FC Research SRI LANKA

Analyst: Amanda Lokugamage Corporate Update

TOKYO CEMENT COMPANY (LANKA) PLC STRONG BUY

TKYO.N/ TKYO.X Current Price: LKR 54.9/45.1 Fair Value: LKR 83.0/66.0 Sep 2016

KEY DATA Pillars of Success

Share Price (LKR) 54.9/45.1
52w High/Low (LKR) (Voting) 58.0/30.4 Y/E 31 Mar FY15 FY16 FY17E FY18E FY19E
52w High/Low (LKR) (Non-Voting) 47.3/25.0 Revenue (LKR mn) 29,674 30,117 34,783 40,799 47,123
Average Daily Volume (Shares '000) V/NV 90.5/284.6 YoY % Growth 3% 1% 15% 17% 16%
Average Daily Turnover (LKR 'Mn) V/NV 4.0/3.8 Net Profit (LKR Mn) 1,642 1,931 2,270 3,023 3,350
Issued Share Capital (Shares mn) 334.1 EPS (LKR) 4.9 5.8 6.8 9.0 10.0
Market Capitalisation (LKR mn) 12,229 YoY % Growth -23% 18% 18% 33% 11%
Price Performance (%) 1 mth 3 mths 12 mths Valuations
TKYO.N 1.7% 30.7% 10.0% Voting - PER (x) 11.2x 9.5x 8.1x 6.1x 5.5x
TKYO.X -1.7% 21.9% 12.2% Voting - PBV (x) 1.8x 1.6x 1.4x 1.2x 1.0x
ASPI -2.5% -0.3% -9.5% Voting - Dividend Yield (%) 2.2% 2.5% 3.0% 4.1% 4.6%
Major Shareholders as at 30th June 2016
Non-Voting - PER (x) 9.2x 7.8x 6.6x 5.0x 4.5x
Voting
Non-Voting - PBV (x) 1.5x 1.3x 1.1x 1.0x 0.8x
St. Anthony's Consolidated (Pvt) Ltd 27.5%
Non-Voting - Dividend Yield (%) 2.6% 3.0% 3.6% 5.0% 5.6%
Nippon Coke & Engineering Co. Ltd 20.3%
NAVPS 29.9 34.2 39.3 46.1 53.7
South Asian Investment (Pvt) Ltd 20.1%
Adjusted DPS (LKR) 1.2 1.4 1.6 2.3 2.5
Capital City Holdings (Private) Limited 3.0%
Dividend Payout 24% 23% 24% 25% 25%
The Ceylon Guardian Investment Trust Plc A/C # 02 2.4%
Non - Voting Tokyo Cement Company (Lanka) PLC, one of the two cement manufacturers in
Hinl-Jpmcb-Butterfield Trust ( Bermuda ) Limited 2.4% Sri Lanka is expected to grow its earnings at a CAGR of c.20% FY16-FY19E
J.B. Cocoshell (Pvt) Ltd 1.7% reaching c.LKR 3.0Bn in FY18E and c.LKR 3.4Bn in FY19E. TKYO is expected to
Citibank Newyork S/A Norges Bank Account 2 1.3% grow its earnings mainly through increase in its topline by seizing the
Hsbc Intl Nom Ltd-State Street Luxembourg C/O Ssbt 0.7% opportunities created by the boom in the construction sector coupled with
Employees Provident Fund 0.5% enhanced capacity. FC Research expect TKYO.N and TKYO.X to provide a return
Public Holdings (%) V/NV 28.84/ 100
of 58% and 55% at LKR 54.9 and LKR 45.1 respectively. STRONG BUY
Construction sector boom to improve topline: TKYOs topline is expected to
Figure 1: TKYO Price Volume Graph register a YoY growth of c.15% and c.17% to reach c.LKR 34.8Bn and c.LKR
40.8Bn in FY17E and FY18E respectively resultant to the boom in the
construction sector coupled with the investment into capacity enhancement to
reach total plant capacity to 2.8Mn MT thats coming into effect by end 2016
and increased Maximum Retail Price (MRP) of cement towards the latter part
of the 1H2016.
Improved Margins driven by increased volumes and cost efficacies: GP, EBIT
and NP margins are expected to register at c.24%, c.11% and c.7% respectively
in FY17E as opposed to 23%, 10% and 6.5% recorded in FY16 on the back of
lower cost of production coupled with the comparatively lower commodity
prices that are yet to recover and cost savings resulting from the increase in
Disclosure on Shareholding:
renewable energy generation.
First Capital Group and its affiliates holds 86,980
shares in TKYO. Neither First Capital Group nor its Risks associated: Given the nature of the industry TKYO is exposed to exchange
affiliates have traded in the shares in the three rate, fluctuations in commodity price, change in government policy and rivalry
trading days prior to this document, and will not
competition risks.
