FC Research Analyst: Hansinee Beddage

Transcription

1 Thousands ACL CABLES PLC FC Research Analyst: Hansinee Beddage SRI LANKA Corporate Update BUY ACL.N0000 Current Price: LKR 62.5 Fair Value: LKR 80.0 Sep 2016 KEY DATA Share Price (LKR) w High/Low (LKR) 63.8/46.9 Average Daily Volume (Shares) 52,048 Average Daily Turnover (LKR) 7,074,034 Issued Share Capital (Shares Mn) 120 Market Capitalisation (LKR mn) 7,487 Price Performance (%) Figure 1: ACL share price performance 40 0 Sep-15 Jan-16 May-16 Sep-16 Volume (RHS) Disclosure on Shareholding: 1 mth 3 mths 12mths ACL 7% 8% 15% ASPI -2% 0% -9% Major Shareholders as at 31st Mar 2016 U. G. Madanayake 38% Suren Madanayake 22% Employees Provident Fund 5% Seylan Bank/Govindasami Ramanan 4% Deutsche Bank -National Equity Fund 2% Estimated Free Float 37% 1. Share price adjusted for share split Share price LKR (LHS) Source: CSE First Capital Group and its affiliates hold 475,978 shares in ACL. Neither First Capital Group nor its affiliates have traded in the shares of ACL in the three trading days prior to this document, and will not trade in the shares of ACL for seven trading days following the issue of this document. P/e 31 March FY15 FY16 FY17E FY18E FY19E Revenue (LKR Mn) 14,427 12,811 12,544 14,795 17,039 YoY % Growth 26% -11% -2% 18% 15% Net Profit (LKR Mn) ,094 1,111 1,230 1,303 EPS YoY % Growth 95% 27% 2% 11% 6% Valuations PER (x) PBV (x) Dividend yield (%) 0.8% 1.6% 2.4% 2.4% 2.4% NAVPS (adusted) DPS (adjusted) Payout ratio 7% 11% 16% 15% 14% 1 Attributable to equityholders 2 Adjusted for the share split ACL Cables PLC, the largest manufacturer of cables in Sri Lanka is expected to grow its revenues at a CAGR of c.10% FY16-19E. This will be primarily driven by the expected increase in government and institutional construction activities. FC Research estimates that the company, as the market leader with a strong brand equity, is able to sustain an average profit margin of 8% in FY17-19E. BUY Revenues to grow at c.10% FY16-19E: The revenue growth of ACL is expected to be levered by both CEB and institutional sources which comprises 60-70% of the revenues together. The government signaled of recommencing the infrastructure drive which was on a temporary halt during FY16. The fresh government has large scale projects forthcoming such as Megapolis, Port City and accelerated housing projects which are expected to give the construction sector a boost. Margins galvanized by strong fundamentals: FC Research estimates that the average gross margins to remain at 24% between FY17-19E. ACL being the largest manufacturer of cables in Sri Lanka having 70% of market share and a reputation for quality and innovation, will be able to pass on any possible increase in its costs to the customers. The World Bank expects the Copper and Aluminum prices to correct from its record low levels of USD 4,500 and increase between 3-4% p.a from 2017 onwards. In addition, FC Research estimates LKR to depreciate against dollar by c.3.5% p.a. during FY17-19E exerting further pressure on ACL s profit margins. ACL to provide a return of c.19%: FC Research estimates a fair value of LKR 80.0 [DCF based LKR 79, PER based LKR 82] for the FY18E providing an annualized return of 19% at the current price of LKR Investment risks: The government is a key player whose policy decisions inevitably affects ACL. Any possible delays in the planned projects will directly affect the revenue growth potentials of ACL. In addition, payment delays by customers may put pressure on working capital while ACL may be able to pass on only part of the expected material cost increase.

