Corporate earnings snap seven-quarter winning streak in September

• Corporate earnings contract 11.9% YoY to Rs. 176.5 bn, ending a seven-quarter growth streak
• Decline largely driven by high base effects in Food, Beverage & Tobacco and Capital Goods sectors, with BIL and BRWN weighing heavily on performance
• Banking and Diversified Financials cushion the overall impact, delivering strong profit growth

By Nishel Fernando

Sri Lanka’s listed corporates saw their cumulative earnings contract by 11.9 percent year-on-year (YoY) to Rs. 176.5 billion in the quarter ended September 2025, breaking a seven-quarter streak of continuous growth. 

According to a review by First Capital Research, the decline was largely driven by high base effects from the previous year and specific sectoral headwinds, although the market demonstrated resilience with a 13.7 percent growth on a quarter-on-quarter (QoQ) basis.

The drag on overall performance stemmed primarily from the Food, Beverage and Tobacco sector and Capital Goods. The Food, Beverage and Tobacco sector recorded a significant 59.6 percent YoY decline in earnings, weighed down by disruptive weather conditions and rising costs, particularly in labour. 

A major contributor to this dip was Browns Investments PLC (BIL), which saw its earnings plummet by 117.1 percent YoY. This was attributed to an unfavourable base effect from substantial one-off gains of Rs. 50.8 billion recorded in September 2024, compared to just Rs. 47.2 million in the current quarter. Meanwhile, Ceylon Tobacco Company (CTC) also faced profitability challenges due to volume declines caused by adverse weather.

The Capital Goods sector posted a 71.8 percent YoY decline, similarly impacted by a high base effect from Brown & Company PLC (BRWN). In September 2024, BRWN had recorded Rs. 32.8 billion in gains from bargain purchases, whereas only Rs. 30.5 million was recorded in the quarter under review, resulting in a 118.3 percent YoY drop in its earnings. However, excluding these one-off impacts, the underlying performance of the sector remained broadly resilient, with most companies delivering growth alongside a sharp 234.4 percent QoQ rebound.

In contrast, the Banking and Diversified Financials sectors provided a crucial buffer, underpinning broader corporate earnings. The Diversified Financials sector surged by 112.6 percent YoY, driven by a lower interest rate environment, improved asset quality, and a pickup in lending. LOLC Holdings and LOLC Finance (LOFC) led the earnings growth in absolute terms, while Ceylon Guardian Investment Trust (GUAR) posted a staggering 2,764.5 percent YoY increase, primarily driven by Rs. 1.1 billion in fair value gains on financial assets amid rising equity markets.

The Banking sector continued its upward trajectory with a 38.9 percent YoY growth in earnings, supported by healthy loan book expansion and improved asset quality amidst a reviving economy. Commercial Bank (COMB), Hatton National Bank (HNB), and National Development Bank (NDB) stood out as top performers, with HNB benefiting significantly from an impairment reversal of Rs. 2.1 billion during the quarter.

Beyond the financial powerhouses, smaller sectors displayed remarkable agility. The Real Estate sector emerged as a standout performer, recording a 94 percent YoY surge in earnings to Rs. 3.1 billion, signalling a strong recovery in property demand and valuations. Similarly, the Transportation sector witnessed a sharp bounce-back, with earnings jumping 81 percent YoY to Rs. 525 million, underscoring a vital recovery in logistics and mobility services.

The top 10 profit-making companies for the quarter were primarily concentrated in the Banking, Diversified Financials, and Food, Beverage and Tobacco sectors, benefiting significantly from stronger net interest income, reduced financing costs, and a favorable economic environment. Commercial Bank of Ceylon PLC reported the highest profit of Rs. 16.6 billion, followed by Hatton National Bank PLC with Rs. 11.0 billion and LOLC Finance PLC with Rs. 8.8 billion. The list of top profit generators also included LOLC Holdings PLC, Sampath Bank PLC, Ceylon Tobacco Company PLC, Nations Trust Bank PLC, Dialog Axiata PLC, Carsons Cumberbatch PLC, and Bukit Darah PLC.

Conversely, Browns Investments PLC recorded the highest loss for the period at Rs. 8.2 billion. It was followed by Brown & Company PLC and Softlogic Holdings PLC, which posted losses of Rs. 5.4 billion and Rs. 2.8 billion respectively. Other notable entities among the top loss-makers included Hela Apparel Holdings, Laugfs Gas PLC, John Keells Hotels PLC, Odel PLC, Aitken Spence Hotel Holdings PLC, Colombo Dockyard PLC, and Palm Garden Hotels PLC.