trade in the shares for three trading days following
the issue of this document. TKYO to provide a 58% and 55%return over 18-months period: FC Research
expect TKYO.N to achieve a fair value of LKR 83.0 providing a total return of 58%
(Dividend yield 7%) over 18-month period. [DCF based LKR 83.8 and PER based
LKR 81.4] while TKYO.X to provide a return of 55% at LKR 66.0.
 FC Research
Figure 2: ASPI vs TKYO
Figure 3: Cement Industry Composition
Pillars of Success
1.0 Introduction
1.1 Indistinctive Leader in the Oligopoly Market: Tokyo Cement Company
(Lanka) PLC (TKYO) is one of the largest cement manufacturers in Sri Lanka is
a joint venture formed between St. Antonys Consolidated and Nippon Coke
& Engineering Company of Japan. TKYO offers wide array of cements
including Portland cement under the name Nippon Cement and Tokyo
Cement. It also provides Tokyo Super Pozzolana for marine, hydraulic and
larger mass concreate structures. The group structure consists of 4
subsidiaries which comprise of Tokyo Super Cement Company Lanka (Pvt)
Ltd, Tokyo Cement Power (Lanka) Ltd, and Tokyo Eastern Cement Company
Ltd which are wholly owned while Tokyo Super Aggregate Ltd is a subsidiary
with a 51% stake.
Tokyo Cement operates an existing cement grinding plant with a capacity of
1.8Mn MT and new plant in Tricomalee adding another 1Mn MT per annum
to increase the overall grinding capacity to 2.8Mn MT per annum by end
2016. Bagging plant operates with an installed capacity of 600,000 MT per
annum bringing the total capacity to 2.4Mn MT per annum.
1.2 Share Price Performance: Over the past 12 months TKYOs shares have
outperformed the market mainly driven by the aggressive growth
experienced in the earnings. TKYO.N has been trading between LKR 34.0-56.8
while TKYO.X has been trading between LKR 32.1-46.6 on the back of
impressive earning growth.
1.3 Industry Analysis
Cement Industry in Sri Lanka: Sri Lanka cement industry had shown
considerable growth in the last few years with cement consumption growing
at a CAGR of 9% from 2011-15 while 2015 cement consumption grew by only
a mere 2%YoY due to the uncertainty emerged over several state funded
projects over cost element, feasibility, etc resulted in several mega
infrastructure development projects being halted. The current total
consumption is approximately 6.4Mn MT of cement per annum. (Source:
Economic and Social Statistics of Sri Lanka, Central Bank Annual Report 2015).
But 2016 looks promising with during the 1H2016 Sri Lankas cement
production and imports rose by 0.67Mn MT, up 23%YoY to 3.6Mn MT.
Cement production rose by 0.196Mn MT to 1.2Mn MT (19%YoY) and imports
rose 25%YoY to 2.3Mn MT in the first six months as opposed to 1.9Mn MT
during 1H2015. In 1H2015 domestic production and imports rose 19%YoY to
2.9Mn MT.
The domestic production of cement is dominated by Tokyo Cement and
Holcim Lanka each having approximately 30% market share (including
imported cement).
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Sri Lankas is quite different from the global cement industry as world trade
in cement is hardly 4% whereas Sri Lanka imports 64% of its requirement
either in the form of cement or clinker. Considering clinker is being imported
for grinding units the total cement imports could increase further. Sri Lanka
imports cement from various plants in neighboring countries like India,
Vietnam, Pakistan, Malaysia, Indonesia and Thailand. This dependability of
imports has its flip side, as it sometimes limits the choice and type of cement
and can diminish the assurance of consistent quality if there is no proper
quality mechanism in process.

