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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka Newspapers 31/01/2012

Sri Lanka Newspapers 31/01/2012

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1Sri Lanka Newspapers 31/01/2012 Empty Sri Lanka Newspapers 31/01/2012 Mon Jan 30, 2012 11:18 pm


Global Moderator

Bourse sustains mild rally

The Colombo bourse sustained its mild rally on Monday with both indices closing in positive territory led by interest in banking stocks, despite a slump driven by profit taking, brokers said.

The All Share Price Index closed 0.53 percent higher on 5,755.56 points, gaining 30.12 points on Monday. The index opened the week at nearly 100 points higher from last Friday’s closing. The Milanka Price Index of more liquid stocks closed 1.11 percent higher, gaining 54.4 points to close at 4,976.21 points.

Turnover amounted to Rs. 1.4 billion on a volume of nearly 46 million shares changing hands during the day. Around 100 counters closed in positive territory against 101 counters that closed in the red.

"The market managed to sustain the positive run from last week as the bourse started on an aggressive note although losing momentum half way through due to profit taking witnessed across the board.

The banking sector continued its dominance with NDB and Commercial Bank attracting both high net worth and institutional interest. Despite the persistent interest in fundamentally sound counters, heavy activity was seen in several retail favourite stocks,"NDB Stockbrokers said.

NDB Bank’s share price edged up by Rs 3.70 (3.00%) to close at Rs 127.00. Both Commercial Bank Voting and Non Voting gained by 1.34% and 6.38% respectively to close at Rs 106.00 and Rs 90.00.

NDB featured in a crossing involving a parcel of 2.84 million shares at Rs. 112.50 each, generating a turnover Rs. 347.7 million. A parcel of 944 thousand Union Bank shares changed hands at Rs. 21.5 each.

Despite the positive gains made over the past few days, the Colombo Stock Exchange was still down 5.25 percent year-to-date on Monday.

Foreign purchases amounted to Rs. 101.2 million against foreign sales amounting to Rs. 415.2 million.


Global Moderator

*Increases stake in Pakistan, Vietnam freight operations

Expolanka Holdings PLC sustained its consolidated NPAT for the 09 months ended 31 December 2011 at Rs. 903 million, with a consolidated NPBT at Rs. 1,186 million. Net Profit attributable to the Equity Holders reached Rs. 768 million for the 09 months period ending 31 December 2011, the company said in a statement, not divulging its performance against the previous year as is the usual practice.

The Transportation Sector of the Group managed to sustain its year-to-date bottom-line which contributed a PBT of Rs. 1,150 million and PAT of Rs. 932 million. The other three key sectors - International Trading, Manufacturing and Strategic Investments - contributed a PBT of Rs. 193 million and PAT of Rs. 159 million to the Group.

Group CEO of Expolanka Holdings PLC, Hanif Yusoof said, "Despite the dip in the freight industry as a whole due to an overall volume reduction, the core freight sector relatively sustained its position where NPAT dropped by 6 percent. This was achieved due to an enriched brand value and our focus on margin management".

The significant negativities faced by the GSA sector in relation to global economic issues during the last quarter continued to increase. The declining rates, along with less cargo movements, impacted the sector to a great extent.

With the country’s tourist arrivals reaching new heights during the calendar year 2011, Expolanka re-positioned its travel and leisure arm to cater to the evolving needs of the tourist industry resulting in a rapid growth in the customer base.

The set-back encountered in the Tea Sector during last quarter due to the global market conditions is now improving. This sector is now getting back on track. The penetration made in value-added products during the last two quarter proved to be a sensible move.

In the Manufacturing Sector, the quarter continued to remain stable with both revenue levels and NPAT increasing over previous year. The Company is encouraged by the continued growth in Neptune Recyclers which has turned around its operations. It has also developed the right infrastructure for this operation to expand and strengthen the manufacturing sector.

"The Strategic Investment Sector grew by 125 percent in terms of NPAT growth during the quarter primarily fuelled by the performances of APIIT, our tertiary education institute which has been able to consolidate its operations by offering a wider range of programs. There is a great response from the market for the increased degree programs which we introduced in the recent times. Expansion is also focused in the diversity of degree programs to cater to the diverse segment of the student community who intend to specialize in different fields of education. The management is confident that we can sustain these growth levels where this sector is expected to provide sustainable contribution to the group’s bottom-line", Yusoof added.

The period under review was highlighted by key events both at group level and individual company level.

"We made additional investments and have increased our stake to 51 percent in both Expo Freight Pakistan and also in Expo Freight Vietnam. During the quarter we acquired controlling stake in Norfolk Foods, a strategic move to penetrate into the food industry. This industry is rapidly growing and we are confident that this acquisition would add distinct advantage to our existing product portfolio mix. This quarter we received international recognition for Expolanka’s ongoing efforts in CSR and social marketing at the World Brand Congress.", Yusoof said.

"We continue to pursue developing the right strategies and using the right resources to ensure that we consistently create value to our stakeholders. Our committed workforce, along with the supportive Board, has ensured that we are in the right direction to achieve our long term goals", Yusoof concluded.


