Even more impressive is a 48% YoY increase in sales revenue for the Q at LKR 4.3 bn., 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, LKR 60 or 600% of the share’s par value for the year 2011/2012.
However, not being immune to the external environment, sales cost increased by 53% YoY to LKR 3.9 bn. The resulting gross profit margin decreased to 9.2% against a comparative 14.2%.
Among the operational line items was a 116% increase in administrative costs to LKR 81.7 mn. against LKR 37.9 mn. for 1Q 2011 which is largely due to the exchange rate (ER) loss.
This was offset by a 443% increase in other operating income of LKR 166 mn. over 2011, mainly due to a VAT accumulation reversal.
The negative effects of the current high borrowing costs are recognised by a 162% increase in the finance cost for the first three months of the fiscal year to LKR 32 mn. Contribution towards the government increased by 14% to LKR 123 mn. for the Q. While the resulting net profit margin fell from 9.2% in 1Q 2011 to 7.2% this Q, earnings per share rose from LKR77.05 to LKR87.57 for this period.
LAL CEO Umesh Gautam had the following to say about 1Q profit; “While we are proud of our 1Q results, we are not revising our outlook and targets for the year.
Fundamentally, any upward revision will be more weighted on macroeconomic factors becoming more favourable more than our ability to outperform.
While reduced volatility with regard to the ER may help control our ER loss in the short to medium term, the depreciation will have negative effects on our sales over time.
Furthermore, our interest expense for the Q 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 1Q 2011 to LKR 4.5 bn over LKR 1.6 bn in 1Q 2011. Total assets have jumped 110.7% to LKR 6.8 bn. for the Q largely due to the increase in inventories and a 257.6% increase in Lease Rental receivable. Short-term borrowings increased 757% to LKR 3.8 bn. in 1Q 2012. Net asset per share closed at LKR 703 per share, an 80% YoY increase. Gautam said, “Inventories have been growing over the last few Qs. This is more to do with our budgetary allocation as we needed to increase inventory to cater to 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 ER volatility may be behind us, a new equilibrium for the currency still remains to be seen.
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.”