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Sri Lanka’s Melstacorp to focus on premium liquor, diversity into oil palm

ECONOMYNEXT – Melstacorp Limited (MCRP), which becomes the parent firm of Distilleries Company of Sri Lanka in a share swap, aims to focus on premium products in its alcoholic beverage business, which generates the bulk of sales, and get plantations to diversify into oil palm.

According to the group’s future plans, revealed in a draft introductory document filed with the stock exchange, it is highly dependency on the beverage segment which generates over 70% of MCRP group’s net revenue.

“However, MCRP has continued to diversify its business portfolio to sectors such as financial services, hydro-power and tourism, which is likely to reduce the dependence on the beverage sector,” the introductory document said.

The group said it also continues to evaluate investment opportunities in other segments.

Melstacorp Limited, which is to be listed on the Colombo stock exchange, continues to maintain its dominant market share in the Sri Lankan hard liquor market, relying on the brand equity of Distilleries Company of Sri Lanka and the established liquor brand portfolio within the group.

Its Periceyl (Pvt) Ltd. unit focuses on the distribution of locally manufactured foreign liquor, and targets customers for its premium-branded products.

“The group is expected to increase its focus on premium brands such as Franklin Brandy, Flinton London Dry Gin and Petroff Vodka, given an expected increase in per capita GDP and tourism in Sri Lanka,” the stock exchange filing said.

Demand for alcohol is expected to continue its growth trajectory with a potential shift towards premium alcoholic products, it said.

With liquor is expected to continue as a major contributor to government revenue from taxes and duties, the government is expected to continue in its efforts to restrict the illicit liquor market in Sri Lanka, the filing said.

The group is exposed to tea and rubber businesses through its plantations Balangoda Plantations PLC and Madulsima Plantations PLC.

“The plantations industry has been facing challenges owing to weak commodity prices due to volatility in global markets and mandatory wage hikes,” it said. “The company’s strategy for the plantation segment in future is to diversify its crop to oil palm and reduce exposure to the volatile tea and rubber segments.”

Melstacorp said fluctuations in global spirit prices will have an impact on its gross profit margin.

“Given that spirits account for a substantial portion of the beverage sector’s raw materials, the company is exposed to movement of spirit prices,” the stock exchange filing said. “A price hike is therefore likely to contract margins for the sector.”

To mitigate the impact of higher raw material prices, the company said it’s policy is to increase its level of inventory on spirit volumes during periods of low prices.
(COLOMBO, Dec 02, 2016)


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