Sri Lanka IOC unit hit by ad hoc price cuts; formula not cost reflective

ECONOMYNEXT - Lanka IOC, a publicly traded unit of Indian Oil Corporation, is expecting better results in the March 2019 quarter after being hit by multiple price cuts during a political crisis, but an existing pricing formula itself is not cost reflective, a top official said.

In the December quarter, Lanka IOC lost 986 million rupees, with gross profits falling to 67 million rupees from 277 million rupees a year earlier.

In addition to petrol and diesel, the firm also sells lubricants, which have positive margins and bunkers tare subject to competition.

Sri Lanka re-started a pricing formula in March 2018, under which the Finance Ministry announces a retail price for fuel every 10th of the month.

But the price formula itself is also not truly cost reflective, Lanka IOC Managing Director Shyam Bohra said.

"The components considered in the pricing formula are required to be suitably updated in line with actual cost," he said.

"The matter is being taken up by the company with the Government."

These include the cost of a terminal and dealer margins. The firm pays a 3 percent margin to dealers.

In addition to a common user terminal managed by Ceylon Petroleum Corporation used by both firms, Lanka IOC has a terminal in a tank farm in Trincomalee.

The government also changes taxes on fuel frequently, which makes it more difficult to manage costs.

During a so-called 'coup' on October 26 where ex-President Mahinda Rajapaksa was unexpectedly appointed Prime Minister, prices were cut several times outside the formula, re-politicising fuel prices.

A steep fall in the rupee against the US dollar also pushed up costs in the last quarter.

In the March quarter, the rupee has stabilised and there is no loss on inventory expected, which will help bring better results, Bohra said.

"We expect better performance in the March quarter," he said. "Positive margins from other product lines will contribute."

The firm now sells petrol at a higher price than state-run Ceylon Petroleum Corporation's 124 rupees under the formula.

Dealers have protested the loss of business, but Bohra says they have been compensated with an extra margin. The stock closed at 20.50 rupees Thursday.

Sri Lanka's Alumex makes Rs 63mn loss in December quarter

ECONOMYNEXT – Alumex, the aluminium extrusions subsidiary of Sri Lanka's Hayleys group, said it lost 63.4 million rupees in the December 2018 quarter compared with a net profit of 102 million rupees the year before.

Sales of the firm, which commissioned Sri Lanka's largest aluminium extrusion plant in 2018, rose 17 percent to 1.3 billion rupees in the period, according to interim accounts filed with the stock exchange.

Costs rose faster than net revenue during the period, the accounts showed, with net finance costs soaring to 147 million rupees from 29 million rupees the previous year.

December quarter’s loss per share was 21 cents. Alumex shares were trading at 13.10 rupees in early trade Tuesday, down 30 cents or two percent.

In the nine months to December 2018, the firm, which has a dominant market share, reported earnings per share of 10 cents with net profit down 87 percent to 29.3 million rupees.

Sri Lanka’s LVL Energy December quarter net profit down 40-pct

ECONOMYNEXT - Sri Lanka’s LVL Energy Fund, which operates hydro, wind, and thermal power plants, said net profit fell 40 percent to 48 million rupees in the December 2018 quarter from a year ago.

Sales of the group, which has diversified into solar power, fell 9.5 percent to 114 million rupees over the same period, according to interim accounts filed with the stock exchange.

Earnings per share for the quarter were eight cents. LVL Energy Fund’s share last traded unchanged Tuesday at 8.00 rupees.

EPS for the nine months to December 2018 was 83 cents with net profit up 21 percent to 483 million rupees from the previous year.

A note to the accounts said LVL Energy Fund, a subsidiary of Lanka Ventures, had invested 117 million rupees on 17 January 2019 in the Makari Gad Hydro Power project in Nepal.

Tax costs shot up to 85 million rupees in the nine-month period from 26 million rupees last year.

LVL Energy Fund has power plants in Sri Lanka, Bangladesh and Nepal.

Its hydro power plants performed the same as the previous year, while its thermal power plants in Bangladesh showed a stronger performance during the period compared to last year.

“The share of profit from the Bambabarapana hydro power plant that commenced commercial operation in the last quarter of the previous financial year also contributed towards a higher group profit for the period,” the statement said.

Power generation of wind power plants during the period was less than in the previous year, mainly due to less favourable weather conditions.

LVL Energy Fund operates seven hydro power projects in Sri Lanka with a total capacity of 19.4 MW and two wind power projects with an installed capacity of 15.3 MW in Kalpitiya.

Sri Lanka's United Motors December net profit down 44-pct

ECONOMYNEXT - Profits at United Motors Plc, agents for Mitsubishi automobiles in Sri Lanka, fell 44 percent to 60 million rupees in the December 2018 quarter as sales slowed after government import controls were implemented to defend the rupee.

Interim accounts filed with the stock exchange showed quarterly sales fell 7.2 percent to 3.2 billion rupees.

The firm reported earnings of 59 cents per share for the quarter.

In the nine months to December, United Motors reported earnings of 1.97 rupees per share on total profits of 198 million rupees, down 56 percent.

Nine month revenues fell 10.6 percent to 10 billion rupees.

The fall in sales and profits at United Motors came after credit restrictions and tax hikes that have slowed car imports.

Sri Lanka’s Haycarb December net profit up 30-pct

ECONOMYNEXT - Sri Lankan coconut shell-based, activated carbon-maker Haycarb said net profit rose 30 percent to 211 million rupees from a year ago.

Quarterly earnings per share were 7.12 rupees, according to interim accounts filed with the stock exchange.

The share was trading at 130 rupees Thursday morning, unchanged.

Quarterly sales rose 39 percent to 5.3 billion rupees.

