Fitch Ratings has affirmed the National Long-Term Rating of ‘AAA(lka)’ for Sri Lankan conglomerate Hayleys PLC, citing the company’s diversification and substantial export activities as key factors. The ratings for Hayleys’ outstanding senior unsecured debentures have also been maintained at ‘AAA(lka)’.

According to Fitch, Hayleys’ rating is supported by its significant operational scale and the diversity of its end-markets and business segments. The company’s substantial export earnings are crucial in generating sustainable operating cash flow, which helps mitigate temporary challenges in certain business areas.

The rating agency’s full statement indicates that Hayleys’ geographic and business diversification is a major strength. The company generates over 80% of its group EBIT from eight different businesses, with 53% of its revenue in FY25 coming from direct and indirect exports. Notably, about 15% of its revenue is derived from Europe and the US, minimizing exposure to slower-growth developed markets. Hayleys’ manufacturing operations extend beyond Sri Lanka, with only 55% of its Purification segment capacity based locally. The remaining capacity is situated in Thailand and Indonesia, while the Hand Protection segment, known for producing rubber gloves, also operates within Thailand.

Fitch expects Hayleys’ operating cash flow to grow, driven by a 19% revenue increase in FY26, spearheaded by the Consumer & Retail, Hand Protection, Purification, and Transportation & Logistics segments. This growth is anticipated to offset weaker performance in the Textiles segment, which is experiencing reduced demand in key export markets.

While the EBITDA margin is expected to moderate to around 10% in FY26 from 11% in FY25 due to challenges in the Textiles and Construction segments, it is projected to recover to about 11% in FY27. This rebound is anticipated as price adjustments and improved capacity utilization take full effect. Additionally, cash flow from capacity expansions in the Hand Protection and Purification segments is expected to fully materialize in FY27.

Hayleys’ leverage is projected to remain stable, with EBITDAR net leverage estimated to be around 3.0x-3.5x from FY26 to FY28. The company plans to invest approximately LKR20 billion annually in capacity expansion, which, while supporting revenue growth, is expected to keep free cash flow negative.

Hayleys holds a strong market presence in various sectors, including logistics, consumer-durable retail, and tea exports. The company’s competitive position is enhanced by strong customer relationships and vertical integration, allowing it to capture more profits along the value chain.

Fitch notes that Hayleys’ financial profile as a holding company is robust, with the ability to leverage cash flows from its subsidiaries to meet its obligations. The company’s interest coverage is expected to remain comfortably above 1.0x in the medium term, indicating limited cash flow subordination risks.

In terms of peer comparison, Hayleys is rated similarly to other top domestic companies such as Lion Brewery (Ceylon) PLC and Melstacorp PLC, benefiting from its diversified operations despite facing more cyclical end-market risks.

Fitch’s key assumptions for Hayleys include a 19% revenue growth in FY26 and a 6% increase in FY27, largely driven by specific segments. The company plans to maintain an annual capex of around LKR20 billion from FY26 to FY29, alongside a dividend payout of about LKR4.5 billion in FY26 with subsequent annual growth.

Factors that could lead to a negative rating action include an increase in the group EBITDAR net leverage to above 4.0x or a decline in EBITDAR fixed-charge coverage below 2.0x for an extended period. Conversely, there are no prospects for an upgrade as Hayleys already holds the highest rating on the Sri Lankan National Rating scale.

Regarding liquidity, Hayleys had approximately LKR45 billion in unrestricted cash as of end-September 2025 against LKR160 billion in maturing debt over the next 12 months. The company benefits from strong access to domestic banks, reinforcing its liquidity profile.

As a leading listed domestic conglomerate, Hayleys maintains significant market positions across various sectors, drawing nearly half of its revenue from international markets.