Holdings Chairman Mr Chanaka De Silva said: “As the single largest tyre manufacturer in Sri Lanka, we are delighted to note that our rating has remained unchanged for three years despite the challenging external factors. This is a testament to a remarkable degree of consistency and resilience that augurs well for all stakeholders and assures customers and business partners of an uninterrupted supply of high-quality products, even in mercurial market conditions.”
Fitch said it expects demand for tyres to gradually reach pre-pandemic levels by FY25 with a recovery in construction activity and increased government spending on the transportation sector which contributes to around 40% of CKH’s revenue. Additionally, the agency said it expects exports and partnerships with Original Equipment Manufacturers (OEMs) to provide growth opportunities for CKH contributing around 15% to 20% of revenue in the medium term. CKH is exploring new opportunities in South America while expanding its reach in existing markets in Asia, the agency disclosed.
Referring the CEAT Kelani’s strong market position, Fitch Ratings said: “CKH continued to gain or retain market share in its key segments despite the weak operating environment in the last 12-18 months. CKH has 40-45% market share in the overall tyre market with market leadership in light truck, truck/bus, van and car radial and three-wheeler tyres. It is the market leader in the fast-growing but highly fragmented radial segment with 35% market share. CKH’s strong brand and extensive distribution network and the appealing value proposition in the mid-range price category supports its market position.”
The manufacturer of nearly half of Sri Lanka’s pneumatic tyre requirements, 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 exceeds Rs 8 billion. The company’s manufacturing operations in Sri Lanka encompass tyres in the radial (passenger cars, vans and SUVs), commercial (nylon and radial), motorcycle, three-wheeler and agricultural vehicle segments.