Richard Pieris’s retail sector buys some goods at lower prices
View(s):Richard Pieris and Company PLC’s retail sector has been able to re-negotiate with suppliers to procure some goods at lower prices bearing the tax in part, according to analysts.
“We expect the retail contributions to be the key growth driver for Richard Pieris. However we foresee some erosion of Earnings Before Interest and Tax (EBIT) margin of the sector in the coming years due to the new budget proposal for 2013 to impose VAT and Nation Building Tax (NBT) in supermarket sales,” Dhanushka Samarasinghe, Director TKS Holdings noted. Richard Pieris has followed the ruling where about 70 per cent of the items are liable for VAT and NBT. Richard Pieris and Company net profits were up by 2 per cent per cent due to increased finance cost and tax expense.
The retail sector saw a growth of about 16 per cent Year on Year (YoY) in the third quarter in top-line to Rs 4,017 million representing the festive seasonal wave, Mr. Samarasinghe added. However, EBIT margin was seen deteriorated during the quarter to 7.1 per cent from 8.7 per cent in the comparative quarter implying the fierce competition in the industry. Plantation sector comprising three listed regional plantation companies witnessed a growth in revenue in the quarter owing to growth in revenue of upcountry tea cultivator, Maskeliya Plantation as well as Kegalle Plantation and Namunukula Plantation during the quarter.
The plantation sector top-line grew by about 12 per cent YoY to Rs 2,347 million whilst operating profit widened by 51 per cent YoY to Rs 599 million. Both tea and rubber prices continued to pick up during the quarter mainly resultant to depreciated rupee conditions, Mr. Samarasinghe added, noting that the recovering Chinese and European economies will create further demand. Tyre retreading sector saw its revenue slowing down by 11 per cent YoY to Rs 652 million however operating profit grew by 13 per cent YoY to Rs 83 million.
In the current economic scenario transportation cost has significantly risen making it difficult for low income segment of the economy to replace tyres with expensive branded tyres, Mr. Samarasinghe added. Arpidag Tyres are priced about 50-60 per cent lower than brand new tyres hence creating a niche market for Richard Pieris, according to company data. “Thus, outlook of the Tyre retreading sector is positive.
Minority interest in group profit surged by 80 per cent YoY to Rs 152 million owing to the upturn in Maskeliya Plantations (an effective control of 73.48 per cent), Kegalle Plantations (68.01 per cent), Namunukula Plantations (58.74 per cent) and also due to the increase witnessed by Richard Pieris Exports (80.26 per cent) through enhanced export profits,” Mr. Samarasinghe added.
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