Financial Times

ACL says has enough capacity to meet demand surge
ACL Cables Ltd., one of the firms slated to increase profits owing to the rebuilding effort after the tsunami, has enough capacity to meet the sudden unexpected requirement although it had already begun expanding its manufacturing plant at Ekala to meet the excessive demand for their products in India and the Maldives.

Suren Madanayake, Executive Director, ACL Cables said the increased demand in the country due to the reconstruction effort after the destruction caused by the tsunami could be met through their existing production facility.

"We have enough capacity to meet the demand for post-tsunami construction at our Piliyandala plant, our largest with four factories," he said. Namal Kamalgoda, Chief Investment Officer, Eagle NDB Fund Management Company Ltd., said ACL is likely to see a bigger demand for cables, as electricity and telecom networks have to be reconstructed.

Analysts have forecast that ACL will post a net profit in excess of Rs.316 million this year, as opposed to last year's Rs. 81.5 million. "I feel we can achieve this forecast," Madanayake said. Madanayake said ACL, which controls nearly 70 percent of the local market with its subsidiary Kelani Cables Limited (KCAB), was approached by the Maldives for their post-tsunami hotel construction.

He said the company has an agent in Maldives with whom they are working on reconstruction projects. "Our Ekela plant is a BOI venture serving the export market and we have invested Rs. 350 million in the expansion," Madanayake said.

He said this is the first stage of the expansion, but if the demand rises further, the company plans to go on to the second stage. The cable and conductor manufacturer recently entered into a lucrative contract with Schneider Electric India to distribute and promote 'plate switches' under the 'Clipsal' brand in Sri Lanka.

Madanayake said the company will set up a local production plant for Clipsal, but a location has not been earmarked as yet. ACL also has an agreement with the Fortune 500 Company, Reliance Industries Ltd., to supply power cables for a major rehabilitation venture in Delhi.

The Free Trade Agreement between Sri Lanka and India that lowers import duty allows the company to enjoy a pricing advantage in the Indian market. ACL has boosted its competitive edge in India by obtaining quality certification from Bureau of Indian Standards (BSI). Madanayake said this will further consolidate their position in the Indian market.

Analysts said the company will use hedging techniques to counter the impact of the exchange rate depreciation. The company stands to gain by the lower raw material cost, because most of their raw materials are imported.

"But they will be affected as their export margins will be lower," Aritha de Silva, Head of Research, Asha Phillip Securities Ltd., said. " There will be no favourable or adverse implications to the company's bottom line, because hedging methods will be applied to equal out the effect of the exchange rate."

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