ECONOMYNEXT – Sri Lanka’s ceramic tile manufacturers, controlled by the Royal Ceramics Lanka group, will see strong sales growth supported by the construction boom but risk losing protection against imports, a stockbroker report said.
Several hotels and condominiums under construction at present would reach completion during FY 2018 by which demand for tiles and bathware would rise, Bartleet Religare Securities said.
Royal Ceramics Lanka’s recurring earnings per share grew 243 percent to 4.97 rupees in the first quarter of the 2016 financial year.
RCL controls Lanka Tile and Lanka Walltiles, the other two ceramic tile manufacturers in the island.
RCL’s earnings growth was backed by higher than forecast revenue from tiles and aluminium sectors, lower finance cost and increased profits from an associate finance firm, the research report said.
Royal Ceramics Lanka’s gross profit margins improved to 33 percent in the first quarter from 30.2 percent a year ago aided by energy cost reduction and higher sales volumes.
“We expect the pick up in demand for tiles and bathware to continue in the forecast period aided by both domestic and export sales,” Bartleet Religare Securities said.
“The risk of the industry’s protected status being removed, however looms.”
Sri Lanka’s new government is known to favour more liberalisation of the economy and wants to remove trade barriers.
The ceramic industry had successfully lobbied for higher tariffs on imported tiles to protect domestic firms under the ousted Rajapaksa regime.
Bartleet Religare Securities said demand from both households and commercial sector contributed to RCL’s earnings growth.
“RCL has also started exporting to new markets like the US and UK which would add to top line in future.”
The RCL group’s enhanced margins were aided by the reduction in gas prices, electricity tariffs and Euro depreciation, with 90 percent of bathware raw materials imported from Europe, as well as by a shift to larger high value tiles, the brokers said. (Colombo/October 07 2015)