2 Figure 2: ACL Group structure ACL Cables PLC Kelani Cables PLC (KCAB.N000) ACL Plastics PLC (APLA.N000) Ceylon Bulbs and Electrics Ltd Lanka Olex Cables (Pvt) Ltd ACL Kelani Magnet Wire Ltd ACL Polymers (Pvt) Ltd ACL Metals and Alloys Ltd Ceylon Copper (Pvt) Ltd ACL Electrics (Pvt) Ltd RESUS Energy PLC (32%) Source: ACL Annual report 1.0 Introduction and industry overview 1.1 Introduction to ACL Market leader in cables: ACL established in 1962 with the technical assistance of Mitsui of Japan was the pioneer of cable manufacturing in Sri Lanka. ACL Cables holds c.70% of the market share in the Sri Lankan cables market together with its subsidiary Kelani Cables. The company has a production capacity of c.1,000 MT for Copper cables and c.1,200 MT for Aluminum cables per month. Grown through acquisitions: ACL s strategy has been to grow by acquiring businesses that relate to and support its core business. Through a series of acquisitions such as Kelani Cables, Ceylon Bulbs, ACL Plastics, ACL has successfully woven a web in the construction industry that captures diverse opportunities. SWOT analysis Strengths Strong brand Market leader Strong fundamentals Weaknesses Concentration only on construction industry 1.2 Share price performance Opportunities Construction sector boost New products in pipeline Latest technology Threats Possible delays in mega projects/ policy change Base metal price increase Share Price moves with similar construction sector players: ACL s stock has moved in line with the movements of ASPI moving downwards upto March 2016 in line with overall market conditions. However, with fresh buying interest into construction sector plays amidst the re-starting of the Government s infrastructure has brought in fresh buying interest into the stock resulting in the counter out-performing the market from May 2016 onwards. Figure 3: ACL Vs ASPI 65 7, , , , , , , , , , ,500 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 ACL (LHS) ASPI (RHS) Source: CSE 2

3 Supplier power: LOW s Rivalry: HIGH Threat of substitutes: LOW Buyer power: MODERATE Threat of new entrants: LOW 1.3 Cable industry overview Cable sector: The cable sector encompasses cables used for several purposes high voltage power cables, telephone cables, house wiring cables which comes in the form of armored, unarmored as well as fire retardant qualities. The major buyers include Ceylon Electricity Board, Sri Lanka Telecom as well as construction companies. Analysis of industry s competitive forces Supplier power: LOW as there are over 90 London Metal Exchange registered suppliers supplying the same quality copper. Minimal switching costs among suppliers. Buyer power: MODERATE as there are many large and medium scale buyers whose building quality is highly affected by the quality of the cables. Buyers are unlikely to backward integrate. Threat of new entrants: LOW as the existing incumbents have brand loyalty, access to distribution, technology and sufficient cash to buy up any emerging competitors. Threat of substitutes: LOW as there are no alternative for safe power cables when it comes to building constructions. Imported cheaper cables do not provide the same price-performance trade off the locally manufactured cables provide. Rivalry: HIGH as all players compete on same product features. Overall, cable industry is facing a moderate to low collective force from its suppliers, buyers, new entrants and substitutes therefore the industry is positioned in an attractive background for profit making. Figure 4: Industry revenue pie 13% 17% 30% ACL KCAB SIRA Other 40% Major players other than ACL Sierra Cables PLC (SIRA.N0000): Sierra cables PLC, established in 1978 engages in manufacturing cables, wires and conductors. The ISO 9001 certified company has a production capacity of c.500mt per month (ACL: 1000 MT of Copper cables and 1,200 MT of Aluminum cables per month). The company caters commercial, industrial, electric utility and telecommunication customers across the country. c.1% of the revenues are generated by the export sales. SIRA employs c.300 employees and has a market capitalization of LKR2Bn. Kelani cables PLC (KCAB.N0000): Kelani cables is a subsidiary of ACL cables and produces a similar range of cables to those of ACL. The company was established in 1969 and was acquired by ACL cables in Kelani Cables employs c.500 employees and has a market capitalization of LKR3Bn. Source: ACL Management, Company reports, FC Research estimates 3

4 (No of rooms - Thousands) (Km Thousands) FC Research Figure 5: Revenue segment-wise 1% 3% 2.0 Revenues to grow at 10% CAGR during FY16-19E 2.1 Revenues from CEB expected to grow Distribution line upgrade: CEB who accounts for c.25-30% of ACL s revenues has been upgrading its distribution lines by an average c.7,000km per annum over the last 5 year, which we expect to continue. In addition CEB expects to improve the quality of its distribution lines by replacing the overhead cables with underground cables. 96% Cables PVC Compound Other Source: ACL Annual report FY16 Figure 6: Revenue geography-wise 9% Figure 8: CEB distribution line upgrades to continue E 2017E Source: CEB, FC Research estimates 2.2 Institutional and retail sales expected to boost in FY18 91% Local Export Source: ACL Annual report FY16 More hotels to be constructed: The booming tourism sector with government s expectation of 4Mn tourists by 2020 requires the hotel room supply to add c.41,500 rooms to the hotel room stock by Sri Lanka expects 2.5Mn tourist arrivals as of Figure 7: Revenue customer-wise Figure 9: Hotel room stock to reach 75,000 by Mn tourists 30% 30% Mn tourists % CEB Institutional Retail E 2020E Source: ACL Management Source: Board of Investments, Daily FT 4

