Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

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High Yield Experts

The Week that Was in ASEAN@Smartkarma - Indonesian Dairy, Bank Central Asia, and Thai Picks

Sritex (SRIL): Undervalued with More Products and B2C

Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

Credit

We view Sritex as “High Risk” on the LARA scale. The company is small compared to global peers, and has pursued a debt-funded expansion since its listing in 2013. In addition, the global textile industry is highly competitive, with Bangladesh and Vietnam offering significantly lower costs than Indonesia. That said, Sritex has established a niche position, as reflected by its relationships with repeat customers such as H&M, Macy’s as well as the Indonesian, and the German and other NATO militaries. The company is vertically integrated, which allows it to enjoy lower costs and more stable margins compared to peers. Our fundamental Credit Bias is "Negative", considering the earnings decline due to weakened apparel demand amid the COVID-19 pandemic. While Sritex has pivoted towards producing masks and medical suits, it is unclear if sales from these new products can fully offset the expected decline from its core segments. For FY 2020, we forecast that EBITDA will decline 20-25% y-o-y. FCF generation is likely to remain poor, owing to high working capital outflows. We view Sritex as “Weak” on the LAGA scale, primarily on account of its: [1] inconsistent management guidance; [2] high level of related-party transactions; [3] majority ownership (59%) and control by the Lukminto family; [4] very weak Board of Commissioners, due to the presence of two family members (out of four); and [5] significant outside business interests of the founding family.

  We view Sritex as “High Risk” on the LARA scale. The company is small compared to global peers, and has pursued a debt-funded expansion since its listing in 2013. In addition, the global textile industry is highly competitive, with Bangladesh and Vietnam offering significantly lower costs than Indonesia. That said, Sritex has established a niche position, as reflected by its relationships with repeat customers such as H&M, Macy’s as well as the Indonesian, and the German and other NATO militaries. The company is vertically integrated, which allows it to enjoy lower costs and more stable margins compared to peers.   Our fundamental Credit Bias is "Negative", considering the earnings decline due to weakened apparel demand amid the COVID-19 pandemic. While Sritex has pivoted towards producing masks and medical suits, it is unclear if sales from these new products can fully offset the expected decline from its core segments. For FY 2020, we forecast that EBITDA will decline 20-25% y-o-y. FCF generation is likely to remain poor, owing to high working capital outflows.   We view Sritex as “Weak” on the LAGA scale, primarily on account of its: [1] inconsistent management guidance; [2] high level of related-party transactions; [3] majority ownership (59%) and control by the Lukminto family; [4] very weak Board of Commissioners, due to the presence of two family members (out of four); and [5] significant outside business interests of the founding family.  

Sri Rejeki Isman

Sritex - Tear Sheet - Lucror Analytics