Under the Indo-Sri Lanka Free Trade Agreement (ISFTA) and Pakistan- Sri
Lanka Free Trade Agreement (PSFTA) Sri Lanka offers Zero-Duty Tariff
Concession for import of Cement from India and Pakistan.

Figure 4: Cement Production Process

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2.0 Construction Sector boom to improve topline

Figure 5: Growth - TKYO Revenue and Cement Consumption in Sri Lanka

Revenue to grow by 15%: TKYO topline is expected to register a growth of

c.15% in FY17E to reach c.LKR 34.8Bn with a CAGR of 16% over FY15-17E
amidst the increased volumes coupled with the increase in the Maximum
Retail Price of cement in June 2016.

2.1 Thriving Construction sector to increase volumes

The boom witness in the construction sector at present is expected to
experience an accelerated growth in the near future with the
recommencement and initiation of several government led mega
infrastructure development projects coupled with the growing demand
created in the retail construction sector and the growth in the construction
of high-rise structures specially in the capital city.

Urbanisation on the rise: With the steady increase in the middle income
segment in Sri Lanka, the country is likely to move into upper middle income
levels of USD 4,035 per capita GDP from current lower middle income levels
by 2017, a rise in urbanization has witnessed which currently stands at 18%.
This rapid increase in urban population triggered an increase in demand for
condominium apartments and housing closer to the city which in turn led to
a growth in the residential construction segment which is expected to have a
favourable impact on the cement industry as a whole given the absence of a
close substitute.

Products to meet the Demand specification: With a product portfolio

comprised of over 12 varieties of cement, TKYO is poised to cater to the
varying requirements in the construction sector which provides a unique
position in the industry.
Further, TKYO entered into a collaboration agreement with Ube Industries
Limited, Japan in August 2016 to obtain technical support and to import part
of the raw material requirement from Japan for high quality cement

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manufacturing. This moves provides a competitive edge given that it enables

to meet the high technical specifications recommended for high-rise
structures such as, the ability for temperature control required in bulk
concreting and suitability for use in high strength concrete grades over 80.

Unwavering Customer Loyalty: Furthermore, given the superior quality of

the cement along with the strong brand loyalty built over the years, TKYO
has gained the position as the preferred choice of cement especially in the
mega construction and infrastructure development projects.

Figure 6: TKYO Product Range

TKYO Product
Range

Flooring
Cement Tile Adhesive Wall Plasters Concrete
Waterproofing

Tokyo
Ordinary Tokyo Super Tokyo Super Pre-
Superbond Tokyo Superflow
Portland Cement Plaster Master Mix Concrete
Standard Set

Portland Tokyo
Tokyo Super Tokyo Super
Possolana Superbond High
Water Proofer Plaster Master
Cement Performance

Tokyo
Nippon Ordinary
Superbond Rapid
Portland Cement
Set

Source: tokyocement.com

Figure 7: Lending for Personal Housing, as a % of total Lending to Private Sector

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FC Research Pillars of Success

Enhanced Capacity to meet the increase in Demand: Countrys cement

consumption is expected to increase to c.6.8Mn MT by 2017 from 6.2Mn MT
in 2015 with a CAGR of c.5% over 2015-2017E. Increased demand created by
the upturn in cement consumption would be met by the enhanced grinding
plant capacity of 2.8Mn MT coupled with the improved vessel capacity of
30,000-35,000 and 5,000MT additional silo capacity. TKYO revenue streams
is expected to reach c.LKR 34.8Bn in FY17E and LKR 40.8Bn in FY18E with YoY
growth rates of c.15% and c.17% respectively with a CAGR of c.16% over
FY16-18E.