5 Growing numbers of apartment units: With increasing urbanization the rising middle income category continue to seek spacious, comfortable living. We expect more apartment units to be added until 2019, driving most of the revenue growth of ACL between FY17-19E. Figure 10: Declining interest rates Figure 12: Apartment units to reach 6,000 by % 20% Interest rates have not reached 2013 levels, instead expected to decline further 7,000 6,000 5,000 15% 4,000 CAGR of 23% 10% 3,000 2,000 5% 1,000 0% Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Source: Central Bank of Sri Lanka E Source: Research Intelligence Unit Housing constructions on the rise: The housing approval index has increased even after the formation of the new government. At the same time, government plans to construct 50,000 houses encouraging housing development. Further the declining interest rate environment affects the housing demand favorably. Most of ACL s retail sales are from this market. Figure 11: Government housing proposals Figure 13: Building approvals rose post new government formation 16,000 15,000 15,026 14,000 13,477 13,000 12,000 12,184 12,695 12,257 To be completed in 2017 Completed in 2016 Source: National Housing Development Authority 11,000 10,000 10, Source: Central Bank of Sri Lanka 5

6 (USD) (LKR Tn) (Total investment LKR Bn) FC Research 2.3 Government policy is congenial for construction drive BOI approvals have increased under the new government: ACL undertakes c.70% of BOI projects. The new government is bullish on foreign investments and has encouraged investments. The impact of these initiatives will largely come in FY17-18E. Figure 15: Total investments under BOI approvals took an upturn Source: Central Bank of Sri Lanka Mega development projects: Financial City and Megapolis is expected to play a key role in driving the infrastructure boom. The USD40Bn investment in Megapolis is indicative of several large scale constructions. Overall, the GDP growth and the rising household income will drive the Sri Lankan construction sector in the long term. Figure 14: Household income to grow 6,000 5,000 4,000 3,000 2,000 1,000 Figure 16: GDP growth fuelling construction activities % 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% E 2017E 2018E 2019E E 2017E 2018E 2019E 0.0% GDP (LHS) Real GDP growth (RHS) Source: Central Bank of Sri Lanka Source: Central Bank of Sri Lanka 6

7 3.0 Margins galvanized by strong fundamentals 3.1 Copper and Aluminum prices expected to rise Gross margins to remain strong as cost is passed on to customer: The World Bank expects Copper and Aluminum prices to rise from FY17 onwards owing to the falling stock levels and increasing demand from China. We expect the company s gross margins to decline only marginally while remaining stronger compared to its historical margins during FY17-19E given its capability to pass on the costs to the customer. ACL is the most trusted supplier concerning safety of its cables, which is a crucial proposition for buyers such as CEB. Over the last 5 years, ACL s gross margins have been availed by the falling Copper and Aluminum prices. The company is evident of having adjusted the selling prices in line with the movement in cost of material. Having a market share of 70% and a strong brand equity for quality and safety, we believe that ACL is capable of passing on the cost to the customer. Figure 17: Copper Vs. Crude oil prices Figure 19: Copper prices Vs gross margins 11, % 10,000 10,000 9,000 8,000 7,000 6,000 5, % 22% 20% 18% 16% 14% 12% 9,000 8,000 7,000 6,000 5,000 4, % FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E 4,000 Copper prices (LHS) Crude oil (RHS) Gross margin (LHS) Copper prices (RHS) Source: Indexmundi Source: ACL Annual report, World Bank Figure 18: Aluminum Vs. Crude oil prices Figure 20: Aluminum prices Vs gross margins 2, % 2,600 2,600 2, % 22% 2,400 2,200 2,200 2,000 1, % 18% 16% 2,000 1,800 1,600 1, % 12% 1,600 1,400 1, % FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E 1,200 Aluminium prices (LHS) Crude oil (RHS) Gross margin (LHS) Aluminum prices (RHS) Source: Indexmundi Source: ACL Annual report, World Bank 7

