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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Mercantile Investments buoyant in a challenging year

Mercantile Investments buoyant in a challenging year

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Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Sharp fall in capital gains from equities sue to market conditions

Mercantile Investments and Finance PLC (MI), one of the country’s strongest finance companies has in its annual report for the year ended March 31, 2013 posted a gross income of Rs.3.34 billion, up 41% from a year earlier, a profit before-tax of Rs.732.1 million, up 17% from the previous year and a profit after-tax of Rs.630.79 million, up 3% from the previous year.

MI has produced an annual report that is more detailed and comprehensive than previous reports produced during its 49-year history.

The company’s Chairman, Mr. Saroja Weerasuriya said that the finance company sector had faced tougher conditions during the period under review with credit available in the market continuing to ebb from the latter part of the previous year.

"The challenge for the sector was to manage business volumes and margins amidst steep rise in market interest rates resulting from the contraction in credit," he explained.

"Thus, when taking deposits and obtaining borrowings, the sector had to incur higher cost leading to higher cost of funding than before."

Weerasuriya explained that the growing competitiveness in terms of pricing made the licensed finance company sector very competitive, aggravated further by outside measures exerted by banks and other deposit canvassing institutions than in the past.

Mercantile Investments buoyant in a challenging year Bs-p0110

In this backdrop investors remained wary of other investment opportunities such as property and stock market and majority opted for safer investments in registered deposit taking institutions.

MI which is now on the verge of celebrating 50 years in business is in the process of negotiating a funding line from a foreign counterparty. The company’s Managing Director, Mr. Gerard Ondaatjie, said they hoped to secure this facility early in the current financial period.

Ondaatjie described the results of the year as "excellent" considering the growing challenges faced by the finance company sector.

He demonstrated the growth of the company with some figures indicating where they had been five years ago and where they are now.

Leasing and hire purchasing continued to drive MI’s lending business and they had exceeded Rs.14 billion in total gross lending outstanding by the end of March 2013.

Their non-performing loan ratio had been maintained under 3.10% and they were keeping in check the rise and absolute NPL despite the loan book growing during the period under review.

Total deposits have grown by 37% and enabled the deposit base to exceed the Rs.8 billion mark at the close of the financial period.

Capital gain from equity stock during the year under review had stood at Rs.123 million against Rs.591 million in 2012. MI had also to make a Rs.304 million fair value adjustment on its available-for-sale reserve in equity on account of the decline in market value of the equity portfolio.

Looking at the finance company perspective, Ondaatjie said that the high interest rate regime may remain for the short-term and would continue to cause difficulty to the finance company sector specially in terms of sustaining quality lending portfolios.

"The sector NPL’s may deteriorate in these circumstances unless stringent credit controls are established upfront by the sector," he said.

"This situation I believe would ease once the interest rates stabilize at manageable levels when there is adequate credit available in the market."

MI has a modest stated capital of just Rs.36 million, revaluation reserve of nearly Rs.1.3 billion and a general reserve of nearly Rs.3.6 billion. Total assets ran at Rs.21.2 billion and total liabilities at Rs.15.5 billion.

The company’s equity portfolio was valued at nearly Rs.3 billion.

The Nilaveli Beach Hotels with 20.83% of the company is the single largest individual shareholder with the Ondaatjie family and connected parties being the predominant shareholders.

The directors of the company are : Messrs Saroja Weerasuriya (Chairman), Gerard Ondaatjie (MD), Shermal Jayasuriya, Mahes Amarasekera, Angeline Myrese Ondaatjie, Travice John Ondaatjie, H.A.S.T. Senanayake, P.T. Kumari Navaratne, N.H. Viraj Perera and S.M.S. Sanjaya Bandara.
http://www.island.lk/index.php?page_cat=article-details&page=article-details&code_title=81358

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