Figure 8: Average Price of Cement (50kg) and TKYO Revenue

2.2 Increased MRP to further improve the Topline

Increase in topline is further attributable to governments move to increase

the Maximum Retail Price (MRP) of 50kg of Cement bag. MRP applicable to
cement was increased by LKR 60.0 to LKR 930.0 with effect from June 2016
from LKR 870.0 imposed in March 2015. This is expected to further boost
TKYOs earnings in FY17E and beyond.

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 FC Research
Figure 10: Cost Structure Raw Material
Pillars of Success
3.0 Improved Margins driven by increased volumes and
cost efficacies
Figure 9: Gross Profit and Margins GP and NP
TKYOs Margins to improve
Increased manufacture volumes and comparatively lower commodity prices
are expected to bring down the overall production cost while likely decline in
interest rates to reduce the net interest cost to improve the GP, EBIT and NP
Margins to 24%, 11% and 7% in FY18E.
3.1 Increased manufacture volumes to bring down the CoS
In-line with Companys strategic development plan TKYO invested USD
50.0Mn in capacity enhancement projects to increase the grinding plant
capacity by 1Mn MT per annum to bring the total capacity to 2.8Mn MT per
annum which is expected to come into operation by end 2016. With the
increase capacity it is likely that TKYO would increase the manufactured
cement volumes to meet the increase in demand. Increased volumes would
enable the company to enjoy economies of scale to derive cost efficacies.
3.2 Commodity Prices yet to recover: Clinker prices dipped 14.6%YoY by end
2015 while gypsum price slugged by 21.7%YoY by end 2015. Amidst clinker
prices failing to show any encouraging signs until 2H2016 it is likely that the
prices will remain at current low levels thus reducing the cost of production
considerably to improve the GP margins to c.24% in FY17E.
3.2 Access to Raw material at low prices: TKYO invested USD 2Mn
investment in a Joint Venture to manufacture 300,000 MT of sand per
annum locally which would bring down the cost further.
3.2 Decline in Energy Price: Further, TKYO invested in 8MW biomass plant
that is expected to generate the energy requirement of the increased
capacity of 1Mn MT per annum thus bringing down the overall energy cost
to improve margins.
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4.0 TKYO to provide 58% and 55% return

Y/E 31 Mar FY15 FY16 FY17E FY18E FY19E

Revenue (LKR mn) 29,674 30,117 34,783 40,799 47,123
YoY % Growth 3% 1% 15% 17% 16%
Net Profit (LKR Mn) 1,642 1,931 2,270 3,023 3,350
EPS (LKR) 4.9 5.8 6.8 9.0 10.0
YoY % Growth -23% 18% 18% 33% 11%
Valuations
Voting - PER (x) 11.2x 9.5x 8.1x 6.1x 5.5x
Voting - PBV (x) 1.8x 1.6x 1.4x 1.2x 1.0x
Voting - Dividend Yield (%) 2.2% 2.5% 3.0% 4.1% 4.6%
Non-Voting - PER (x) 9.2x 7.8x 6.6x 5.0x 4.5x
Non-Voting - PBV (x) 1.5x 1.3x 1.1x 1.0x 0.8x
Non-Voting - Dividend Yield (%) 2.6% 3.0% 3.6% 5.0% 5.6%
NAVPS 29.9 34.2 39.3 46.1 53.7
Adjusted DPS (LKR) 1.2 1.4 1.6 2.3 2.5
Dividend Payout 24% 23% 24% 25% 25%

TKYO Earnings CAGR of 21% FY16-18E: We expect a fair value of LKR 83.0
based on TKYOs earnings of c.LKR 3.0Bn in FY18E (CAGR of c.21% over FY15-
18E). In FY19E TKYO is expected to record a net profit of LKR 3.4Bn, growing
by a CAGR of c.20% over FY16-19E. At the current price forward PER is
expected to be 9.0x by FY17E and FY18E.