Global Moderator

* Harsha says US$ 2.6bn facility badly managed

The International Monetary Fund (IMF) has asked the Central Bank to clarify recent comments made by the bank’s Governor regarding the interest rate on the US$ 2.6 billion standby arrangement facility (SBA), pointing out that exceeding the quota would not mean the entire loan carried a 3.1 percent interest rate.

Central Bank Governor Ajith Nivard Cabraal had told media through a faxed statement that if the country took on the remaining tranche amounting to US$ 800 million, the entire facility would incur an interest cost of 3.1 percent.

"Further, as of now, the interest applicable on the SBA outstanding amount of US$ 1.7 billion is very reasonable at around 1.1 per cent per annum. However, if further tranches were to be obtained under the current IMF SBA, the entire loan will attract as interest rate of an additional 2 per cent, which will make the loan a lot more expensive," Cabraal had told media as reported in these pages yesterday (30).

However, The Island Financial Review learns that the IMF had yesterday notified the Central Bank that this was not the case, prompting the Central Bank to send the following clarification:

"The IMF approved a SBA of SDR 1.65 billion (equivalent to US$ 2.6 billion) in 2009, which is equivalent to 400 percent of the country’s current quota with the IMF. So far, Sri Lanka has received seven tranches amounting to US dollars 1.7 billion under the SBA and this is still lower than 300 percent of the quota. The applicable interest rate for the loan is SDR rate (SDR, special drawing rights, rate is calculated every week and published on IMF website, which is currently 0.1 percent) plus a fixed margin of 1 percent p.a. for disbursements up to 300 percent of the quota. Therefore, the interest charge for the present outstanding of US$ 1.7 billion is 1.1 percent p.a. However, if the disbursements exceed 300 percent of the quota, a surcharge of 2 percent will be added on top of the present interest rate for the credit outstanding above 300 percent."

This means that exceeding 300 percent of the quota will not mean the entire US$ 2.6 billion would incur an interest cost of 3 percent as Cabraal had said it would.

Opposition lawmaker and deleted Economic Spokesman Dr. Harsha De Silva told The Island Financial Review that he realised the Central Bank’s "misleading comment" after reading the Governor’s comments in these pages yesterday.

"I then spoke to IMF Sri Lanka Resident Representative Dr. Koshy Mathai and I understand the IMF had corrected the Central Bank on this matter," he said.

"The US$ 2.6 billion standby arrangement facility has been badly managed by the Central Bank. The IMF has been clear that it would not release anymore tranches unless the Central Bank changed its exchange rate policy, so to save face the Central Bank has said it did not need the remaining tranche of US$ 800 million. The governor also tried to justify this by stating that the interest rate was too high and wrongly inferred that the entire loan would be charged at 3.1 percent. Even if this was true, it is still not bad because borrowing from international markets would carry an interest rate of over 6 percent and so-called friendly nations like China are also charging us in excess of 6 percent for its loans.

"The Central Bank is borrowing dollars only to waste it on defending an indefensible rupee. This cannot be sustained for too long. The Central Bank would have to allow the rupee to reflect reality, in terms of the widening trade deficit, and also allow interest rates to go up to curtail credit demand," Dr. De Silva said, echoing similar sentiments recently expressed by Treasury Secretary Dr. P. B. Jayasundera.

US$ 1.56 billion was used up from the reserves to artificially prop up the rupee during the four month period July to October 2011. According to dealers, a further US$ 1 billion has been sold to-date since the rupee was depreciated by 3 percent in November 21. By end November 2011 reserves stood at US$ 6.2 billion, down 30.6 percent from US$ 8.1 billion in July, with the borrowed component now becoming more significant as the reserves diminish, shrinking the comfort zone.

According to our calculations, for the past one and a half months, the Central Bank has pumped in a total of almost Rs. 300 billion to ease the rupee liquidity tightening which was caused by the dollar sales. The drain on rupee liquidity has resulted in some banks finding it difficult to maintain favourable overnight balances.

Fitch Ratings agency also said the loans-to-deposits ratio of the banking sector was falling with smaller banks reaching 100 percent, an indication that liquidity was tight.

Constant selling of dollars to prop the exchange rate and simultaneous domestic liquidity tightening are signs of pressure on the balance of payments, economists point out. History is repeating itself, although to a lesser degree, where in 2008 a similar situation prevailed; the Central Bank was selling dollars to defend the exchange rate and liquidity was tight. A spike in global commodity prices made things worse and the country had to seek IMF assistance.

The only hope so far is the near US$ 27 billion inflows ‘expected’ later this year. Cabraal has told The Island Financial Review that foreign inflows would materialise by this quarter which would significantly ease the pressures on the balance of payments.

"If tensions in Iran get out of hand and oil prices surge again we could find ourselves in another tight spot. Reserves must be kept for a rainy, not expended in their millions each day just to satisfy the misleading notion that a stronger currency was best," an economist said.


