Sri Lankan stocks up as large caps gain in light trade

(Reuters) - Sri Lankan shares edged up on Tuesday, led by stocks of large cap firms such as Ceylon Tobacco Company Plc and John Keells Holdings Plc, but turnover was thin as cautious investors stayed on the sidelines.

The main stock index rose 0.38 percent, or 22.61 points, to close at 5,936.62.

Shares of Ceylon Tobacco Company rose 1.52 percent to 1105.80 rupees and top conglomerate John Keells Holdings gained 0.73 percent to 220.10 rupees.

The day's turnover was 371.2 million rupees ($2.84 million), well below this year's daily average of about 1.05 billion rupees.

Analysts said investors were cautious and waiting for direction as a tough resolution on Sri Lanka comes up for voting at the United Nation's Human Rights Council later this month.

Foreign investors sold a net 7.75 million rupees worth of shares on Tuesday, extending their net selling in the last 17 sessions to shares worth 5.43 billion rupees as some offshore funds exited the market.

The index has seen a net 4.04 billion rupees of foreign outflows so far in 2014, after net inflows of 22.88 billion rupees last year.

Analysts said investors were concerned about further outflows, though local investors are still optimistic about risky assets due to falling interest rates. ($1 = 130.6250 Sri Lanka rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anupama Dwivedi)

Sri Lanka Telecom 'AAA(lk)' local rating may be hurt by acquisition: Fitch

Mar 04, 2014 (LBO) - Fitch Ratings said it was confirming 'AAA(lka)' domestic and 'BB' international ratings of Sri Lanka Telecom, but the local rating could be downgraded if a debt funded acquisition goes through.

Sri Lanka Telecom is in talks to acquire Hutchison Telecommunications Lanka (Pvt) Ltd, which has 800,000 subscribers.

Fitch said leverage could increase to over 1.5 times if the acquisition is funded by debt, and operating cash margins would also narrow because of losses at Hutch.

But SLT will gain spectrum and save on future capital expenditure.

SLT's international rating of 'BB' would be unlikely to be downgraded post-acquisition Fitch said.

The full statement is reproduced below:-

Fitch Affirms Sri Lanka Telecom at 'BB-'/'AAA(lka)'/Stable

Fitch Ratings-Singapore/Colombo-03 March 2014: Fitch Ratings has affirmed Sri Lanka Telecom PLC's (SLT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB-'. The agency also affirmed SLT's National Long-Term Rating at 'AAA(lka)'. The Outlook is Stable.

KEY RATING DRIVERS
Acquisition Risk: SLT's potential debt-funded acquisition of Hutchison Telecommunications Lanka (Pvt) Ltd. (Hutchison Lanka) could increase its leverage over 1.5x (2013: 1.0x) and would lead to a downgrade of its National Long-Term Rating to 'AA+(lka)'. The acquisition would be negative for SLT's credit profile as it would double its net debt and dilute operating EBITDAR margin because Hutchison Lanka has EBITDA losses. However, SLT will gain 800,000 subscribers and key spectrum assets in 900MHz/1800MHz, and will save on capex in 2014/15 following the acquisition.

Strong Balance Sheet: SLT's IDRs at 'BB-' have relatively high rating headroom given its 2013 funds flow from operations (FFO)-adjusted net leverage of just 1.0x, its market-leading position in fixed-line and position as the second-largest mobile service provider. SLT's IDRs are unlikely to be downgraded in the medium term despite our expectations of negative free cash flow (FCF) of LKR2bn-LKR3bn for the next three years and the potential Hutchison Lanka acquisition.

Profitability to Decline: Fitch expects SLT's 2014 revenue to rise by 5%, driven by mobile data and fixed-broadband services, which will more than offset declines in fixed-voice and international revenue. Fitch forecasts operating EBITDAR margin to fall by 50bps-100bps each year during 2014-17 (2013: 31.5%) due to changes in the revenue mix as low-margin data services replace relatively higher-margin voice and text revenue. However, profitability will be supported by an imminent industry consolidation and a regulatory tariff floor on voice services.

Negative FCF to Continue: FCF will be negative during 2014-17 as SLT's ratio of capex to revenue will remain high at around 28%-30% as it will invest LKR18bn-LKR20bn each year to expand its fibre broadband and 3G/4G mobile infrastructure. Dividends would likely remain similar to the 2012 level at LKR1.5bn.

