Business

Sri Lanka’s DSI to boost solid tyre sales, footware facing competition: Fitch

Tuesday February 27, 2018 2:54 pm

ECONOMYNEXT – Sri Lanka DSI Samson group, a rubber products group is planning to boost solid tyre sale as it faces domestic competition from small scale footware producers, Fitch Ratings confirming ‘BBB+(lka)’ rating said.

The outlook on the rating is stable.

Fitch said there is a recovery in domestic sales in the nine months to December, after revenues weakened in the year to March.

"The recovery was underpinned by the growth in domestic sales of school shoes and solid rubber tyre exports, which has helped to offset the decline in rubber slipper sales and pneumatic tyres sold to original equipment manufacturers (OEMs)," Fitch said.

"DSG’s rating also factors in our expectation that the company’s plans to grow its value-added footwear and solid tyre businesses over the medium term to diversify its product offering will help to counterbalance competitive pressures to an extent."

DSG’s domestic tyre and tube volumes had fallen 7 percent in FY17 (13 percent growth in FY16) due to a slowdown in the demand for bicycle tyres and a reduction of the maximum loan-to-value (LTV) ratio on three-wheeler leases.

"We expect domestic sales of pneumatic tyres to the OEM three-wheeler market to remain under pressure over the medium term due to the tightening of three-wheeler financing regulations in 2017," Fitch said.

"However, DSG’s exposure to the replacement market (65% of domestic pneumatic tyre volumes in FY17) mitigates this risk."

Sri Lanka has high import taxes on shoes and tyres which helps domestic producers to easily exploit consumers with high prices.

DSI is facing competition from a number of small producer as well as imports, Fitch said. But it had a strong brand and wide distribution network.

Thef full statement is reproduced below:

Fitch Affirms DSI Samson Group at ‘BBB+(lka)’; Outlook Stable

Fitch Ratings-Colombo-27 February 2018: Fitch Ratings has affirmed Sri Lanka-based DSI Samson Group (Private) Limited’s (DSG) National Long-Term Rating at ‘BBB+(lka)’. The Outlook is Stable.

The rating affirmation reflects the moderate recovery in DSG’s revenue and EBITDA in the nine months to 31 December 2017 following a weakening in the financial year ended 31 March 2017 (FY17).

The recovery was underpinned by the growth in domestic sales of school shoes and solid rubber tyre exports, which has helped to offset the decline in rubber slipper sales and pneumatic tyres sold to original equipment manufacturers (OEMs).

DSG’s rating also factors in our expectation that the company’s plans to grow its value-added footwear and solid tyre businesses over the medium term to diversify its product offering will help to counterbalance competitive pressures to an extent.

Fitch has tightened DSG’s rating sensitivity on leverage (defined as lease-adjusted debt net of cash/operating EBITDAR) to 4.5x from 5.0x to capture the increased business risk from fiercer competition and slower domestic sales volumes in several of its key segments. We expect DSG’s rating headroom to be limited over the medium term, with net leverage hovering only just below the 4.5x threshold at which Fitch would consider negative rating action.

DSG’s ‘BBB+(lka)’ rating continues to reflect its leading positions in domestically sold pneumatic tyres to the replacement market and footwear, which are supported by its well-known brand and widespread distribution network. DSG’s market share also benefits, to an extent, from high tariffs on imports of tyres and footwear.

KEY RATING DRIVERS

Pressure on Domestic Tyre Volumes: We expect domestic sales of pneumatic tyres to the OEM three-wheeler market to remain under pressure over the medium term due to the tightening of three-wheeler financing regulations in 2017. However, DSG’s exposure to the replacement market (65% of domestic pneumatic tyre volumes in FY17) mitigates this risk.

DSG’s domestic tyre and tube volumes declined by 7% in FY17 (13% growth in FY16) due to a slowdown in the demand for bicycle tyres and a reduction of the maximum loan-to-value (LTV) ratio on three-wheeler leases. In 2017, the regulator lowered the upper band of LTV ratios associated with three-wheeler leases to 25% from 70% to curb vehicle imports, which led to a 13% drop in DSG’s three-wheeler segment volume.

Leverage to Remain High: We expect DSG’s net leverage to hover just below 4.5x over the medium term, which is high for its rating, due to competitive pressure in some of its operating segments, while the company’s bid to diversify its cash flows via exports and value-added footwear may take time to yield results.