EPS for the nine months to December 2018 were 17.36 rupees with net profit up 29 percent to 516 million rupees and sales up 31 percent to 14.3 billion rupees

Haycarb Managing Director Rajitha Kariyawasan said the growth in sales was owing to adjustment of activated carbon prices in the first half of the year to compensate for raw material price hikes and growth in sales of value-added products.

“With the availability of charcoal improving in Sri Lanka, Indonesia and India due to improved coconut crop, the company has gradually passed the benefit to its valued customers,” he said.

Haycarb continued to face stiff competition from India and Philippines, the largest coconut carbon-producing countries in the region.

“The company has made significant strides in acquiring and growing new strategic customer accounts and market segments, backed by robust product development initiatives, auguring well for the growth plans of the business,” Kariyawasan said.

Sri Lanka’s Teejay Lanka December quarter net profit up 12-pct

ECONOMYNEXT – Teejay Lanka’s net profit rose 12 percent to 551 million rupees in the December 2018 quarter from a year ago with higher sales, better capacity use especially in India and a weaker rupee, although in dollar terms earnings were flat.

The Sri Lankan fabric supplier’s sales in the third quarter of 2018-19 were up 28 percent to 8.48 billion rupees, interim accounts filed with the stock exchange showed.

Quarterly earnings per share were 78 cents. Teejay Lanka’s share closed at 34 rupees Thursday, down 40 cents or 1.16 percent.

In the nine months to December 2018, EPS was 1.79 rupees with sales up 26 percent to 23 billion rupees and net profit up 16 percent to 1.26 billion rupees.

Teejay Lanka Chairman Bill Lam said in a statement that this was the fifth consecutive quarter of sales and profit growth, “demonstrating its resilience during a period of higher raw material and utility costs.”

The growth was achieved by operating at optimal capacity with the margin for the quarter improving to 12.3 percent from 11.2 percent on a quarter-on-quarter basis “as a result of better loading and an improved mix via the group’s US and EU business units,” he said.

“Additionally, improved capacity utilisation across the group, mainly with Teejay India’s expanded capacity exceeding expectations with optimum production and capacity utilisation, had contributed to the performance,” he said.

“The depreciating rupee and cost reduction initiatives also helped to keep overhead cost increases below revenue growth, Lam explained.

Teejay Group had a strong order book for the final quarter of 2018-19, projecting strong numbers for the group, he said.

“While we continue to see growth opportunities for Teejay Group, we also see challenges, foremost among them sale mix and raw material price volatility and increases in utility costs,” Lam said.

“Despite the challenging market conditions, the group is optimistic that with a strong order book, capacity optimisation and the depreciation of the rupee, it will end the financial year on a strong footing.”

In dollar terms, December 2018 quarter profit growth was flat at 3.3 million.

A weft knit fabric specialist with manufacturing operations in Sri Lanka and India, Teejay is one of the region’s largest textile manufacturers, and supplies fabric to some of the top international brands, a statement said.

One of Sri Lanka’s largest apparel exporters, Brandix Lanka has a 33 percent stake in Teejay Lanka and Pacific Textiles of Hong Kong 28 percent.

Sri Lanka's Sampath Bank Basel III debentures get 'A(lka)' final rating

ECONOMYNEXT- Ratings agency Fitch awarded Sri Lanka's Sampath Bank Plc's seven billion rupee five year Basel III compliant debentures a national long-term rating of A (lka).

The final rating is the same as the expected rating assigned on 17 December 2018, and follows the receipt of documents reflecting information already received, Fitch said.

Sampath Bank, rated A+(lka)/Stable, will be issuing the debentures to raise capital to meet regulatory requirements and expand the loan book.

Fitch said the debentures are based on Sampath's long-term rating, which 'incorporates its evolving franchise, high-risk appetite and improving-but lower-than-peer capitalisation'.

The full Fitch Ratings statement follows:

Fitch Ratings-Colombo-07 February 2019: Fitch Ratings has assigned Sampath Bank PLC's (A+(lka)/Stable) proposed Basel III-compliant subordinated debentures a National Long-Term Rating of 'A(lka)'.

The notes, which will total LKR7 billion and mature in five years, include a non-viability clause and will qualify as regulatory Tier II capital for the bank. The bank plans to use the proceeds to strengthen its Tier II capital base and support its loan-book expansion. The debentures are to be listed on the Colombo Stock Exchange.

The final rating is the same as the expected rating assigned on 17 December 2018, and follows the receipt of documents conforming to information already received.

Key Rating Drivers

Fitch rates the proposed Tier II instrument one notch below the bank's National Long-Term Rating of 'A+(lka)' to reflect the notes' subordinated status and higher loss-severity risks relative to senior unsecured instruments. The notes would convert to equity upon the occurrence of a trigger event, as determined by the Monetary Board of Sri Lanka.

Sampath's National Long-Term Rating is used as the anchor rating because the rating reflects the bank's standalone financial strength. Fitch believes that the bank's standalone credit profile best indicates the risk of becoming non-viable.

Fitch has not applied additional notching to the notes for non-performance risk, as they have no going-concern loss-absorption features, in line with Fitch's criteria.

Sampath's National Long-Term Rating was affirmed on 28 September 2018, and incorporates its evolving franchise, high-risk appetite and improving-but lower-than-peer capitalisation.

Rating Sensitivities

The rating of the notes would move in tandem with Sampath's National Long-Term Rating.
Failure to maintain capital buffers commensurate with the bank's risk profile could pressure Sampath's rating. Conversely, Sampath's ratings could be upgraded if the bank strengthens its capitalisation significantly and restrains its growth trajectory at the same time.