Industry to Consolidate: The number of industry participants will likely reduce to three from five as it is likely that SLT will acquire Hutchison Lanka and third-largest operator Etisalat could acquire Bharti Airtel Limited's (BBB-/Stable) unprofitable Sri Lanka subsidiary, Airtel Lanka, which is the fourth-largest operator. The regulatory tariff floor on voice services has prevented smaller operators from competing on price and has left them unviable in the medium term.

RATING SENSITIVITIES
Negative: Future developments that may individually, or collectively, lead to negative rating action include:

-A debt-funded acquisition of Hutchison Lanka is likely to lead to a downgrade of SLT's National Long-Term Rating by one notch.

-A downgrade in the rating on the Sri Lanka sovereign (BB-/Stable) will result in a corresponding action on SLT's IDRs as the government directly and indirectly holds a majority stake in SLT.

-FFO-adjusted net leverage increasing to above 2.5x on a sustained basis would lead to a downgrade of SLT's Foreign-Currency IDR. Fitch currently expects FFO- adjusted leverage to remain below 2.0x even after the Hutchison Lanka acquisition in the medium term.

Positive: Future developments that may individually or collectively lead to a positive rating action include:

-An upgrade in the rating on the Sri Lanka sovereign is likely to lead to a corresponding upgrade in SLT's IDRs.

-As the ratings are currently constrained by government ownership, the weakening of links with the sovereign could result in SLT's Local-Currency IDR being upgraded above Sri Lanka's Local-Currency IDR. However, SLT's Foreign-Currency IDR will remain constrained by the Country Ceiling of 'BB-'.

-If the debt-funded acquisition of Hutchison Lanka goes ahead, it is likely that we will no longer consider SLT to be constrained by the sovereign. In this case, these positive rating triggers will no longer apply.

Sri Lanka stocks close up 0.4-pct

Mar 04, 2014 (LBO) - Sri Lanka's stocks close 0.38 percent higher Tuesday with index heavy John Keells Holdings and Ceylon Tobacco Company extending gains, brokers said.

The Colombo benchmark All Share Price Index closed 22.61 points higher at 5,936.62, up 0.38 percent. The S&P SL20 closed 7.53 points higher at 3,221.42, up 0.23 percent.

Turnover was 371.32 million rupees, up from 259.65 million rupees a day earlier.

Foreign investors bought 114.15 million rupees worth shares while selling 107.80 million rupees of shares.

101 stocks closed up against 67 going down.

Ceylon Tobacco Company closed 16.60 rupees higher at 1,105.80 rupees and JKH closed 1.60 rupees higher at 220.10 rupees, contributing most to the index gain.

JKH’s W0022 warrants closed 1.00 rupee higher at 63.30 rupees and its W0023 warrants closed 60 cents higher at 65.90 rupees.

Dialog closed 10 cents higher at 9.20 rupees and Lion Brewery closed 8.00 rupees higher at 393.00 rupees.

SLT closed 40 cents lower at 44.30 rupees and Ceylinco Insurance closed 24.90 rupees lower at 1,348.00 rupees.

Nestle Lanka ended 30 cents lower at 2,000.00 rupees and Distilleries closed 1.20 rupees higher at 205.00 rupees.

DFCC Bank ended 60 cents lower at 142.40 rupees and NDB bank closed 60 cents higher at 180.00 rupees.

Sri Lanka bourse beckons IT firms

Mar 03, 2013 (LBO) - Sri Lanka's stock exchange, the regulator and the island's information technology industry chamber is holding a seminar to draw IT and outsourcing firms to the capital markets.

A business forum will be held March 05, at the Dialog Future World Auditorium, from 08.30 am to 11.00 am the Colombo Stock Exchange and ri Lanka Association of Software and Service Companies (SLASSCOM) said.

CSE chief executive Rajeeva Bandaranaike, -President of Copal Amba Asanka Herath and SLASSCOM chairman Madu Ratnayake will also speak at the event.

The forum is targeting chief executive officers and chief financial officers of potential-issuer companies.