DSG’s leverage also weakened on high borrowings for capex and working capital investments in FY17. However, we expect capex to moderate from FY18 due to adequate production capacity and a recovery in EBITDA as a result of greater contribution from high-margin solid tyre exports and higher-value-added footwear.

EBITDA Margin Pressures: We expect DSG’s EBITDA margin to remain at around 9% over the next two to three years due to escalating production costs caused by rising commodity prices and domestic currency depreciation. EBITDA margins have declined from 10.2% in FY16 and 13.3% in FY15 on rising input costs and competition. Fitch expects the price of natural and synthetic rubber, which is DSG’s key production input, to increase in line with rising crude oil prices.

Growing price competition, particularly in the lower end of the rubber slipper segment, also means that the company is limited in its ability to fully pass on cost increases to its customers.

Leading Market Position: DSG is the market leader in the bicycle, motorcycle and three-wheeler tyre industry in Sri Lanka. The company also holds the leading market position in the footwear segment despite growing competition in the lower end of the market. Nevertheless, we expect the rising competition in the rubber slipper segment from small-scale domestic producers and certain importers who appear to be able to circumvent the current tariff structure to be a key long-term risk.

Limited Structural Subordination Risk: DSG is a holding company that depends on dividends paid by its subsidiaries to service its own obligations. Therefore, a substantial increase in leverage at its operating subsidiaries could increase the structural subordination of DSG’s creditors. However, this risk is mitigated by DSG’s strong control over operating subsidiaries that accounted for around 80% of consolidated EBITDA in FY17, which increases cash fungibility within the group.

Furthermore, the company indicates that there are no restrictions that would prevent its major operating subsidiaries from paying dividends to DSG and readily available cash at the holding company was more than sufficient to repay holding company borrowings as of FY17.

DERIVATION SUMMARY

DSG’s sales are less vulnerable to economic downturns than those of its closest rated peers, Singer (Sri Lanka) PLC (A-(lka)/Stable) and Abans PLC (BBB+(lka)/Stable). However, DSG’s slowing domestic footwear and tyre sales due to local market competition and the government’s policy decisions are long-term risks, while Singer and Abans enjoy robust market positions in the sale of consumer durables domestically. Therefore, we believe Singer and Abans have stronger business risk profiles than DSG.

We rate Singer one-notch higher than DSG to reflect this strength, while Abans is rated at the same level as DSG because of its higher leverage.

KEY ASSUMPTIONS

Fitch’s Key Assumptions Within Our Rating Case for the Issuer

– Revenue to decline by 1.9% in FY18 and to recover modestly to grow at a low-single-digit rate, on average, over the next three years.

– EBITDA margins to moderate at 9.0% on average in the next two years.

– Capex to average at LKR1 billion per year for the next two years.

– Dividend payout to shareholders to remain at around 50% of holding company’s dividend income.

RATING SENSITIVITIES

Developments that May, Individually or Collectively, Lead to Positive Rating Action

– Sustained improvement in DSG’s adjusted net debt/EBITDAR to less than 3.0x (FY17: 4.4x) and gross adjusted debt/EBITDAR to less than 3.5x (FY17: 4.8x)

– The company’s ability to execute its medium-term expansion plans and increase the contribution of its cash flows from exports

Developments that May, Individually or Collectively, Lead to Negative Rating Action

– Sustained weakening of net adjusted debt/EBITDAR to more than 4.5x and gross adjusted debt/EBITDAR to more than 5.0x

– A sustained weakening of fund flow from operations fixed-charge cover to less than 1.3x (FY17: 1.9x)

– A significant increase in the structural subordination of DSG’s holding company creditors
LIQUIDITY

Tight Liquidity: DSG had LKR1.0 billion of unrestricted cash and LKR5.5 billion in unutilised credit facilities as at end-FY17, to meet LKR3.6 billion of contractual maturities falling due through FY18, with a further LKR5.1 billion of working capital facilities coming up for roll-over during the same period. This places the company in a tight liquidity position, but we expect this to be manageable given the company’s track record of accessing domestic banks.

Markets

Sri Lanka stocks close down 0.60-pct, dragged by HNB and LOLC

Friday November 13, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Friday, CSE data showed, with the benchmark All Share Price Index moving down 0.60 percent.

The ASPI was down 133.22 points at 22,024.18, while the more liquid S&P SL20 was down 1.06 percent, or 67.55 points, at 6,298.02.

The ASPI ended the week up 784.53 points from last Friday.