8 3.2 Depreciation of the rupee affecting cost of material LKR to depreciate c.3.5% during FY17-19E: Given that ACL has a market share of c.70%, we believe that the company is able to fully or partly pass on increase in cost of material. ACL imports Copper and Aluminum as well as generates c.10% of its sales from exports. The export sales are positively affected by the currency depreciation however this will have an upward pressure on the cost of material. Sri Lanka being a net importer and having a widening trade balance is inevitably exposed to depreciation of its currency, which according to FC Research estimates will be c.3.5% per annum.. Figure 21: LKR is expected to depreciate further E 2017E 2018E 2019E 3.3 Finance expenses to ease off Borrowings will remain low: The Company having sufficient cash position of LKR1.7Bn as of FY16 has paid off most of its borrowings and we expected the company to maintain almost the same levels of borrowing during FY17-19E. Figure 22: Finance cost to decline Source: Central Bank of Sri Lanka, FC Research estimates 4,000 3,500 3,000 2,500 2,000 1,500 1, FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E Borrowings (LHS) Finance expenses (RHS) Source: ACL annual reports, FC Research estimates 8

9 3.4 Margins will remain strong Higher average margins in FY17-19E: ACL s ability to pass on the increasing material prices and effects of currency depreciation fully or partly coupled with the easing off finance costs will result in only a gradual decline in the margins, keeping the average margins over FY17-19E stronger compared to historical margins. Figure 23: Higher average margins expected during FY17-19E Average FY12-16 Average FY17-19E Gross margin 18% 24% Operating margin 11% 15% Net margin (equity) 6% 8% 30% 25% 20% 15% 10% 5% 0% FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E Gross margins Operating margin Net margin (equity) Source: ACL annual repots 9

10 4.0 ACL to provide a return of 19% P/e 31 March FY15 FY16 FY17E FY18E FY19E Revenue (LKR Mn) 14,427 12,811 12,544 14,795 17,039 YoY % Growth 26% -11% -2% 18% 15% Net Profit (LKR Mn) ,094 1,111 1,230 1,303 EPS YoY % Growth 95% 27% 2% 11% 6% Valuations PER (x) PBV (x) Dividend yield (%) 0.8% 1.6% 2.4% 2.4% 2.4% NAVPS (adusted) DPS (adjusted) Payout ratio 7% 11% 16% 15% 14% 1 Attributable to equityholders 2 Adjusted for the share split ACL earnings CAGR of c.6% FY16-19E: We expect ACL s revenues to grow to LKR 17Mn in FY19E from current level of LKR 13Mn. ACL s net income is expected to grow to LKR 1.3Bn in FY19E from the current level of LKR 1Bn. 4.1 Total return of 19% in FY18E Capital gain of 28% and a dividend yield of 2%: FC Research estimates ACL s fair value to be LKR 80.0 in FY18E. The company would yield a capital gain of 28% in FY18E. We expect ACL to maintain its DPS at LKR 1.5 and thus record a dividend yield of 2% in FY18E. The total annualized return stands at 19%. Expected ACL price FY18E DCF based valuation 79 PER based target price 82 Average target price 80 Return FY18E Target price 80.0 Current price 62.5 Capital gain 17.5 Dividend (FY18E) Capital gain % 28% Dividend yield % 2% Total return 30% Total return (annualised) 2 19% 1. FY17E dividend was paid in Aug Annualised over 18 months 10

11 4.2 Discounted Cash Flow valuation DCF value of LKR 79.0: FC Research estimates ACL to reach a DCF value of LKR 79.0 based on an equity value of LKR 9.4Bn. COE R f 10% R m 17% R m - R f 7% 0.91 K e =R f + (R m -R f ) 17% Valuations FY18E NPV 7,855 Less: debt 1,797 Add: cash and cash equivalents 3,371 Total value of Equity 9,429 No. of Shares 120 Value of Equity per share 79 WACC K e 17% K d 9% D/ E 40 /60 Terminal Growth rate 3% WACC 13% Terminal growth rate WACC 9% 11% 13% 15% 17% 1% % % % % PER based valuation Average PER of 8x: FC Research estimates an average PER of 8x for ACL giving a PER valuation of LKR 82.0 per share Price FY18E Earnings (LKR Mn) 1,230 No of shares (Mn) 120 EPS Expected PER 8x Price at 8x earnings 82 11

