News Bulletin - November 2014.pdf

8/10/2019 News Bulletin - November 2014.pdf

1/11

In Economic news:

In Business news:In Consumer news:

Monthly Bul let in : November 2014

Less than 10 days after the budget 2015 speech the

government expenditure increased by 16%.

COPE reveals another series of state institution losses.

Private sector credit continues to grow in Sep 2014, up 4.6%

YoY to Rs.2,581.9bn.

Demand for cement declines as the construction industry

impacted by high costs.

Sri Lanka drops to 62nd in the Prosperity Index.

Sri Lanka wins Oshoring Destination of the year, for the

second year running.

All Share Price Index closes at 7,115.89, down 2.9% MoM.

Ination rose 1.5% YoY in Nov 14 (-10bps MoM).

Rupee ended the month at 130.02/133.15 vs. USD (Rupee

weaker 0.50% MoM).

Tommy Hilger to open its rst store in

Sri Lanka in Dec 2014.

Credit credits in Jun 14 rose to

974,144, up a modest 4.6% YoY with

outstanding balance growing a

signicant 14.1% YoY to Rs.53.6bn.

Nielsen consumer condence

index in Oct 2014 edges up to 65

(+3 points MoM).

Tourist arrivals in Oct 2014 were 121,576, up 13.6% YoY resulting in Jan-Oct

trac reaching 1.2m about 45,000 short of 2013.

Vehicle registrations up 71.5% YoY in Oct 2014, 34,976 motorcycles booked as

government distributed them among its eld ocers.

Sri Lankas tea production increased to 28.9mkgs (+15.3% YoY) in Sep 14.

Trade decit in Sep 2014 expands to USD 764.2m (+30.1% YoY), exports (USD

903.3m, +0.5% YoY) and imports (USD 1.5bn, +15.5% YoY).

LMD-Nielsen business condence index slides for the third consecutive month,

drops to 128 in Oct 14 an eight month low.


2/112

In Economic news:


by Rs.356bn for 2015. This would increase overall government

expenditure by a staggering 16% to Rs.2,566bn, causing budget

decit to expand to Rs.877bn, with the decit to GDP rising to

7.7% from the proposed 4.6%. This is to be funded through debt

as the Prime Minister also sought an increase in the debt ceiling

from Rs.1340bn to Rs.1,780bn. Credit growth is likely to continue

in the upcoming months driven by current low ination, reduced

electricity taris boosting disposable income and VAT adjusted to

11% from 12% decreasing prices of select consumer goods.

Govt. expenditure for 2015 increased, defenseand urban development to benefit.Less than10 daysafter the budget 2015 speech Mr. D.M Jayaratne, Prime Minister

presented an Appropriation Bill 2015-Amendments in Committee

in Parliament seeking to increase government expenditure

Source: Ministry of Finance and Planning and Gradient Estimates

Private sector credit continues to grow in Sep2014. Credit to private businesses and personal customersgrew 4.6% YoY in the month to Rs.2,581.9bn. CBSL kept policy

rates unchanged for the tenth consecutive month. An uptick

in credit growth since September is driven by low ination and

loose credit in the market. Credit growth is likely to continue in

the upcoming months driven by current low ination, reduced

electricity taris boosting disposable income and VAT adjusted to

11% from 12% decreasing prices of select consumer goods.

Source: CBSL Source: CBSL Source: CBSL

Sri Lanka drops to 62nd in the Prosperity Index.Legatum Institute ranked Sri Lanka 62nd from 142 countries in

its Prosperity Index for 2014, a drop of two places from 2013. The

index measures the well-being of countrys people and its wealth.

Norway topped the ranking with Switzerland and New Zealand

making the top three.

Sri Lanka was ahead of its South Asian neighbours, Nepal (96th),India (102nd), Bangladesh (104th), Pakistan (127th) and Afghanistan

(137th).The Index ranks countries on eight sub-indices Economy,

Entrepreneurship & Opportunity, Governance, Education, Personal

Freedom, Health, Safety & Security and Social Capital.


3/113

In Economic news:


COPE reveals another series of state institution losses. The Committee on PublicEnterprises (COPE) presented yet another damaging report on government institutions for the period

ending September 2014. Despite such disclosure there is little evidence that state institutions key

ocials will be held accountable, deterred or implicated. Select COPEndings;

Ceylon Petroleum Corporation, National Paper Company and SriLankan Airlines incurred a combined

loss of Rs.40.2bn in 2013.