"Listing on the Stock Exchange helps a company enhance its corporate profile and gives it a competitive advantage, while helping the company increase its worth by attracting strategic investors and high value employees," Bandaranaike said in a statement.

"These benefits boost the prestige of a company and can thereby be utilized to fund the next stage of a company's expansion strategy."

A panel made up CSE director Ray Abeywardena, AGM-regulatory affairs-CSE Renuke Wijayawardhane, deputy director general SEC Dhammika Perera moderated by SLASSCOM executive director Imran Furkan will be part of the forum.

"We would anticipate a growth of over 23 percent this year at industry level, therefore many of the SLASSCOM companies are now gearing for their next phase of growth," Ratnayake said.

"Listing on the Stock Market would create avenues for companies to raise funds for this growth acceleration and will provide the general public an opportunity to participate in this very exciting growth phase of the industry, as investors."

Sri Lanka consumer durables group profits plunge in December

Mar 04, 2014 (LBO) - Profits at Singer Sri Lanka Plc, a consumer durables retailer, fell 71 percent to 93 million rupees in the December 2013 quarter from a year earlier, but sales are no longer shrinking, the firm said.

The group reported earnings of 74 cents per share. For the full year to December it reported earnings of 3.67 rupees, on total profits of 454 million rupees which were down 64 percent.

The stock closed at 88 rupees up 90 cents Monday.

Chief executive Asoka Pieris told shareholders that revenue picked up 3.1 percent in the December quarter following three quarters of declines.

Sri Lanka is recovering from a balance of payments crisis primarily triggered by heavy state bank debt taken to subsidize energy sold by state-run energy companies which were ultimately accommodated by the Central Bank through printed money.

It was corrected by a hike in energy prices and higher interest rates.

The crisis saw the rupee falling to 130 to the US dollar from 110 slashing the real purchasing power of the people and their savings.

"The business environment continued to be difficult in 2013 - a trend that we saw from second half of 2012, with low demand by the customers and difficulty in collections," Pieris said.

"The consumer segments served by Singer were further affected by an increase in electricity charges in the current year on top of the increase last year."

Collections (Singer has an instalment sales scheme) also became difficult but through a call centre and text messaging arrears were kept "under control" he said.

The weak economy also gave an opportunity to open showrooms at lower rents and new brands and agencies had become available he said.

"There is consensus that the medium-term prospects for Sri Lanka will be very good," Pieris said.

"Hence while on one hand we had to be mindful of the slowdown in the current environment, we also had to consider being ready for the medium- term growth.

"As a result, we did not stop our renovation of existing shops, expansion of shops, venturing into new areas, adding new brands and agencies and improvement of our infrastructure."

In the December quarter revenues rose 3 percent to 6.9 billion rupees, cost of sales rose at a faster 5 percent to 4.5 billion rupees with direct interest costs also rising 17 percent to 176 million rupees. Gross profits fell 3 percent to 2.25 billion ripees.

Selling and administration expenses rose 24 percent to 1.8 billion rupees, to which higher electricity charges and general inflation contributed, the firm said.

Net finance cost fell to 262 million rupees from 267 million rupees.

In the December quarter revenues from sewing related products fell to 675million rupees from 718 million and profits plunged to only 6.5 million rupees from 50.9 million.

Consumer electronics sales were slightly down to 1.62 billion rupees from 1.68 billion but profits fell to only 16.4 million rupees from 146 million.

While goods sales were down to 1.8 billion rupees from 2.0 billion with profits down to 12.3 billion from 115.9 billion rupees.

Kitchen related products showed a recovery to 481 million rupees from 450 million rupees but profits fell to 6.4 million rupees from 32.5 million.

Communications products were strongly up to 948 million rupees from 560 million rupees though profits fell to 8.2 million rupees from 34.2 million. Furniture and agro sector sales were also up, and transport was flat.

Update II

Promising future for Alumex

Alumex, a subsidiary of Hayleys Group, with the plan of being alisted company announced recently a Rs. 836 million share offering including an Initial Public Offering (IPO) where the funds will be used to set up a powder coating plant, which will double its capacity to 3600MT per annum. Being the leader in the aluminium industry with over 50% market share, Alumex going public makes it the third company of its kind to be listed out of the four players in the industry. The Company came under Hayleys when it was acquired in late 2010. In an interview with the Daily FT, Alumex Managing Director Rohan Peris shared recent developments in the company, the reasons for the IPO, and why the public should invest in the company which will have a promising future.