12 (LKR Mn) FC Research 5.0 Investment risks 5.1 Possible delays in development projects Government and institutional revenues can be affected: At present, the mega projects outlined by the present government are at its early stages. The Financial City as well as Western Megapolis project have just emerged from conceptualization and requires more work in order to become a reality. These projects are prone to adverse weather conditions, delays in approvals and processes which may trigger delays in ACL s revenue receipts. Any change in government policies also would affect the revenues coming from BOI projects as well as other institutional sources. Sri Lanka anticipates its next general election in 2020 and until then we can expect a stable political environment. 5.2 Increasing receivables Delayed payments by CEB may affect working capital: c.25-30% of ACL s revenue are attributable to CEB. Recently ACL s receivables days have seen an increase due to the delays in payments by CEB. In addition government policy decisions regarding electrification and energy consumption also affects the revenues from CEB. Figure 24: Trade receivables and receivable days 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Trade receivables (LHS) Receivable months (RHS) Source: ACL annual repots 5.3 Ability to pass on Copper and Aluminum price hikes coupled with currency depreciation Passing on the cost can be full or partial: We believe that ACL can pass on the expected increase in material cost arising from the increase in metal prices as well as depreciation of LKR. However it is not clear if ACL could fully pass on the costs. Likely ACL will be able to pass on some of the cost increase to the customers. We believe that ACL, being is the most renowned cable manufacturer in Sri Lanka reputed for reliability and safety of its cables whose quality is in line with international standards, may be able to pass on a large portion of the cost increase to the customers. 12

13 6.0 Peer valuations 6.1 KCAB and SIRA to record a revenue growth of 18% and 30% respectively for FY18E KCAB P/e 31 March FY15 FY16 FY17E FY18E FY19E Revenue (LKR Mn) 6,204 6,620 7,593 8,971 10,891 YoY % Growth 19% 7% 15% 18% 21% Net Profit (LKR Mn) EPS YoY % Growth 52% 53% 12% 9% 12% Valuations PER (x) PBV (x) Dividend yield (%) 1.1% 2.2% 3.3% 3.3% 4.0% NAVPS DPS Payout ratio 10% 13% 18% 18% 18% 1 Attributable to equityholders SIRA P/e 31 March FY15 FY16 FY17E FY18E FY19E Revenue (LKR Mn) 3,483 3,036 3,415 4,425 5,541 YoY % Growth 52% -13% 12% 30% 25% Net Profit (LKR Mn) EPS YoY % Growth -190% -24% 3% 31% 6% Valuations PER (x) PBV (x) Dividend yield (%) 5.7% 7.4% 7.8% 10.0% 0.0% NAVPS DPS Payout ratio 41% 54% 50% 50% 50% 1 Attributable to equityholders 13

14 6.2 KCAB and SIRA to provide returns of 29% and 7% respectively KCAB to provide a return of 29% in FY18E: KCAB is estimated to have a fair value of LKR [DCF based LKR and PER based LKR 195.0]. Based on the current price of LKR and an expected dividend of LKR 4.5 in FY17E and FY18E, KCAB would generate an annualized return of 29%. STRONG BUY SIRA to provide a return of 7% in FY18E: SIRA is estimated to have a fair value of LKR 3.3 [DCF based LKR 2.6 and PER based LKR 4.0]. Based on the current price of LKR 3.4 and an expected dividend of LKR 0.2 for FY17E and LKR 0.3 for FY18E, SIRA would yield an annualized return of 7%. SELL Expected KCAB price FY18E DCF based valuation 189 PER based target price 195 Average target price 192 KCAB Return FY18E Target price Current price Capital gain 55.0 Dividend (FY17E) 4.5 Dividend (FY18E) 4.5 Capital gain % 40% Dividend yield % 1 7% Total return 47% Total return (annualised) 2 29% 1. Includes both FY17E and FY18E dividends 2. Annualized over 18 months Expected SIRA price FY18E DCF based valuation 2.6 PER based target price 4.0 Average target price 3.3 SIRA Return FY18E Target price 3.3 Current price 3.4 Capital gain -0.1 Dividend (FY17E) 0.2 Dividend (FY18E) 0.3 Capital gain % -3% Dividend yield % 1 13% Total return 10% Total return (annualised) 2 7% 1. Includes both FY17E and FY18E dividends 2. Annualized over 18 months 6.3 DCF value of LKR for KCAB and LKR 2.6 for SIRA for FY18E KCAB DCF Valuation FY18E NPV 3,146 Less: debt 185 Add: cash and cash equivalents 1,154 Total value of Equity 4,116 No. of Shares 22 Value of Equity per share 189 SIRA DCF Valuation FY18E NPV 2,421 Less: debt 1,103 Add: cash and cash equivalents 88 Total value of Equity 1,406 No. of Shares 538 Value of Equity per share