The Sri Lanka Ports Authority (SLPA) had not settled a bill of Rs.4.8bn in relation to the construction of

Sooriyawewa Cricket Ground, Hambantota, a venue for the ICC World Cup 2011.

Sri Lanka Cricket (SLC)s granting of local television broadcasting rights in 2011 was deemed not

transparent. Only one bid was received to the tender notice which had not been given enough

publicity due to the small size of the advertisement and short time to respond. Broadcasting rights was

awarded to a company in which the SLC secretary was CEO, giving rise to a clear conict of interest.

Receivables amounting to about Rs.316m had been written o and Rs.1.1bn relating to the construction

of a World Cup Stadium was considered as bad debts.

In spite of the initial estimate of Rs.2.5m, the tender related to refurbish13 hotel rooms at the Taj

Samudra Hotel had been awarded by the Sri Lanka Institute of Tourism and Hotel Management at

Rs.3.9m per room.

Investigations leading to the misplacement of 5000MT of fertilizer valued at Rs.388m, which

commenced in 2008 were yet to be completed, despite the distributor having being found

responsible.

Due to the lower depth (a construction aw) at the Oluvil Port only small vessels can be accommodated.

The Port cost a staggering Rs.7.2bn.

Rs.391m was wasted on improving the eciency of the Colombo Port as the project was abandoned

midway since the government changed policy.

State Printing Corporation was ned Rs.54.9m for delays in printing books and not printing in

according to specications.


4/114

In Economic news:


costs. Demand for cement during Jan Aug 14 was 3.7m MT(-10.2% YoY). During this period local production was only 1.2m

MT (-2.5% YoY) and imports were 2.5m MT (-13.5% YoY). Drop in

demand can be attributed to the cost of construction rising to a

historic high in 2Q14 as the industry is dependent on importedraw materials for almost 90% of its requirements.

Key industry news, Maga Engineering says it has nearly Rs.80bn worth of projects

to be launched in the current nancial year. According to its MD

Weve submitted a proposal to the government to undertake a 28km

stretch of the Northern Highway. Its worth Rs.54bn. Past years have

seen a growth of 20 - 25%, with the incoming Chinese investments

for construction, the industry has only seen an annual growth of 13

- 15%.

Renuka Land, a joint venture between Renuka Hotels and Cargo

Boat Development is to construct a Rs.2.0bn modern rentable

Class A oce building complex on No. 29, Braybrooke Street,Colombo 2. The property will cover an area of 204,343 sq. ft.

of which 108,138 sq. ft. will be available for rent. Operations to

commence Apr 2017.

Sri Lanka 71st in Global Entrepreneurship Index.Sri Lanka was placed 71st among 130 countries in the US-based

Global Entrepreneurship and Development Institutes Global

Entrepreneurship Index for 2014. The country was placed 11th in

the Asia Pacic region and best in South Asia.

The Index focuses on eciency of national startup ecosystems

through sub index, Attitudes, Abilities and Aspirations. Sri Lanka

is ranked at 103rd in the Attitudes sub index, 54th in Abilities sub

index and 59th in Aspirations sub index.

The US is number one followed by Canada and Australia. The

14 pillars of entrepreneurship as per the Index are Opportunity

Perception; Startup Skills; International isation; Networking; Process

Innovation; Risk Acceptance; Cultural Support; Human Capital;

Technology Absorption; Opportunity Startup; Competition; High

Growth; Product Innovation and Risk Capital.

Demand for cement declines as theconstruction industry is impacted by high

Source: CBSL Source: CBSL

Renuka Holdings is to construct The Renuka Tower a 28 storey

tower providing A grade oce facilities on Galle Face Terrace andUttrananda Mawatha, Col. 3. Once completed, the tower will have

200,000 sq. ft. of rentable oce space. The total project cost is

estimated at Rs.3.2bn.


5/115

In Economic news:


Inflation rose 1.5% YoY in Nov 14 (-10bpsMoM). CBSL acknowledged the continuing reduction inination to Prices of items in the Non food category decreased on

average, supported by the declines in prices in the Housing, Water,

Electricity, Gas and other Fuels sub group. Downward revision of LP

Gas prices with effect from October 10, 2014 contributed significantly

to this decrease.

