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Wednesday June 7th, 2023

Teejay Lanka to up revenues to US$300mn with productivity driven capacity boost

ECONOMYNEXT – Teejay Lanka Plc, a apparel maker which has operations in Sri Lanka and India is planning to grow revenues 50 percent in the next three years, riding a shift of production from China, and output growth based on productivity gains, an official said.

South Asian Shift

“What we are seeing is a movement of orders out of China and the South Asian subcontinent is a key beneficiary gaining from this trend,” Teejay Lanka Director Hasitha Premaratne said.

“Teejay being a fabric player out of the both India and Sri Lanka has been benefiting from this trend.”

In the year to March 2019, Teejay Lanka group revenues grew to 31 billion rupees from 24 billion rupees in 2018, ( 191 million US dollars from 162 million dollars in 2018.)

In the next two to three years, the firm is planning to grow to 300 million US dollars.

In Sri Lanka most export firms call for currency deprecation to gain a price advantage by cutting real wages of factory workers. However, Teejay will boost productivity.

The firm plans to boost output 40 percent in Sri Lanka.

Productivity based growth

Instead of building new factories, which will also push up fixed costs, Teejay will maximize the use of remaining space in India and Sri Lanka, and replace older machinery with new ones with higher capacity.

The firm will also move to higher value products.

“We will go up the value chain with more sophisticated and innovative products,” Premaratne says.

In July Teejay tied up with LFT in China to produce lace.

Teejay profits grew 62 percent to 453 million rupees in the June 2019 quarter from a year earlier, as revenues grew 19 percent to 8.1 billion rupees, helped by strong orders and also some currency depreciation.

Earnings grew to 65 cents a share from 40 cents for the quarter.

Volatile cotton prices remain a risk for the firm.

Teejay cannot fully pass on cotton prices when prices go up, but it also tries to recoup margins by delaying price cut when cotton prices ease.

Market Penetration

Teejay Lanka’s top customers are Western brands, who have production units mainly in Sri Lanka and India.

Among top brands using Teejay fabric are Marks and Spencer Victoria’s Secret, Intimissimi and Decathlon.

Some of the production that is going out of China is moving to Bangladesh, which is becoming the second largest apparel hub in the world.

Teejay is already making shipments to apparel plants in Bangladesh.

Africa is another emerging opportunity, which is growing fast from a low base. Last year only about 2 percent of revenues came from the continent. This year it will double.

Many Western brands sell in Asia but their main focus are western markets. To get into Asia, Teejay has been roping in Asian brands like UNIQLO.

“Asia is growing fast and we want to share a part of Asia’s growth,” Premaratne said.(Colombo/Sep02/2019)

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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed amid weak credit and better inflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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