15 6.4 PER of 7x for KCAB and 8x for SIRA for FY18E FY18E PER valuations: KCAB is estimated to have a PER based value of LKR and SIRA is estimated to have a PER based value of LKR 4.0. KCAB SIRA Price (2.0) (4.0) (6.0) (8.0) Price 15

16 Appendix I: Recommendation criteria Categorization Company Category Strong Buy Grade A S&P SL20 Companies 10% & Above Grade B Rest of the 13% & Companies Above Grade C Companies less than 16% & LKR 1Bn Market Cap Above *1 year T-bill rate as at % Buy Hold Sell 5% & Above 8% & Above 11% & Above 1% & Above 3% & Above 6% & Above Below 1% Below 3% Below 6% Appendix II: Income Statement LKR (Mn) FY15 FY16 FY17E FY18E FY19E Revenue 14,427 12,811 12,544 14,795 17,039 Cost of sales (11,877) (9,754) (9,426) (11,316) (13,225) Gross profit 2,550 3,057 3,118 3,479 3,814 Other income SG&A (1,146) (1,210) (1,175) (1,364) (1,556) Operating profit 1,597 1,893 1,983 2,156 2,301 Net finance cost (388) (252) (189) (168) (196) Profit before tax 1,255 1,696 1,815 2,010 2,129 Tax (301) (426) (508) (563) (596) Net profit 954 1,269 1,307 1,447 1,533 Non controlling Equityholders 860 1,094 1,111 1,230 1,303 EPS (adjusted) DPS (adjusted)

17 Appendix III: Balance Sheet LKR (Mn) FY15 FY16 FY17E FY18E FY19E Assets Non current assets PPE 3,535 3,466 3,600 3,522 3,447 Other non current assets 1, ,062 4,962 4,362 4,546 4,522 4,508 Current Assets Inventories 5,099 3,987 3,842 4,768 5,770 Trade and other receivables 4,968 4,251 4,030 4,827 5,670 Other current assets 0 1,067 1,167 1,267 1,367 Cash and cash equivalents 1,039 1,707 2,130 2,104 2,196 11,106 11,012 11,170 12,966 15,003 Total assets 16,068 15,374 15,716 17,488 19,511 Equity and liabilities Capital and reserves Stated capital Retained Earnings 4,138 5,142 6,073 7,123 8,247 Other reserves 2,952 3,004 3,004 3,004 3,004 Total equity - equityholders 7,390 8,445 9,376 10,427 11,550 Non-controlling interest 870 1,026 1,222 1,439 1,669 8,260 9,472 10,599 11,866 13,220 Non current Liabilities Borrowings 1, Other non current assets ,786 1,377 1, Current liabilities Trade and other payables 3,289 2,010 1,875 2,580 3,119 Other current liabilities 2,733 2,515 2,065 2,065 2,195 6,022 4,525 3,940 4,644 5,314 Total equity and liabilities 16,068 15,374 15,716 17,488 19,511 NAVPS (adjusted)