Figure 11: Earnings to grow at a CAGR of 20% over FY16-FY19E

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4.1 TKYO Annualised Return of 36% and 34%

Fair Value of LKR 83.0/ 66.0: Based on the companys value as at March 2018
FC Research expect a fair value of LKR 83.0 for TKYO.N providing annualized
total return of 36% (total return of 58%) at current price levels of LKR 54.9
and 34% annualized return (total return - 55%) at current price levels of LKR
66.0 for TKYO.X respectively. The TKYO.N target price of LKR 83.0 is based on
the average price of LKR 83.8 via DCF valuations and LKR 81.4 via PER based
valuations while target price for TKYO.X is computed at a discount of 20% to
the TKYO.N price.

FY17E: For FY17E we expect a fair value of LKR 71.0 for TKYO.N based on
average price of LKR 80.0 via DCF valuations and LKR 61.1 via PER based
valuations providing a total return of 32% (capital gain 29% and dividend yield
3%) at current market price of LKR 54.9. Target price for TKYO.X is expected
to be LKR 56.0 at a 20% discount to the target price of TKYO.N.

Expeceted TKYO.X Price FY17E FY18E Expeceted TKYO.N Price FY17E FY18E

DCF Valuations based Target Price 80.0 83.8 DCF Valuations based Target Price 80.0 83.8
PER based Target Price 61.1 81.4 PER based Target Price 61.1 81.4

Average Target Price 70.6 82.6 Average Target Price 70.6 82.6

Voting non-voting Spread 20% 20% Target Price (Rounded Up) 71.0 83.0
Target Price 56.4 66.1
Target Price (Rounded Up) 56.0 66.0
Dividend Yield of 5%: FC Research expects a DPS of LKR 3.9 for FY18E resulting
in a dividend yield of 5% for TKYO.N at current price level of LKR 54.9 while a
dividend yield of 6% is expected for TKYO.X for FY18E.

TKYO - Voting

Return FY17E FY18E

Target Price 71.0 83.0
Current Price 54.9 54.9
Capital Gain (LKR) 16.1 28.1
Dividend(LKR) 1.6 3.9
Capital Gain % 29% 51%
Dividend Yield % 3% 7%
Total Return % 32% 58%
Annaulised Return % 32% 36%

TKYO Non-Voting

Return FY17E FY18E

Target Price 56.0 66.0
Current Price 45.1 45.1
Capital Gain (LKR) 10.9 20.9
Dividend(LKR) 1.6 3.9
Capital Gain % 24% 46%
Dividend Yield % 4% 9%
Total Return % 28% 55%
Annaulised Return % 28% 34%
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4.2 Discounted Cash flow Valuation

Valuations FY17E FY18E

COE (Ke)
Enterprise Value 30,891 30,067
Rf 11%
Debt (-) 6,003 4,220
Rm 18%
Cash (+) 1,835 2,146
1.11
Total Value of Equity 26,723 27,993
Ke=Rf m-Rf) 18%
No. of Shares 334 334
Value of Equity per Share 80 84

FY17E WACC
WACC
80 13% 14% 15% 16% 17%
Ke 18%
1% 83.9 77.1 69.5 66.3 61.9
K d (1-t) 9% Terminal
2% 91.0 83.1 74.4 70.7 65.7
Growth
D/E Assumption 40 /60 3% 99.6 90.2 80.0 75.7 70.0
(%)
Terminal Growth (% ) 3% 4% 110.0 98.7 86.6 81.6 75.0
WACC 14% 5% 123.1 109.0 94.4 88.6 80.9

