Fitch Assigns Oxford College of Business First-Time ‘A(lka)’ National Rating; Outlook Stable - Oxford College of Business Sri Lanka

Fitch Assigns Oxford College of Business First-Time ‘A(lka)’ National Rating; Outlook Stable


Fitch Ratings – Colombo – 05 Sep 2023: Fitch Ratings has assigned Sri Lanka-based tertiary education provider Oxford College of Business (Private) Limited a first-time National Long-Term Rating of ‘A(lka)’. The Outlook is Stable.

The rating reflects Oxford College of Business’s tight liquidity, small operating scale in terms of EBITDA and reliance on a single counterparty with a limited record. These risks are mitigated by defensive demand for its academic programmes and neutral-to-positive free cash flow (FCF) generation that support a steady financial profile.

The Stable Outlook is based on our view that the company’s liquidity and credit metrics will remain adequate in the next 12-18 months.


Small Scale: Oxford College of Business’s rating is constrained by its small EBITDA size compared with that of higher-rated peers, as it caters to a niche product in a small addressable market. The company generates 80% of revenue from the postgraduate segment, which is price sensitive and competitive. Oxford College of Business estimates its post-graduate market share to be 25%-30% of estimated annual market enrollments of 4,000- 5,000 students. It plans to introduce new courses and a branch in the UK that targets migrant workers, but the strategy entails execution risk, including untested demand.

Low Leverage, Sufficient Coverage: We expect EBITDA net leverage to fall to below 2.0x by the financial year ending March 2025 (FY25), from 3.0x in FY23, amid positive FCF generation in the absence of high capex or dividends. The college plans to expand through inorganic growth, but these plans are not firm. We expect EBITDA interest coverage to improve to 3.0x from FY25, helped by higher EBITDA generation and easing domestic interest rates. FCF is likely to be negative in FY24, due to investments and the settlement of dues to foreign universities.

High Concentration Risk: Oxford College of Business offers undergraduate and postgraduate programmes in affiliation with the UK’s University of Bedfordshire under an agreement that is renewed every five years. The next renewal is in 2026. We believe this arrangement creates high counterparty risk, as Oxford College of Business has been through only one renewal cycle since entering the agreement in 2016. However, the company says it has complied with the university’s annual audit requirements and has settled dues on time, which mitigates the risk.

It also plans to diversify by tying-up with a second foreign university in 2H23 and to expand beyond postgraduate programmes by introducing top-up undergraduate and professional courses that target student who have basic qualifications or requisite work experience. These programmes are gaining traction due to the low cost and short duration. We forecast the contribution from postgraduate programmes to fall to 65% by FY27, from 80% in FY23, and for overseas revenue to reach 25%, from less than 5%.

Strong Growth Potential: Private tertiary education in Sri Lanka is on a strong growth trajectory amid resource constraints in the public sector and increased demand from employers and for skilled migration. Less than half of the students eligible for tertiary education in Sri Lanka are enrolled at public universities each year, with the rest seeking alternatives. Overseas education is becoming increasingly unaffordable, due to the recent rapid devaluation of the Sri Lankan rupee.

Sri Lanka is seeing a marked increase in skilled migration amid the country’s economic challenges. This results in strong demand for postgraduate degrees as a means of qualifying for skilled migration and to improve employability overseas. In the local market, postgraduate qualifications are becoming essential for career progression. Oxford College of Business offers programmes at a fraction of the cost of an overseas degree, flexible class schedules, broader eligibility criteria and course fees paid in local currency, which are attractive value propositions for students.

Foreign Exchange risk: The company employs an aggressive financial strategy by billing its students in Sri Lankan rupees and thereby taking on the currency risk of its overseas university fees. This is an advantage to students, as competitors’ courses are billed in foreign currency. The company collects its fees in advance for the full duration of the course, and is therefore only able to recoup exchange losses by raising fees on future enrollments. This could expose the company to foreign-currency risk during periods of a sharp weakening in exchange rates, especially if enrollments slow.

Positive Working Capital to Continue: The company has positive working capital, with dues to universities outpacing receivables. The build-up in payables over the last 12 months, owing to regulatory restrictions on external payments, has largely eased. We do not expect Oxford College of Business’s positive working capital position to reverse in the next two years, given our expected growth, and the company’s contingent liquidity appears sufficient to manage any near-term dues to universities.


Oxford College of Business’s rating is one notch below that of Sri Lanka’s leading domestic consumer durable retailer, Singer (Sri Lanka) PLC (A+(lka)/Negative). Singer’s rating reflects its position as the largest consumer durable retailer in the country, with a competitive portfolio of products across price points. However, this is offset to an extent by its weaker leverage and coverage ratios compared with Oxford College of Business. The Negative Outlook on Singer reflects its low rating headroom, where EBITDAR fixed-charge coverage may weaken further amid high domestic interest rates. Singer’s credit profile is also at risk from the growth of its regulated finance subsidiary’s loan book. .

Domestic cable manufacturer, Sierra Cables PLC (A+(lka)/Stable), is rated one notch above Oxford College of Business, due to the education provider’s smaller scale and presence in a niche market with high competition. Oxford College of Business also has high concentration risk to a single overseas university and a more modest financial profile. However, this is counterbalanced by defensive demand for its academic programmes compared with the cyclical demand for Sierra’s steel cables from the construction and infrastructure sectors.

Oxford College of Business is rated three notches above domestic renewable energy producer, Resus Energy PLC (BBB(lka)/Negative), despite the latter having a larger scale and stable cash flow from long-term power purchase agreements. This is due to Resus’ tighter liquidity and weaker financial profile amid payment delays from its main off-taker, Ceylon Electricity Board (B(lka)/Positive), as reflected in the Negative Outlook.


Fitch’s Key Assumptions Within Our Rating Case for the Issuer:

– Revenue to increase by 29% in FY24 and 55% in FY25, benefiting from the launch of new postgraduate programmes and revenue contribution from the UK branch.

– EBITDA margin to contract by about 500bp to 21.0% by FY25, owing to set up costs for new programme launches and high marketing and promotional costs. The EBITDA margin should improve to around 26% by FY27, assuming new programmes gain traction.
– Trade payables balance to decrease to LKR270 million in FY24, from LKR410 million in FY23, as restrictions on foreign-currency repatriations have largely eased.

– Annual capex of around LKR85 million over FY24-FY27, mainly for facility maintenance and UK expansion.


Factors that could, individually or collectively, lead to positive rating action/upgrade:

– Material increase in scale and diversification of counterparty risk, while maintaining the current financial risk profile.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

– A weakening in the liquidity profile, including due to working capital pressure or weaker bank access.

– EBITDA interest coverage falling below 2.0x for a sustained period.


Tight Liquidity: Oxford College of Business had LKR41 million in cash on hand as at FYE23, against LKR118 million of debt maturing in the next 12 months. Around LKR63 million of this debt is contractual maturities and is not sufficiently covered by cash on hand. Oxford College of Business has around LKR300 million in uncommitted and unutilised credit lines from local banks, which can be used to pay its obligations, but the banks may withdraw these lines depending on their risk appetite. The company has not experienced curtailment of its credit lines, despite its weak operating environment.


Oxford College of Business is a private tertiary education institute in Sri Lanka offering undergraduate, postgraduate and professional qualifications with special focus on postgraduate programs


24 August 2023