Moody's expects earnings growth, coupled with stability in the company's debt balance, to support both absolute and relative de-leveraging to around 3.5x in 2016.
Leverage -- as measured by debt/EBITDA -- stood at around 3.7x as of March 31, 2016, down from 3.8x at December 31, 2015.
The positive outlook reflects Moody's expectation that Sritex will successfully complete its capex program in 2016 and that capex levels will decline materially by end-2016 and into 2017. Accordingly, Moody's expects EBITDA growth and improved cash generation to result in a significant improvement in Sritex's credit profile over the next 18 months.
Moody's also expects growth across each of Sritex's businesses, with the retail garment business demonstrating the highest growth rates.
The Indonesian textile manufacturer's expansion project is widening its presence in its four key businesses -- spinning, weaving, finishing and garments -- and will drive a shift in revenue to its higher margin garment business from the lower-margin spinning and weaving businesses.
This vertical integration, whereby Sritex produces roughly all of its fabric needs to manufacture its garments, is a key differentiating factor, allowing it generate better and more stable margins than its peers.
Sritex's B1 rating reflects its relatively small scale in the highly competitive global textile industry, the geographic concentration of its assets in Indonesia's central Java region, and its manageable level of leverage, as measured by debt/EBITDA.
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