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Monday, November 29, 2010

Sri Lanka corporate profits surge: report

Nov 29, 2010 (LBO) - Sri Lanka's corporate earnings for the quarter ended September 2010 continued to surge upwards reflecting the positive economic growth with motor firms doing particularly well after an import tax cut, a research report said.

Earnings of 220 firms - about 92 percent of listed firms - have grown by 169.4 percent in the September 2010 quarter to 34.5 billion rupees from 12.8 billion rupees in the same quarter last year, Lanka Securities said in its quarterly earnings review.

The profit for the cumulative period of the current financial year has increased by 143.5 percent from the year before.

Out of the 20 sectors in the Colombo bourse, only three sectors, namely footwear and textiles, oil palms and services, saw a drop in profits in the September quarter.

"The motor sector which vastly benefited from the tax reductions on imported vehicles posted a significant growth of 897 percent year-on-year in earnings in the September quarter," the report said.

The government slashed import taxes on cars in June.

The total sector earnings reached 713.8 million rupees in contrast to the mere 71.6 million rupees profit recorded in the comparative quarter.

All the companies in the motor sector except Autodrome more than doubled their earnings in the quarter with Dimo being the top earner in the sector contributing 42.8 percent to the total sector earnings, Lanka Securities said.

The brokers said that with strong earnings growth share prices are likely to become less expensive.

The recent bull run on the Colombo bourse has made it one of the most expensive share markets in the region.

"According to our calculations the market PER (price-to-earnings ratio) adjusted to the latest financials is 18.83 times and the market PER is expected to decline further in the coming period due to the growth in the earnings," the brokers said.

"The favorable tax changes in the budget may supplement the top line growth in the corporates driving the PERs down."

The government budget for 2011 proposed reductions in income and corporate taxes which are seen as benefiting businesses.

source - www.lbo.lk