Lanka Ashok Leyland says lack of currency stability an issue
View(s):Lanka Ashok Leyland has said that the increasing import costs have eroded their margins and the rate of Rupee depreciation outpaces the company’s ability to implement price revisions. The company recorded a top line of Rs. 7.4 billion, a 27 per cent increase over the Rs. 5.8 billion recorded for the same period last year. The third quarter recorded a turnover of Rs. 2.7 billion, in a media release said adding that demand from the private sector drove sales volume up 40 per cent year on year. “Profitability was squeezed as import costs rose with the weakening rupee and some additional provisioning resulted in a profit before tax of Rs. 242.5 million, a 51 per cent decrease on 2014/15. The gross profit margin fell from 11 per cent to 8 per cent while the net profit margin fell to 2 per cent from 6 per cent for the same period last year, the depreciation and lack of currency stability is a key factor to us.”
“Additionally, we cannot burden our customers with the higher costs so therefore we try and absorb as much of it as possible. Our net profit margin of 2 per cent reflects this fact and is not particularly healthy but we hope that the currency will stabilise toward the latter part of the year if no other external shock materializes (Another Chinese Yuan devaluation for instance). We continue to have a sizeable outstanding amount due from the Government sector which has put pressure on our working capital, resulting in increased borrowings which rose 22 per cent to Rs. 2 billion. Finance costs, net of exchange rate losses and gains remained flat year on year at Rs. 37.8 million.” Umesh Gautam, CEO Lanka Ashok Leyland quoted by the media relaese as saying, ” we are thrilled with the demand response from the private sector despite the political changes in 2015. Again the volatility we anticipated after the general election has not been significant and our robust sales performances are indicative of that.”
In the light commercial vehicle segment, sales have jumped 104 per cent year on year but still the bigger inroads to make in this segment. “We have built up our inventory levels since 1Q2014 and this will act as a hedge against the USD volatility if the volatility continues and we cut down our imports till it becomes stable again” looking ahead, while the currency volatility remains our biggest concern, we have a tapered expectation for 2016 given the uncertain external situation and the fiscal challenges that are posed to Sri Lanka’s finances. With interest rates expected to rise and restriction of 70 per cent on leasing, these remain to be seen what effects it will have on demand for commercial vehicles which up to now has been surprisingly robust and better than expected.”