Lanka Rating Assigns Initial Entity Rating to Brown and Company PLC

Brown and Company PLC ("BRWN" or "the Company") is the part of Browns Group ("the Group"). The Group has diversified interests in Automotive and Hardware, Pharmaceuticals, Consumer and Industrial Engineering Solutions, Agriculture and Heavy Machinery, Agribusiness and Plantations, Leisure and Entertainment, and Construction sectors. The Rating reflects strong ownership structure of the Company (~83.42% owned by LOLC Holdings) and demonstrated support from the parent in shape of guarantees and intercompany loans. LOLC Group, a leading financial services company, has a diverse portfolio of investments in ~25 countries. LOLC Group's operating segments are clustered into financial and non-financial segments, with the financial segment possessing the higher share (~89.5%) in the Group's revenue. LOLC Holdings had consolidated assets of LKR~1,740bln and net income of LKR~21.8bln in FY24. The Company operates as both an operating and holding Company. It operates in various business Standard Business Units (SBUs) that have exhibited mixed performance. Agriculture, Pharma and certain manufacturing SBUs are performing well, while general trading, heavy machinery and power systems are struggling, posting sizeable losses in FY24. As holding company, BRWN's investments have yet to yield desired results. The Company has financed acquisitions through borrowings from parent and financial institutions. The high finance cost has led to losses and deteriorating coverage ratios in FY24 and 1QFY25.
BRWN reported revenue of LKR ~23,030mln in FY24 (FY23: LKR ~22,341mln). The Company has reported losses of LKR 4,246mln in FY24 (FY23: LKR-1,430mln). Cash flow from operating activities remained strong and stood at LKR~7,670mln in FY24 (3MFY25: LKR-5,006). However, funding cost increased to LKR ~10,316mln in FY24 as compared to LKR~8,685mln in FY23 (3MFY25: LKR~2,267mln). Consequently, the interest coverage ratio deteriorated to ~0.2x in FY24 (FY23: ~0.4x), highlighting increased strain on the Company’s ability to service its debt.
The leverage ratio increased to ~45.8% in FY24 (FY23: ~43.8%) due to higher short-term borrowings, largely consisting of revolving related party loans. Payables to related parties surged by ~80% to LKR ~31,618mln in FY24, having ~61.9% share in total borrowing. The Company is incurring high finance cost on these borrowings. However, BRWN is planning to dispose off some of its assets to reduce the intercompany borrowings. Similarly, reduction in interest rates is expected to less the interest burden to an extent. Going forward, managing debt levels and liquidity present significant challenges to the Company’s future prospects.
The rating depends on the management's ability to reduce its borrowings, effectively manage interest on loans and turning around its struggling businesses/investments. Timely disposal of certain assets and utilization of proceeds to reduce debt levels is critical. Any substantial increase in borrowings and continuing losses in key businesses will considered negative for the rating. LOLC Holdings PLC's support would remain a significant rating factor.

About the Entity
Brown and Company PLC ("BRWN" or "the Company") is a publicly quoted Company, domiciled in Sri Lanka and listed on the Colombo Stock Exchange (CSE). The address of the Company’s registered office is No. 481, T. B. Jayah Mawatha, Colombo 10, Sri Lanka. LOLC Holdings PLC owns ~83.42% shares of BRWN. The Board comprises 07 members: 4 non-executive and 3 executive directors, with two independent directors. Mr. Ishara Nanayakkara is the Executive Chairman of the Board and Mr. Thamotharampillai Sanakan is the Group CEO.