The Department of Census and Statistics (DCS) is to introduce

a new ination basket in 2015. According to Mr. D C A

Gunawardena, DCS, We are going to change the inflation basket

next year and introduce a national index covering all the districts.

Source: CBSL,CAL

Source: CBSL

All Share Price Index closes at 7,115.89, down2.9% MoM. Best performing sectors were construction &engineering (+8.4% MoM), oil palms (+5.3% MoM) and power &

energy (+1.4% MoM). Worst performing sectors were information

technology (-15.7% MoM), footwear & textile (-13.2%) and

plantations (-10.4% MoM).

Source: CSE

There is price stability with the government policies introduced in

2006 and every five years we change the inflation basket. So now

its high time to change it. Because the inflation now measured

taking 2006/2007 as the base year.

Rupee ended the month at 130.02/133.15 vs. USD(Rupee weaker 0.50% MoM).


6/116

In Business news:


Tourists arrivals cross 1.2m for the year. Touristarrivals in Oct 2014 were 121,576, up 13.6% YoY resulting in Jan-

Oct trac reaching 1.2m about 45,000 short of 2013 full year

level. According to Sri Lanka Tourism Development Authority

key sector performance;

Tea production at 28.9mkgs in Sep 2014.Accordingto Forbes & WalkerSri Lankas tea production increased to

28.9mkgs (+15.3% YoY) in Sep. High grown tea production was5.6mkgs (-2.5% YoY), medium grown was 3.8mkgs (-0.9% YoY)

and low grown was 19.3mkgs (+26.8% YoY). Tea exports during

the month was down to 26.7mkgs (-7.3% YoY) as auction prices

for high, low and medium grown were -12.0%, -10.5%, -7.1% YoY

in the month.

Source: Forbes and Walker

Indian arrivals were 26,148 (+19.8% YoY).

Western Europe: U.K: 10,112 (+2.7% YoY), Germany: 7,996

(+23.8% YoY) and France: 4,523 (+7.9% YoY).

East Asia arrivals were up signicantly, with 11,894 tourists

coming from China and Hong Kong (+120.7% YoY).

Russian arrivals declined 4.0% YoY to 5,512, while North America

trac was 5,206 (+10.4% YoY).

Sri Lanka targets 1.5m tourist arrivals for 2014 and 2.5 million by

2016. In related industry news;

Browns Hotel and Resorts signed an agreement with Starwood

Hotels & Resorts which will give Starwood the management

rights to the ve-star Sheraton Kosgoda Turtle Beach Resort. The

172 room hotel is to open in 2015.

ITC, an Indian conglomerate will build a USD300m hotel andapartment complex opposite Colombos Galle Face beachfront.

The investment was increased from USD 140m. ITC Colombo will

have 350 rooms, 170 luxury residences, banquet facilities, retail

and oce space. Operations to start by Aug 2017.

SriLankan Airlines to start ights to Kunming, China from Dec14

adding to its current 15 weekly ights to Beijing, Shanghai,

Canton and Hong Kong.

Source: Sri Lanka Tourism Development Authority


7/117


Sri Lanka wins Offshoring

Destination of the year, for thesecond year running. Sri Lankawon the National Outsourcing Associations

Oshoring Destination of the year award 2014 for the second

consecutive year. The accolade conrms the countrys status as

leading destination for outsourcing of information technology

In Business news:and business process management, with revenue rising from

USD213m in 2007 to USD720m in 2014. According to Mr.

Jayantha De Silva, Chairman, SLASSCOM Im proud to have Sri

Lanka recognised with a second award as a destination for offshoring

businesses. The award itself is a testimony to the exceptional qualitybeing offered from Sri Lanka.

SLASSCOM is the countrys IT/BPM industry body. In an

outstanding year for the industry, it was shortlisted for the

European Outsourcing Association (EOA) Oshoring Destination

of the Year Award 2014.

In other related news; Ashok Leyland received an order to supply 630 buses to Sri Lankan operators at a cost of USD 17m. The order follows a

recent order for 2,200 buses.