Global Moderator

Piramal Glass Ceylon PLC (PGC), a manufacturer of specialty glass containers for food and beverages, pharmaceuticals, and cosmetics and perfumery, has surpassed the net profit it earned during the previous financial year (2010/11) during the first nine months of the current financial year. It also reported a turnover of Rs. 1,375 million and net Profit of Rs. 205 million for the 3rd quarter ended 31st December 2011 of FY 2011/12, the company announced yesterday.

"The period under review has always been a peak sales quarter for the company due to the festive season. Yet this quarter surpassed all past records. Sales during this quarter grew by 18% from Rs. 1,166 million to Rs. 1,375 million. This was mainly due to the strong growth of 18% in the domestic sector and 17% in export sector during this quarter when compared to the same quarter of the previous year," the company said in a statement.

"The domestic market growth during the quarter was mainly contributed by the exceptional growth in the Liquor bottles (dominated by beer bottles) and Aerated Water bottles sector.

"Another significant milestone to note is that this quarter the export market achieved its total turnover through Premium Sector - high realisation bottles.

"All these factors have pushed up the Gross Profits, for the period under review, by 10%, which is line with growth in sales of 18% achieved this quarter. The Gross Profit as percentage to sales was 29% compared to 31% of the similar period previous year –a high percentage that was sustained despite the increased costs of furnace oil, LPG and other basic raw materials.

"To ensure continuous supply to the customer during the season some standard bottles were imported. These sales were done at negligible margins with the objective of ensuring long term customer relationship. This too has impacted the profitability margins. Yet this importation was inevitable as during the period PGC capacities were running at its full .

"Piramal Glass Ceylon PLC (PGC), has surpassed its previous year 12 months (FY10/11) Net Profit of Rs. 579 million within nine months during the current financial year by reporting a Net profit of Rs. 588 Million in the nine months period ending on 31st Dec ,2011.

"This net profit attributable to equity holders during the nine months period of FY 2011/12 was Rs. 588 Million , up by 47% in comparison to Rs 400 Million reported during the nine month performance of previous year FY 2010/11.

"PGC turnover grew by 23% from Rs. 3,061 million to Rs. 3,760 million compared with that of the same period last year. Export market grew by 26% with the total sale being dominated by the Premium segment bottles, which yield much higher realizations compared to mass market bottles. Domestic sales grew by 22% with Beer and Aerated Water bottle segment showing notable increase.

"The company has been successfully establishing itself in the niche bottle segments through continuously developing and investing in research and development of new colour bottles, which gives better realizations and margins.

"The finance costs are a matter of concern for the management. A steady increase in interest rates has also been observed during the past few months. PGC has also been hit by the currency rates fluctuations.

"However, the management’s constant effort towards improving productivity continues to show results. A marked improvement in production efficiencies has been achieved during the nine months under review when compared with previous year. This has played a significant part in maintaining the cost of bottles when almost all input costs have shown an upward trend.

"The company is presently on Level 2 of Manufacturing Excellence and is working towards ensuring Level 3 status by the end of this calendar year. This would further help improve productivity levels.

"The management is confident that growing domestic markets coupled with the premium export market, would ensure the company’s excellent performance trend in the future too.

"The management feels that PGC is on the right track of achieving its simple yet steadfast objective of fully serving the domestic market whilst increasing business in the specialized liquor and beverage segment in international markets. This approach is sync with PGC’s vision of being "the most preferred Specialty Glass Packaging solutions provider in Asia by meeting customer expectation through innovative designs and manufacturing."


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Sri Lankan inflation slowed in January to a 26-month low, giving the central bank scope to shield economic growth by leaving interest rates unchanged.

Consumer prices in the capital, Colombo, increased 3.8 percent from a year earlier after gaining 4.9 percent in December, the Department of Census and Statistics said on its website today. The median of seven estimates in a Bloomberg News survey was for a 4.7 percent advance.

Sri Lanka has left interest rates unchanged since the beginning of February 2011 to aid domestic spending and devalued its currency in November to boost exports. Demand for credit has curbed scope to lower borrowing costs, central bank Governor Ajith Nivard Cabraal signaled today, contrasting with neighbors from Indonesia to China that have eased monetary policy in recent months as Europe’s debt crisis hurts the global economy.

“We don’t have room like the rest of the region to ease monetary policy as there’s already demand pressure with credit growth still strong,” Sanjeewa Fernando, an analyst at CT Smith Stockbrokers Pvt. in Colombo, said before the report. “Keeping rates on hold is the best option for inflation and growth.”

The $50 billion economy can achieve 8 percent growth in 2012, Cabraal said today. Sri Lanka’s 3 percent rupee depreciation was a one-off move, he also said.

Expansion has rebounded since the end of a 26-year civil war in May 2009, boosted by the development of roads and ports, tourism, foreign investment and consumer demand.

Inflation will probably remain around the “mid-single digit” level in 2012, the central bank said this month. The next monetary policy announcement is scheduled for Feb. 9.

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