By Shabiya Ali Ahlam

Q: Can you share few details about Alumex and its position in the industry?
A: Alumex has been in establishment since 1988 and its core operation is manufacturing profiles for window systems. While Alumex is the main company, it has two 100% owned subsidiaries – Alco Industries, and Avro Enterprises.

Alco Industries is a BOI company that makes extrusions whereas Avro Enterprises brings down accessories such as locks and other systems that goes into making window and door components.

In 2010 the company was brought over by Hayleys and has 60% ownership. Subsequent to the IPO Hayleys will have a 51% ownership and will allow Alumex to remain as a subsidiary within the group.

With regard to the position in the industry, Alumex has a strong presence in the local market since its establishment and enjoys a market share of 50%. In terms of quality I must say we have been recognised internationally by companies such as AluK of Italy as they have given Alumex the license to manufacture their products for their markets in Sri Lanka.

Q: How has the growth been over the years, after the acquisition in 2010?
A: The growth has been good. Sales have grown greatly and this year we have reached Rs. 2 billion already. We saw a growth of 11% in revenue and last year we had about a 31% growth in profits. This year too within the 10 months of our financial year Alumex has managed to exceed last year’s profit figures.

Q: How has Alumex contributed to the industry?
A: We concentrate on quality and every year we try to improve this element and aim at bringing it up to international standards. In the near future we are hoping to go for international accreditation for powder coating and anodising. For this there are two quality certificates offered by quality label organisation in Switzerland, QUALICOAT and QUALANOD.

QUALICOAT and QUALANOD ensures that powder coating and anodised aluminium meet the necessary quality requirements making materials fit for construction and both the certifications are accredited to ISO 17025.

To uplift our quality standards we will hoping to apply for these two certificates before the end of 2014. Once we are certified by these two quality label organisations we will be recognised internationally as being on par with other international manufacturers.

Q: Will you be the first to apply for this accreditation in Sri Lanka?

A: We will be the first.

Q: Why the delay in getting this accreditation. Alumex has been in the market for quite some time now?
A: Alumex as a company has been concentrating in the local market and once Hayleys took over they were looking for further growth in the country. As you know the Sri Lankan market is limited in terms of quantity. For instance, we have the capacity to supply to the entire local market but due to competition we have about only over 50% of the market share. We are currently utilising only 40% of the capacity of our systems.

One of the reasons we are going for the IPO is to bring funding for the powder coating plant. Once we enhance our powder coating capacity we will be able to double our production without any problems and further investment.

So to double our production we need these accreditations. Our long term plan is to go overseas. We have already established a distribution channel in Maldives and are currently exporting to India in small quantities. 

But we are strongly looking and Bangladesh and Burma as our future markets.

Once accredited by these organisations we will be able to bid for foreign projects. If anybody in Bangladesh or India receives a bid from Alumex, having the required quality standards will allow us to supply to them.

However for Sri Lanka also it will be advantageous since there are many large projects coming up. As these projects are handled by foreign contractors, they will be pleased to note that in Sri Lanka there is a company to supply to them without having to import.

With the two accreditations we are benchmarking ourselves with the best.

Q: What are the recent developments that have taken place in the company?
A: A key development is that we are also coming up with our own designs for windows and doors. 

However, the design on windows and doors will have to be tested for wind and water resistance by international testing bodies. Once we have such certifications we can markets these designs under our own brand name. This will be a huge step forward since we will be the only ones to have them.

Q: Recently the company announced a Rs. 836 million IPO. Could you shed some light on this move and its importance for the company?
A: The IPO is important for a number of reasons. It will allow us to be more transparent for the public, for them to know more about our activities. Once they know us better the public will also recognise Alumex as a responsible company.

Q: What are the plans for the fund raised?
A: The entire IPO is Rs. 836 million and Rs. 250 million will come to the company as new shares and that has been earmarked for the powder coating plant.
The other major reason for the IPO is that the Government has offered a 50% reduction in tax for three years if it is done before 31 March 2014.

Q: What makes Alumex attractive to the public to invest?
A: Our performance throughout the years has been very good. We are a company that does not have debts and our profits are currently at 30% increase.

