Lanka Ashok Leyland (LAL) has managed to post a 14 % increase in net profit in the first quarter of 2012/13 being Rs 317 million against Rs 279 million for the same period last year. Even more impressive is the 48 % increase in sales revenue for the quarter with a turnover of Rs 4.3 billion compared with Rs 2.9 billion in 2011.
On the back of a severely weakened rupee, tight credit and high interest rates, an accomplishment worth highlighting. The company declared its highest ever dividend, Rs 60 or 600 % of the share’s par value for the year 2011/2012.
The cost of sales increased a disproportionate 53 % to Rs 3.9 billion over 2011. The resulting gross profit margin decreased to 9.2 % against a comparative 14.2 %. Among the operational line items was an uncharacteristic 116 % increase in administrative costs to Rs 81.7 million in this period against Rs 37.9 million for first quarter 2011 which is largely due to the exchange rate loss. This was offset by a 443 % increase in other operating income of Rs 166 million over 2011, mainly due to a reversal of VAT accumulation.
The negative effects of the current high borrowing costs are recognised by a 162 % increase in the finance cost for the first 3 months of the fiscal year to Rs 32 million as opposed to Rs 12.2 million over the same period last year.
The contribution towards the government increased by 14 % to Rs 123 million for the quarter. While the resulting net profit margin fell from 9.2 % in first quarter 2011 to 7.2 % this quarter, the earnings per share rose from Rs 77.05 to Rs 87.57 for this period. Umesh Gautam, CEO of Lanka Ashok Leyland said
“While we are very proud of our first quarter results, we are not revising our outlook and targets for the year. Fundamentally, any upward revision will be more weighted on the macroeconomic factors becoming more favorable more than our ability to outperform. While reduced volatility with regard to the exchange rate may help control our exchange rate loss in the short to medium term, the depreciation will have negative effects on our sales over time.
Furthermore, our interest expense for the quarter has already crossed our finance cost for the whole of last year which in itself speaks volumes about its impact on our business.”
The most significant change to note in the balance sheet is the 175 % increase in inventory level over first quarter 2011 to Rs 4.5 billion over Rs 1.6 billion in first quarter 2011. Total assets have jumped a 110.7 % to Rs 6.8 billion for the quarter largely due to the increase in inventories and a 257.6 % increase in Lease Rental receivable.
Short-term borrowings have increased 757 % from Rs 439.8 million in first quarter 2011 to Rs 3.8 billion in first quarter 2012. Net asset per share closed at Rs 703 per share, an 80 % increase from the previous net asset per share value of Rs 390 in first quarter 2011. Gautam said that “inventories have been growing over the last few quarters. This is more to do with our budgetary allocation as we needed to increase inventory to cater to the increasing demand despite blocking up a lot of cash.
There will be some pressure as a result of slower sales going forward which we foresaw last year. While demand continues to be strong, prevailing conditions continue to make it difficult for our customers.
“We continue to monitor the economic situation. While the bulk of the exchange rate volatility may be behind us, a new equilibrium for the currency still remains to be seen.
Gautam added “LAL remains financially sound and will go forward in the current economic climate by remaining committed to our customers, their needs, and the demand for a superior product that we offer and furthermore to ease out traffic congestion on the roads during peak hours LAL is introducing Double Decker buses to be operated in all the major cities.”