Positive contributors to the ASPI were Dialog Axiata (up 0.40 percent at 50.20 rupees), Distilleries Company of Sri Lanka (up 0.52 percent at 58.30 rupees), Aitken Spence (up 3.60 percent at 151.00 rupees), Ceylon Tobacco Company (up 1.05 percent at 1,828.50 rupees), and LOLC Finance (up 1.96 percent at 5.20 rupees).

Hatton National Bank (down 1.88 percent at 403.75 rupees), Richard Pieris and Company (down 6.21 percent at 27.20 rupees), LOLC Holdings (down 2.17 percent at 405.00 rupees), Sampath Bank (down 1.91 percent at 154.00 rupees), and Singer (Sri Lanka) (down 2.40 percent at 77.30 rupees) were top negative contributors.

Market turnover was 3.23 billion rupees. Capital goods led turnover with 869.21 million rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka MP slams budget speech for omitting Tamil national question

Friday November 13, 2026 2:56 pm

ECONOMYNEXT – A Sri Lanka legislator has voiced strong disappointment that the President’s budget speech failed to make a single mention of the Tamil national question.

“It is very unfortunate that in His Excellency the President’s speech, there has not been a single word mentioned about the Tamil national question. Not a single word,” Shanakiyan Rasamanickam said.

“A budget speech generally, is a policy direction of the government for the next year. The budget speech is not only a statement of the country’s fiscal position or the economy’s position. It is the country’s, the government’s, plan, or what the government plans to do the following year. That’s a policy statement.”

Former presidents would at least mention the Tamil question even if it was not resolved, he said.

Former President Ranil Wickremesinghe in his speech, in his policy statement, he would mention: “The Tamil national question must be resolved,” Rasamanickam said.

Former Presidents Maithripala Sirisena and Gotabaya Rajapaksa also mentioned that the national ethnic question must be resolved, he added.

“Every President, every country’s Head of State, in their policy statements, have acknowledged the fact that there is an unresolved national issue, the Tamil national question, that it needs to be resolved. Various governments have proposed various mechanisms; none of them have succeeded, but at least it was mentioned.”

This year’s budget made allocations for the Office of Missing Persons, and the Office of Reparations.

“But the domestic mechanism is a mechanism that the victim community has rejected. So you all are allocating money to a mechanism where the victim community is not going to be part of.”

Last year’s budget 1 billion was allocated to be spent on the Trincomalee and Jaffna airports.

“Where was that 1 billion for the Trincomalee and Jaffna airports spent last year?”

“The trajectory of this government, Honourable Deputy Speaker, is worrying to me. It’s really worrying to me. Because if the objective is to say that there is no Tamil national question, if the objective is to say that you all have resolved any ethnic issue that this country faced, then Honourable Deputy Speaker, then I think the Tamil people will teach this government a very, very, very harsh lesson in the future.” (Colombo/Nov13/2026)

Bonds & Forex

Sri Lanka sells extra Rs6.5bn Treasury bills after auction

Friday November 13, 2026 12:32 pm

ECONOMYNEXT – Sri Lanka has sold 6,500 million rupees of treasury bills offered on tap at an average rate of 9.95 percent, the public debt management office said, bringing the total of bills sold in the week to 85.562 billion rupees.

The issue offered 90 billion.

Total market subscription was 6.5 billion rupees.

The debt office sold a 12-month bill at 9.95 percent.

On Wednesday (11) the debt office raised 79 billion rupees of 3, 6 and 12 month bills after offering 90 billion.

The settlement date is November 13. (Colombo/Nov13/2026)

Construction and Real Estate

Access Engineering Sept quarter group net profit surges 200-pct to Rs4.75bn

Friday November 13, 2026 12:15 pm

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC recorded a group net profit attributable to equity holders of Rs. 4.75 billion for the quarter ended September 30, surging 200 percent from Rs. 1.58 billion a year earlier, interim accounts showed.

Basic earnings per share rose to Rs. 4.08 for the September quarter, up from Rs. 1.58 previously.

Quarterly group revenue expanded 36 percent to Rs. 20.39 billion from Rs. 14.94 billion, underpinned by condominium property handovers — reflected in inventories dropping Rs. 7.69 billion since March to Rs. 35.71 billion — alongside strong automobile sales and steady civil engineering execution.

Cost of sales rose at a slower 27 percent to Rs. 14.34 billion, lifting gross profit by 64 percent to Rs. 6.05 billion and expanding gross margins to 29.7 percent from 24.7 percent.

Other income jumped 144 percent to Rs. 259.9 million, while administrative expenses rose 75 percent to Rs. 1.14 billion, leaving operating profit up 64 percent at Rs. 5.16 billion.

