Ceramic manufacturing industry higher profits clouded by policy uncertainty

9 November 2015 03:03 am - 0     - {{hitsCtrl.values.hits}}

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Despite its positive performance for the latest quarter, the country’s ceramic manufacturing industry is in for an uncertain future due to policy considerations.
The country’s largest ceramic ware manufacturer, Royal Ceramics Lanka PLC (RCL) posted a group level net profit of Rs.669.44 million for the second quarter ended September (2Q16), increasing 53.66 percent year-on-year.

Gross revenue increased 11.07 percent yoy to Rs.6.42 billion, while cost of sales decreased 0.87 percent yoy to Rs.3.69 billion. Revenue contribution from subsidiary Lanka Ceramic PLC, under which two other listed ceramic subsidiaries fall, was Rs.3.77 billion, increasing just 0.68 percent yoy.

The increase in profits is mainly attributable to RCL’s recent ventures overseas and the increased spending power of Sri Lankans facilitated by the handouts in the interim budget in January. 

Business magnate Dhammika Perera’s RCL group claims over 70 percent of the country’s floor and walltile business and over 50 percent of the bathware business, according to brokerage Bartleet Religare Securities (BRS).

Sri Lanka has imposed as much as 74 percent import tax in imported ceramics, claming to protect local manufactures. 

However, Finance Minister Ravi Karuananayake had said that the ceramic industry monopoly would be broken by allowing people to have access to quality and cheaper import products, which Prime Minister Ranil Wickremesinghe too affirmed on last Thursday in his policy statement, albeit indirectly.

“We understand that some local businesses are operating with their profits only in mind. While making profits, every enterprise should also provide a service to the people,” he had said.

The Premier also said that both local and global investors will be given freedom to engage in business, and new laws will be brought in this regard.
President Maithripala Sirisena too had called for fair import taxes on ceramics during an industry symposium.

Meanwhile, RCL’s group level finances are set to take a direct hit from the interim budget’s Super Gains Tax, as the company has computed the deduction to be Rs.263.54 million.

A retrospective tax of 25 percent was introduced in the interim budget this January on the profits of any company or individual exceeding Rs.2 billion earned in the year of assessment of 2013/14 as a one-off tax.

While BRS too warned of the company’s risks with possible policy changes, it said that RCL could capitalize on the current condominium and hotel construction drive.
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