Melstacorp’s expansion to diversify cash flow - Fitch | Daily News


 

Melstacorp’s expansion to diversify cash flow - Fitch

Melstacorp PLC’s (AAA(lka)/Stable) foray into the Sri Lankan healthcare industry will help diversify its cash flows away from its focus on spirits over the longer term, Fitch Ratings says.

Melstacorp agreed on February 20, 2020 to buy Browns Health Care (Pvt) Ltd, which operates a 70-bed multi-speciality hospital in Ragama, in the suburbs of Colombo, for LKR1.6 billion.

The mostly debt-funded acquisition will not have an immediate impact on Melstacorp’s rating due to its small size.

The planned acquisition follows a number of investments by Melstacorp into the healthcare sector over the last few years.

The company manages Joseph Fraser Memorial Hospital, a small Colombo-based specialty hospital, and owns a network of diagnostic laboratories.

We believe Melstacorp’s management has the necessary experience to run a healthcare business as the group managed Lanka Hospitals PLC, one of the largest private-sector hospitals in the country with 350 beds, until its divestment in 2009. However, we estimate that the contribution from the healthcare sector to Melstacorp’s EBIT, pro forma for the recent Browns acquisition, is currently small at around 1%-2%.

The proposed transaction will slightly weaken our forecast for Melstacorp’s leverage, defined as net lease-adjusted debt/EBITDAR, from 1.6x to 1.7x for the year ending March 31, 2020 (FY20), although it will remain below 2.0x, in line with its ‘AAA(lka)’ rating.


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