Moody's upgrades Sritex's B1 rating to positive

05 May '16

4 min read

The ratings could be upgraded if Sritex maintains a stable financial profile over the next 18 months, with cash flows exceeding capital spending. In particular, debt/EBITDA levels below 3.5x and EBITA/interest expense above 3.5x on a sustained basis would be supportive of an upgrade.

In addition, the company would also need to maintain its good liquidity profile, supported by high cash balances and committed bank facilities.

A near-term downgrade is unlikely, given the positive outlook. However, the outlook could return to stable if: (1) rising wages and other input costs reduce Sritex's cost competitiveness, such that EBITDA margins fall below 15 per cnt on a sustained basis, or (2) Sritex expands its business through debt-funded acquisitions or capital expenditures, such that debt/EBITDA exceeds 4.0x on a sustained basis, or (3) liquidity deteriorates due to either falling cash balances or a loss of access to its credit facilities.

A shift in Sritex's articulated financial policy -- such that the company expands its debt-funded capex programme -- would most likely also result in a return to a stable outlook. (SH)

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