Royal Ceramics 3Q profit up 9% over modest growth in sales

Leading floor tile and bathware manufacturer, Royal Ceramics Lanka PLC (RCL), made an earning of Rs.8.85 cents a share or Rs.980.3 million for the quarter ended December 31, 2016 (3Q17), recording a modest increase of 8.5 percent from a year ago, the interim results showed.  
The gross revenue grew by 14.9 percent year-on-year (YoY) to Rs.8.79 billion. 
For the nine months ended December 31, 2016, the RCL group made an earning of Rs.21.13 a share or Rs.2.34 billion, an increase of 10 percent YoY. This was on revenue of Rs.21.5 billion, which grew by 10 percent YoY.  

The RCL group, controlled by the business magnet Dhammika Perera, commands a virtual monopoly in Sri Lanka’s porcelain and ceramic tiles industry. 
However, the budget 2016 proposed to remove import tariff protection on domestic ceramic tile manufacturers, ending the monopoly enjoyed by RCL.    
This will also remove the items such as tiles, ceramics and sanitary ware from the negative list enabling the Board of Investment (BOI) companies to import the above items freely, as they enjoy tax breaks. 
“Despite the present protection, the tile industry faces intense competition from imports from China, India, Bangladesh and Indonesia,” Bartleet Religare Securities has then said in its budget analysis. 
Meanwhile, First Capital Equities has said in a note that the tile sector might suffer from increasing competition stemming from lower margins and new entrants to the industry. 
RCL in January announced the company’s decision to replace one of the existing kilns in its Eheliyagoda factory at an estimated cost of Rs.978 million. 
The replacement process is expected to be completed in June 2017. After which, the company expects to increase its capacity and capability to produce large format cost-effective tiles. 
RCL in August ceased the operations of its paints and allied products business by way of disposing of its fully-owned subsidiary, Ever Paint and Chemical Industries (Private) Limited. 
Meanwhile, the December quarter also saw a steeper increase in the finance cost as such has risen by as much as Rs.91 million to Rs.304.2 million. The nine months’ finance cost rose by 33 percent or Rs.208 million to Rs.845.6 million. 
As of December 31, 2016, Perera’s investment vehicle, Vallibel One PLC, had a 51 percent stake in the group while the state-controlled private sector pension fund, the Employees’ Provident Fund, had a 13.79 percent stake.