Local cable manufacturer bets high on local projects, foreign prospects

Strong growth prospects of cable and piping industry leader Sierra Cables PLC (SIRA) both in Sri Lanka and abroad, coupled with good management practices, have led to SC Securities recommending SIRA stocks as a strong buy.

“We believe that SIRA should be trading at a higher price on the back of higher growth prospects and potential to generate more profits going forward,” a SC Securities report said.
It said that even after conservative estimates, SIRA shares have an intrinsic value of Rs. 4.20 per share, which is trading on a 21.4 percent discount at Rs. 3.30 per share. The brokerage is estimating that SIRA’s net profits, which were Rs. 251.58 million in 2016, will increase to Rs. 372.85 million in 2017, up to Rs. 506.41 million by 2020, while the earnings per share are estimated to increase from Rs. 0.46 in 2016 to Rs. 0.67 in 2017 and Rs. 0.91 by 2020.

SIRA’s Rs. 1 billion tender from the Ceylon Electricity Board which has yet to finalize, the momentum being regained by the construction industry, coupled with the upcoming Megapolis and Colombo Port City projects indicate strong future prospects for SIRA’s cabling, water piping and drainage businesses, SC Securities added.
It noted that SIRA’s expansion into East Africa with a cable manufacturing plant in Kenya is set to become successful with contracts received even before the factory commencing operations.
SC Securities said that SIRA has received a contract for 5,000 tonnes of cable, and the factory which is set to commence operations in October and SIRA is planning to produce 500 tonnes of cable per month.
It noted that Kenya’s 5 local cable manufacturers meet only 30 percent of the demand, and only 17.5 percent of the country is under electrification, presenting greater opportunities for SIRA.
“During last 10 years, in terms of tender sizes, the company has supplied tenders of c. 2,500KM (per year) in Sri Lanka. However, in Kenya, one tender can reach c.15,000KM. Therefore, we believe that the Kenyan markets showcase significant growth potential for the company, in the forthcoming period,” it said.

 SC Securities added that SIRA is also planning to enter the Fijian and 
Maldivian markets.