18 Appendix IV: Cash Flow Statement (LKR Mn) FY15 FY16 FY17E FY18E FY19E Cash Flow from Operating activities Profit/Loss before tax 1,255 1,696 1,815 2,010 2,129 Adjustments for: Depreciation of PPE Profit from equity investee (46) (55) (21) (23) (24) Amortisation of intangible assets Dividend Income (0) (0) (0) (0) (0) Interest Expense Interest Income (12) (98) (64) (59) (67) Profit on disposal of PPE (2) (5) Profit on disposal of investment - (3) Amortization of leasehold properties Impairments Loss/ (gain) on revaluation of PPE (176) (23) (26) (27) (28) Defined benefit obligations Written off capital WIP Changes in working capital (Increase)/ decrease in inventories (1,159) 1, (925) (1,002) (Increase)/ decrease in Receivable (985) (797) (842) Increase/ (decrease) Trade and Other Payables 1,907 (1,279) (135) Dividend Payable Defined benefit obligations Cash generated from operations 1,430 2,692 2,371 1,298 1,144 Interest Received/ (Paid) (399) (350) (194) (162) (193) Defined benefit obligations paid (15) (23) Payment in lieu of employee share issue scheme Income Tax paid less refund received (115) (132) (508) (563) (596) WHT on dividend paid by subsidiary (7) (14) Net Cash generated from operating actvities 893 2,174 1, Cash Flow from Investing Activities Interest Received Purchase and construction of PPE (127) (125) (347) (144) (141) Purchase of intangible assets (3) (0) (2) (2) (2) Investments in AFS - (9) Cost incurred on Capital WIP (72) (11) (33) (33) (39) Dividend Received Investments in Subsidiary Companies (778) Investments in other assets - (1,067) (100) (100) (100) Proceeds on disposal of PPE Proceeds on disposal of Capital WIP Proceeds on disposal of Investments Net Cash Flow from Investing Activities (965) (511) (417) (220) (214) Cash Flow from Financing Activities Short term Borrowings Net of Payments (698) (1,054) (450) - - Long term Borrowings Net of Payments 1,155 (318) (200) (200) - Dividend paid by the Company (60) (120) (180) (180) (180) Dividend paid by Subsidiary to NCI (10) (19) Net Cash Flow from Investing Activities 387 (1,511) (830) (380) (180) Increase/ decrease in cash and cash equivalents (26) (39) Movement in Cash and Cash Equivalents At the beginning of the year ,205 1,179 Increase/ decrease in cash and cash equivalents (26) (39) Cash and cash equivalents at the end of the Year ,205 1,179 1,141 18

19 Appendix V: Key ratios P/e 31st Mar FY15 FY16 FY17E FY18E FY19E Growth Revenue 26% -11% -2% 18% 15% Cost of Sales 25% -18% -3% 20% 17% Gross Profit 33% 20% 2% 12% 10% EBIT 64% 19% 5% 9% 7% Net Profit 95% 27% 2% 11% 6% Margins GP Margin 18% 24% 25% 24% 22% EBIT Margin 11% 15% 16% 15% 14% NP Margin 6% 9% 9% 8% 8% Gearing Debt/Equity 42% 28% 19% 15% 15% Debt/Debt+Equity 30% 22% 16% 13% 13% Debt/Total assets 22% 17% 13% 10% 10% 19

20 HEAD OFFICE 347 1/1, Dr. Colvin R. De Silva Mawatha, Colombo 2 Sales Desk: Fax: BRANCHES 347 1/1, Negombo Dr. Colvin R. De Silva Mawatha, No.72A, 2/1, Colombo 2 Sales Desk: Old Chilaw Road, Negombo Fax: Tel: SALES BRANCHES CEO Jaliya Wijeratne Negombo Priyanka Anuruddha Colombo Priyantha Wijesiri Damian Le Grand Nishantha Mudalige Isuru Jayawardana Anushka Buddhika Gamini Hettiarachchi Thushara Abeyratne First Capital Equities (Pvt) Ltd RESEARCH Dimantha Mathew Amanda Lokugamage Atchuthan Srirangan Michelle Weerasinghe Hansinee Beddage FIRST CAPITAL GROUP HEAD OFFICE BRANCHES No. 2, Deal Place, Matara Kurunegala Kandy Colombo 3 No. 24, 1/3, 2nd Floor, No. 6, 1st Floor, No , Tel: Lakshman Cooray Building, Union Assurance Building, Peradeniya Road, Anagarika Dharmapala Mawatha, Rajapihilla Mawatha, Kandy Matara Kurunegala Tel: Tel: Tel: Disclaimer: This Review is prepared and issued by First Capital Equities (Pvt) Ltd. and is based on information available in the public domain, internally developed and other sources believed to be correct. Although all reasonable care has been taken to ensure that the contents of this document are accurate, First Capital Equities (Pvt) Ltd and its Directors and employees, are not responsible for its accuracy, usefulness and reliability and disclaim liability for any loss suffered by the use of information contained herein. First Capital Equities (Pvt) Ltd may act as a Broker in the investments which are the subject of this document or any related investments and may have acted on or have used the information contained in this document, or the research or analysis on which it is based, before its publication.