There are also many construction activities taking place and all these projects will use aluminium. Due to this development there will be a significant demand for aluminium. We are quite excited about the future of the company since we see many opportunities coming up and we are certain we will continue to remain profitable.

Q: The offer price is announced as Rs. 14 per share. On what basis was this arrived at?
A: This price was arrived at by NDB Investment Bank as they are the financial advisors and managers to the offering. A discounted cash flow was used where a 27% discount was calculated and offer price was announced as Rs. 14 per share.

Q: How has the performance of the construction industry been in the recent years?
A: Constriction activity is on the rise and last year there has been a significant increase. In 2012 the increase was 21%.

It will continue to grow rapidly as the Government plans on putting up a number of hotels to accommodate larger number of tourists. To construct those projects augurs well for our company because all the hotels will be using aluminium.

It is expected the construction industry to grow at the rate of 15% in the next ten years and taper down to 10% after that.

Q: What is the future outlook for the industry, and what role does Alumex hope to play in that regard?
A: Our vision is to be the leading aluminium manufacturer in the region and to supply our own systems. We plan on expanding our extrusion plant and also hope to enhance the size of our extruders to bring in larger profiles to cater to taller buildings.

Alumex has a very good future due to the construction industry boom we are seeing in Sri Lanka and we hope to capitalise on that. We hope to attract investors to have confidence in our IPO and buy our shares.
www.ft.lk

Drought affects tea cultivation

The prolonged drought in Sri Lanka has affected the tea cultivation and reduced the tea production by about 50 percent, the industry sources say.

Sri Lanka Tea Board says that the drought has affected tea plants in the plantations in the hill country as well as in the low country.

Tea Small Holding Development Authority says the tea small holders in Ratnapura, Kalutara, Galle and Matara districts have been affected by adverse weather. Around 400,000 small holders suffer due to the loss of income, the officials said.

The crops have declined drastically and the production has gone down as a result of the drought.

Planters and farmers say the drought is likely to cause long term damage to the plantations due to death of tea plants.

The Government said it is monitoring the situation daily and assured financial aid to tea smallholders if the conditions not improved within the next few weeks.

Sri Lanka’s tea industry produced 340 million kilograms last year recording a 3.6 percent growth from 2012. The industry aimed to increase this year’s production target to 348 million kilograms but they are skeptical whether the industry can reach that target with the severe drought.

Tea Board officials say if the conditions improve by the second quarter they will be able to reach last year’s record of 340 million kilograms.
www.ft.lk

Overseas Realty records profit of Rs. 2.6 b

Overseas Realty (Ceylon) PLC recorded steady growth and registered its highest group net profit after tax (excluding fair value gains) of Rs. 1,711 m – an increase of 89% over the previous year.

Group revenue grew by 149% to Rs. 4,857 m and group net profit after tax including fair value gains grew by 7% to Rs. 2,641 m. This was achieved in spite of a reduction in fair value gains on investment property from Rs. 1,563 m in 2012 to Rs. 930 m in 2013.

The WTC is situated in a pre-eminent location in the business capital of Colombo. The company continues to provide excellent facilities and services to the occupants of this business complex, which supported the increase in the average occupancy to 98% during the financial year under review. Together with the increase in the average rental rates by around 19% the company was able to record significant earnings growth during 2013.

During 2013 the planned program was achieved in the construction of the Havelock City, Phase 2 residential development. This comprises two towers with 219 luxury apartments expected to be completed by mid-2014. The relevant revenue recognised from the sale of these apartments amounted to Rs. 3,190 m.

Marketing of Phase 3 of the Havelock City residential development was launched along with the opening of the Clubhouse in November 2013.

Net assets per share increased from Rs. 26.04 in 2012 to Rs. 28.67 in 2013. Earnings per share for the year under review was Rs. 2.89 compared to Rs. 2.93 in 2012 and EPS (excluding fair value gains) was Rs.1.79 (Rs. 1.07 in 2012).

“The property sector is a direct beneficiary of sustainable economic growth, stability and business confidence and we are confident our property development and management businesses will perform satisfactorily in the years to come,” stated Overseas Realty (Ceylon) PLC Group CEO Pravir Samarasinghe.
www.ft.lk