However, finance costs more than doubled, rising 107 percent to Rs. 1.18 billion on elevated group borrowings of Rs. 43.74 billion, partly offset by finance income climbing 302 percent to Rs. 42.2 million.

Share of results from equity-accounted investees rose 122 percent to Rs. 26.7 million, pushing pre-tax profit up 56 percent to Rs. 4.05 billion.

Income tax swung to a net reversal of Rs. 186.6 million from an expense of Rs. 804.1 million, boosted by deferred tax assets on unrelieved losses from a 100 percent enhanced capital allowance claimed by 60 percent-owned radiopharmaceutical subsidiary Access Medical Tracers (Private) Limited.

Total period profit rose 136 percent to Rs. 4.24 billion, with non-controlling interest declining 24 percent to Rs. 164.9 million following last year’s buyout of minority shareholders in Harbour Village (Private) Limited.

No separate exchange gain or loss was itemized in quarterly earnings, though foreign currency translation via associates recorded a Rs. 17.4 million loss in other comprehensive income, alongside USD 16.6 million in corporate guarantees.

Notes also flagged an expected Rs. 1.45 billion recovery from the terminated South Asia Commercial and Logistics Hub project, a Rs. 225 million post-quarter legal settlement already provided for, and a Supreme Court appeal over a 2011/12 PAYE tax ruling.

Group assets stood at Rs. 132.4 billion as of September 30, with net asset value per share at Rs. 46.70, as the Employees’ Provident Fund raised its stake to 5.69 percent.

Access Engineering shares closed at 80.00 rupees at the end of September and are currently trading around 85.80 rupees. (Colombo/Nov13/2026)

Economy

Sri Lanka private sector says timely implementation of Budget 2027 key

Friday November 13, 2026 11:43 am

ECONOMYNEXT – Private sector body, The Ceylon Chamber of Commerce, said it was encouraged by the broad direction of Budget 2027, noting that it reinforces Sri Lanka’s commitment to economic transformation while maintaining policy continuity, macroeconomic stability, and fiscal discipline.

“This continuity is particularly important as the country seeks to transition from economic stabilisation to a more durable, investment-led growth trajectory.”

The chamber also noted several areas where the Budget could have placed greater emphasis to strengthen the country’s growth prospects.

“In particular, there is a need for a stronger focus on attracting Foreign Direct Investment (FDI), accelerating factor market reforms, particularly in land and labour, and fast-tracking public procurement reforms to improve the efficiency and speed of project implementation.

“More targeted and actionable proposals could have been introduced to unlock the potential of sectors with significant growth opportunities, including tourism, agriculture, IT/BPO and logistics.”

The chamber said the budget contains positive measures aimed at enhancing competitiveness, and external sector resilience, while presenting opportunities for focus on sectors that can accelerate growth.

“A number of the key structural reforms identified in last year’s Budget have been carried forward and strengthened, providing greater certainty and predictability to businesses and investors.

“These include the continued implementation of the Trade National Single Window (TNSW), the phased removal of para-tariffs, the rollout of the Digital ID framework, efforts to expand market access through new Free Trade Agreements (FTAs), the strengthening of one-stop-shop investment facilitation mechanisms, progress on Customs reforms, the expansion of Bandaranaike International Airport (BIA), enhanced financing support for SMEs, and reforms relating to the management of State-Owned Enterprises.”

The CCC said that more than 20 proposals submitted by it have been reflected in Budget 2027.

These include measures to strengthen investor facilitation through the establishment of a professionally managed investment promotion agency; continued efforts to improve trade facilitation and export competitiveness; the Government’s consideration of a successor programme with the International Monetary Fund (IMF); accelerated progress on key legislative reforms; the expansion of digital government services; and the promotion of cashless payments and broader digital adoption. The Budget has also captured several priorities relating to energy security, including the accelerated deployment of Battery Energy Storage Systems (BESS) and investments in fuel storage infrastructure, initiatives to optimize underutilized agricultural land, measures to support the expansion of the digital economy and the IT/BPO sector, and tax reforms to support exporters, including the acceptance of newly VAT-registered exporters as eligible exporters.

“The inclusion of these priorities reflects the value of sustained public-private dialogue and demonstrates increasing alignment between national policy objectives and the needs of a competitive, export-oriented economy.

“The priority now must be effective and timely implementation to translate policy commitments into investment, competitiveness, exports and sustainable growth.” (Colombo/Nov13/2026)