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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka motor stocks lose speed

Sri Lanka motor stocks lose speed

3 posters

Go down  Message [Page 1 of 1]

1Sri Lanka motor stocks lose speed Empty Sri Lanka motor stocks lose speed Thu Jun 30, 2011 4:00 pm

Monster

Monster
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

June 30, 2011 (LBO) - Sri Lanka's motor sector companies' profitability has
fallen after the reversal of some import tax cuts that caused a profit
surge, although vehicle demand remains strong with rising incomes and
economic growth, a report said.

Motor sector companies reported the highest growth in net profit for the last couple
of quarters after the government slashed import duties last year, Lanka
Securities said in a report on corporate earnings for the January -
March 2011 quarter.

.
Net profit growth in the sector was 132.5 percent in the quarter from a
year ago owing to the tax cuts but profits were down compared with the
previous quarter.
.
"The sector demonstrated a monstrous growth in profitability - by 132.5
percent year-on-year to 1,119.8 million rupees - which can be
attributable to the overwhelming demand for vehicles hyped by the
reduction in vehicle imports duties," it said.
.
Nevertheless, the sector saw a 13.4 percent quarter-on-quarter drop in
earnings - a sign of the fading effects of the tax revision, the report
said, referring to the re-imposition of some import duties by the
government.
.
"Hence, we are not anticipating abnormal profit growth in the
forthcoming periods that was seen in the last quarter," Lanka Securities
said.
.
"But with the prevailing economic conditions in the country and growing
demand along with per capita income we anticipate sustainable growth in
the companies in the sector."

http://www.lbo.lk/fullstory.php?nid=739676602

2Sri Lanka motor stocks lose speed Empty Re: Sri Lanka motor stocks lose speed Thu Jun 30, 2011 4:20 pm

Monster

Monster
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

We have seen tremendous growth in the motor sector during last financial year.

Look at the YoY growth for the companies in the motor sector

DIMO - 754%
ASHO - 613%
UML - 532%
COLO - 466%
SMOT - 308%
AUTO - 66%

This financial year is going to be challenging year to this sector. I am pretty sure they cannot maintain the profit as they did last year due to reversal of import duty cut. But we have to how far it's going to effect this sector. 1QFY11 financial reports above to release end of next month.

Look at the current PE ratio for the companies in this sector

DIMO - 6.00
ASHO - 26.6
UML - 10.08
COLO - 13.68
SMOT - 15.48
AUTO - 22.08



Last edited by Monster on Thu Jun 30, 2011 9:24 pm; edited 2 times in total

3Sri Lanka motor stocks lose speed Empty Re: Sri Lanka motor stocks lose speed Thu Jun 30, 2011 9:17 pm

StocksWatch


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

@ Monster, thank you very much for sharing this news article and those valuable statistics. Those are some really useful figures.

As highlighted in this article, it is sensible to expect a drop in the revenue generated by these motor sector companies owing to the revision of tax rates by the government. But the difficult question to answer is how much this is going to affect the bottom line of these companies?

As I understand, the companies in this sector are mainly enaged in importing brand new vehicles and spare parts to the country. Some of the main potential buyers for brand new vehicles are;

1. Government bodies (Ministries, Authorities, Departments, Boards etc)
2. Private and Public establishments (This includes all types of business enterprises)
3. NGO's
4. Government permit holders

IMHO, the demand from above buyers is somewhat inelastic, but I may be wrong.

One other point to consider is the change in the "age rule" of used vehicles imported to the country. Previously, a vehicle up to 3 and half years old was allowed to import but the government has now restricted this to two years. So the used vehicles are now expensive as newer vehciles attract higher FOB prices (auction price also high) and also being charged at a higher tax (due to lower level of depreciation). Can this also increase the demand for brand new vehicles as the gap is small now?

This is just to highlight few factors to think about.

4Sri Lanka motor stocks lose speed Empty Re: Sri Lanka motor stocks lose speed Thu Jun 30, 2011 9:19 pm

ShareShares


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Were they caught due to high speed driving?

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