Hyrax Oil from Malaysia is to establish a lubricant oil mixing plant in Sri Lanka at a cost of USD 10m. The company already

markets its products in collaboration with the CPC.

According to Minister, Mr. Rohitha Abeygunawardena vehicles exporters from Japan and Thailand are looking to use the

Hambantota harbour as a transshipment port.

A vehicle registrations up 71.5% YoY in Oct2014.According to JB Securities total vehicle registrations were49,957 in the month.

Motor cars registrations were 2,635 (+23.6% YoY) Maruti recorded

336 units in Oct(564 units in Sep). The tariffs reductions should help

volumes going forward in the small car segment. In the preownedsegment - the main driver of volumes are from hybrids 624 Aqua,

256 Axio, 304 Prius and 527 Honda Fit.SUV registrations were 1,359

(569 units Oct 13) - 1,065 units of Honda Vezel.

3 wheeler registrations were 7,195 (+7.4% YoY).

Source: JB Securities

Motor cycle registrations grew to 34,976 (+120.3% YoY)

2-wheeler registrations hit an all-time monthly high. The

government made a decision to provide 100,000 2-wheelers to field

officers at Rs 50,000 a unit, the level of subsidy is a lot less taken from

the duty free price. A lot more 2-wheelers will be registered in Nov as

part of this program.

Truck registrations declined to 1,995 (-8.7% YoY) Pickup trucks

registrations recorded 254 units in Oct slightly down from 265 units

in Sep but significantly up from 100 units 12 months ago. Tata

recorded 162 units comprising of 83 207Di and 79 Xenon.

In related news;

Sri Lankan company Code Gen is to introduce a fully electric

super car called Vega. The two motors and the battery cell

will be imported from the US whilst all other parts are to bemanufactured in Sri Lanka. The car can reportedly travel 240

miles on one charge and will be available from USD 400,000

onwards.

According to Associated Motorways (AMW) post the Budget

2015 announcements prices of select motor vehicles have

reduced. It noted that current high demand meant buyers

having to wait for about three months. Select prices from

AMW and United Motors;

Type of vehicle Previous price Latest price

Alto Rs.1,850,000 Rs.1,498,000

Suzuki Wagon R Rs. 2,765,000 Rs. 2,450,000

Suzuki StingRay Rs. 2,855,000 Rs. 2,615,000

Suzuki Celerio Rs. 2,540,000 Rs. 2,465,000

Suzuki Omni van Rs. 1,850,000 Rs. 1,675,000

Suzuki Swift Rs. 3,150,000 Rs. 2,850,000

ViVA (850cc) Rs. 1,925,000 Rs. 1,760,000

Panda GB Rs. 1,545,000 Rs. 1,245,000

Panda GS Rs. 1,670,000 Rs. 1,395,000

Panda Cross Rs. 2,075,000 Rs. 1,825,000


8/118


Banking sector consolidation continues.During Oct14 consolidation between Central Finance and IsuruLeasing, Arpico Finance and Associated Motor Finance as well

In Business news:as Hatton National Bank and Prime Grameen Micro Finance were

publicly announced. CBSL commented that 41 Non-Banking

Finance Institutions (NBFIs) and nine banks have confirmed their

consolidation plans. Out of this, 8 NBFIs and 2 banks have alreadycompleted their respective consolidation plans, whilst 33 NBFIs and 7

banks are still progressing and are in different stages in their plans.

Trade deficit in Sep 2014 expands to USD764.2m (+30.1% YoY). Exports in Sep 2014 rose a tepid0.5% YoY to USD 903.3m with imports growing 12.2% YoY to

USD 1.5bn. The resulting trade decit was nanced by USD

575.0m (+3.1% YoY) of worker remittances.

Agriculture exports (~22% of exports) were USD 231.9m down

2.9% YoY as tea exports declined to USD 133.6m (-4.8% YoY).

Industrial exports (~77% of exports) were USD 667.9m up 3.3%

YoY on higher apparel exports (USD 403.8m, +4.4% YoY).

Consumer goods imports (~18% of imports) were USD 365.5m,

up 56.9% YoY, driven by food and beverages (USD 151.7m,+79.3%

YoY) and motor vehicles (USD 97m,+88.3% YoY).

