RAM gave a short term rating of 'P2' for the firm, which is defined as having adequate capacity to meet short term obligations.
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Lankem was incorporated in 1964 and became a listed firm in 1968. Starting with agro chemicals, the firm is now in industrial chemicals and bituminous products, paints, consumer products, construction, plantations and leisure.
The firm operates plantations which produce 4.23 percent of Sri Lanka's tea and 4.
02 percent of the island's rubber, RAM said. The largest volume of revenue comes from plantations, followed by chemicals.
It is a strong player in herbicides, an input in rice cultivation.
"As such, the demand for herbicides is anticipated to remain relatively stable," RAM said.
RAM said Lankem had an estimated 29 percent share of the agrochemical market and 20 percent in paints and had a strong distribution network and high quality products. The group also controlled 60 percent of the paint thinner market.
The group’s gearing ratio of 1.
31 times at the year ending March 2010 was relatively high, RAM said.
Its debt had increased from 3.04 billion rupees as at end-March 2009 to 4.46 billion rupees a year later. Some of the debt had been taken to buy CW Mackie, a listed firm.
Lankem’s operating cashflow debt coverage ratio had weakened from 0.15 times in 2009 to 0.22 by March 2010.
"Although its cashflow-generating ability has improved this year, RAM Ratings Lanka views with concern the Group’s potentially heavier debt burden following the capital investment plans and its reliance on short-term borrowings," the agency said.
Lankem's consumer segment had also lost money in the past four years except for the year ending March 2009. In the year to March 2010, the segment had lost 71.9 million rupees, causing concern, RAM said.
"Despite owning strong household brands, the division has failed to turn around due to its inability to pass on raw material cost increases to its customers amid the highly competitive market," the agency said.