FY18E WACC
84 13% 14% 15% 16% 17%
1% 87.7 80.9 73.3 70.1 65.7
Terminal
2% 94.8 86.9 78.2 74.5 69.5
Growth
3% 103.4 94.0 83.8 79.5 73.8
(%)
4% 113.8 102.5 90.4 85.4 78.8
5% 126.9 112.8 98.2 92.4 84.7

4.3 Average PER of 9.0x

PER based Valuation FY17E FY18E Figure 12: PE Band Graph
Earnings (LKR 'Mn) 2,270 3,023
No. of Shares ('Mn) 334 334

EPS 6.8 9.0

Expected Average PER 9.0 9.0
Price at 9.0x Earnings 61.1 81.4

TKYO price has been trading between 6.0x 12.0x bands during the last 24
months. We expect TKYO to trade at a PER of 9.0x on FY17E earnings. TKYOs
By FY17E TKYOs EPS is expected to reach LKR 6.8. At 9.0x earnings, the price
for TKYO stands at LKR 61.1. We expect TKYO to trade at a PER of 9.0x on
FY18E earnings by end of FY18E. TKYOs FY18E EPS is expected to reach LKR
9.1. At 9.0x earnings, the price for TKYO stands at LKR 81.4.

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FC Research Pillars of Success

5.0 Investment Risks

Figure 13: Exchange Rate Movement LKR:USD

Exchange Rate Risk: TKYO imports cement as well as imports raw material
for the manufacture of cement which exposes the company to the exchange
rate risk thus drastic fluctuations in the exchange rate would impact the
margins as well as earnings of the company.

Change in Government Policy: Government has imposed a Maximum Retail

Price (MRP) on cement which is likely to shrink the margins in the event of
escalation of raw material prices. Government policy changes relating to the
recommencement of construction of mega development projects and
infrastructure projects would impact the topline.

Rivalry Competition: Thailands second-largest cement manufacturer Siam

City Cement acquiring Holcim Lanka Limited, the only other cement
manufacturer in the country is likely to intensify the competition in the
industry thus impacting the TKYOs market share.

Escalation in Commodity Prices: The main raw material Clinker prices

declined 14.6%YoY to end 2015 while slag, gypsum and fly ash prices
experienced a YoY decline of 20.2%, 21.7% and 3.4% respectively in 2015.
Conversely, during the same period price of limestone spiked by 15.3%YoY.
In the event of an escalation in the commodity prices is likely to increase the
cost of production thus contracting the margins.

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FC Research Pillars of Success

Appendix 1 Recommendation Criteria

Company
Categorization Strong Buy Buy Hold Sell
Category
S&P SL20 T.Bill + 10% & T.Bill + 5% & T.Bill + 1% & Below
Grade A
Companies Above Above Above T.Bill + 1%
Rest of the T.Bill + 13% & T.Bill + 8% & T.Bill + 3% & Below
Grade B
Companies Above Above Above T.Bill + 3%
Companies less
T.Bill + 16% & T.Bill + 11% & T.Bill + 6% & Below
Grade C than LKR 1Bn
Above Above Above T.Bill + 6%
Market Cap

*1 Year T Bill rate as of 14-09-2016 - 10.39%

Appendix 2 Income Statement

Profit & Loss Statement (LKR Mn)