Intermediate goods imports (~59% of imports) were USD

870.7m, down 5.1% YoY, as fuel imports declined to USD 295.3m

(-24.1% YoY)

Investment goods imports were USD 428.8m, up 27.9%YoY.

Imports of machinary and equipment were down (USD

177.2m,-10.1% YoY) and transport equipment was up

(USD140.1m,+290.3% YoY)

Source: CBSL

LMD-Nielsen business confidence index

slides for the third consecutive month. LMDsBusiness Condence Index dropped to 128 in Oct 14 an eight

month low.

According to Mr. Sheen cader, Managing Director, LMD Despite

increasing optimism about the economy, the BCI has continued its

gradual decline, as seen in recent months mainly as a result of

concerns about consumers spending power being restricted due to[the] high cost of goods and services. Another factor which seems

to have a bearing is the increasing concern of political activities

impacting business, which has been an apprehension in the past as

well, when elections occur.

Source: LMD


9/119

In Business news:


In other news. Merchant Bank of Sri Lanka (MBSL) wasreported to be planning to sell its stock broking arm Lanka

Securities. This had raised interest as the Colombo Stock

Exchange has been performing really well. MBSL Chairman M.R.

Shah was accused to have trying to rush through a sale and not

having communicated the same prior to the meeting. MBSL

owns a 29% stake in the rm whilst its parent Bank of Ceylon

holds a 20% stake.

According to the CSE foreign purchases from Jan to 14th Nov

2014 amounted to Rs.95.0bn, surpassing the previous highest

foreign purchases of Rs.92.4bn in 2010. Mr. Vajira Kulatilaka,

Chairman, CSE, We believe that investors entering the market are

being cautious and basing their decisions on the fundamentals

of companies. Foreign investors therefore have confidence in the

liquidity of their investments, this buoyancy is being reflected in the

foreign inflow over the past months.

Aberdeen Holdings acquired Expolanka Teas, Expolanka

Plantation, World Spice and Teas, Castle Commercial, Neptune

Holdings, Expolanka Pharmaceutica, Bio Extracts and Saron

Foods for Rs.1.16bn. According to Aberdeen Holdings Chief

Executive Ocer Mr. Omar Kayaam, We see a strong business

case and value proposition for the companies we have just

acquired. We have a robust strategy and management expertise to

ensure these companies deliver strong performance and superior

shareholder value.

Anilana Hotels and Properties rights issue worth Rs.767m wasoversubscribed. The funds will be used to nance the remaining

construction of Phase-I of the Dambulla hotel and to retire

approximately Rs.167m of debt.


10/1110


Credit card usage continues to increase. As perCBSL, the number of active credit credits to Jun 14 rose to

974,144, up a modest 4.6% YoY to its highest level. However

the total outstanding balance grew a signicant 14.1% YoY

to Rs.53.6bn, causing debt per card to increase to Rs.55,036 ahistoric high.

Outstanding debt volumes will continue to rise as the interest

rates on credit cards have been reduced since June. Cards are

attractive among the 3.6m urban population in the country

whose under pressure disposable income have created

demand. Urban monthly household income only rose at an

annual rate of 8.5% to Rs.68,336 in 2012/13 from 2006/07 lower

than its household expenditure growth of 9.0% during the

same period.

In Consumer news:

Tommy Hilfiger to open in Sri Lanka.Tommy Hilgerwill open its rst store in Sri Lanka in Dec 2014. According to LBO

the Current FH14 collection that will be launched in Colombo is

inspired from his classic American roots with a signature twist.

Nielsen consumer confidenceindex in Oct 2014 edges up to65 (+3 points MoM).

Source: lmd.lk

Source: CBSL


11/11

Gradient AllianceHelping to shape your Business

We are a management consultancy and financial advisory services provider.

Combining experience and comprehensive capabilities across many industries andbusiness functions, we work with clients to achieve a higher level of excellence.

We carry out company and market research, developing company financial

models, valuations and competitor analysis. Moreover we perform market surveys,

feasibility & due diligences studies and construct business plans.

MonthlyBulletin:November2014

4A, Deal Place A,

Colombo 03

Sri Lanka

M: + 94 773 619800

P: + 94 11 5786787

[email protected]

www.gradientalliance.com

Documents

News Bulletin - November 2014.pdf