Y/E 31 March FY15 FY16 FY17E FY18E FY19E
Revenue 29,674 30,117 34,783 40,799 47,123
Cost of Sales 23,267 23,191 26,704 31,127 35,876
Gross Profit 6,407 6,926 8,079 9,673 11,247
Other Income 227 156 161 169 177
Total Operating Income 6,634 7,082 8,240 9,841 11,424
Distribution Cost 2,917 2,914 3,200 3,672 4,571
Administrative Expenses 1,171 1,292 1,496 1,632 1,885
Total Operating Expenses 4,088 4,207 4,696 5,304 6,456
Operating Profit 2,546 2,875 3,544 4,537 4,968
Finance Cost 467 466 558 561 443
Finance Income 86 77 1 1 1
Profit Before Taxation 2,165 2,487 2,987 3,978 4,527
Income Tax Expenses/(Income) 476 556 717 955 1,177
Profit for the Year 1,690 1,931 2,270 3,023 3,350

EPS 5.06 5.78 6.79 9.05 10.03

Source: Annual Reports and FC Research Estimates

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Appendix 3 Balance Sheet

Balance Sheet (LKR Mn)

As at 31 March FY15 FY16 FY17E FY18E FY19E
Assets
Non-Current Assets
Property, Plant & Equipment 12,426 12,892 13,836 14,448 14,648
Capital Work-in-Progress 372 4,352 4,352 4,352 4,352
Investment In Fixed Deposit 102 83 75 68 60
Operating Lease Prepayment 68 63 59 54 50
Total Non-Current Assets 12,967 17,391 18,322 18,922 19,110
Current Assets
Inventories 1,619 1,542 1,869 1,556 1,794
Trade and other Receivables 2,702 2,719 2,711 3,131 3,672
Operating Lease Prepayment 5 5 5 5 5
Tax Receivable 34 16 16 16 16
Cash and Cash Equivalents 521 572 1,835 2,146 3,117
Financial Investment 1,888 6 8 11 14
Total Current Assets 6,769 4,859 6,444 6,864 8,617
Total Assets 19,737 22,250 24,766 25,786 27,727

Equity and Liabilities

Equity
Stated Capital 2,894 2,894 2,894 2,894 2,894
Reserves - - - - -
Retained Earnings 7,089 8,528 10,253 12,521 15,033
Attributed to Equity Holders 9,982 11,422 13,147 15,414 17,927
Minor Interest - 49 49 49 49
Total Equity 9,982 11,471 13,196 15,463 17,976

Non-Current Liabilities
Interest Bearing Borrowings 3,061 2,858 2,826 2,844 2,764
Deferred Tax 1,732 2,207 2,207 2,207 2,207
Retirement Benefits Obligation 108 112 123 140 160
Total Non-Current Liabilities 4,901 5,177 5,155 5,191 5,130
Current Liabilities
Trade & Other Payables 2,247 1,850 2,670 3,113 3,588
Current Tax Liabilities 5 - 143 220 279
Short Term Loan 2,600 3,752 3,601 1,800 754
Total Current Liabilities 4,853 5,602 6,415 5,132 4,621

Total Equity & Liabilities 19,737 22,250 24,766 25,786 27,727

NAVPS 29.88 34.18 39.35 46.13 53.65

Source: Annual Reports and FC Research Estimates

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Appendix 4 Cash flow Statement

Consolidated Cashflow Statement (LKR Mn) FY15 FY16 FY17E FY18E FY19E
Cash flow from operating activities 2,165 2,487 2,987 3,978 4,527
Net Profit before Taxation
Adjustments for:
Depreciation 934 993 1,043 1,137 1,216
Retirement Benefit Obligations 21 21 17 25 28
Profit on Disposal of Property Plant & Equipment 2 19 8 8 8
Interest Expenses (14) - - - -
Lease Interest 467 466 558 561 443
Interest Income 5 5 5 5 5
ESC Write Off (86) (77) (1) (1) (1)
Unabsorbed Taxes - 2 - - -
Gift received-shares 24 - - - -
De-recognition loss on plant and machinery (3) - - - -
Capital work-in-progress during the year charge 36 24 - - -
Result of restatement of liabilities - - - - -
Deferred Revenue (186) (18) - - -
Operating Profit Before Working Capital Changes 3,365 3,921 4,617 5,711 6,224
(Increase)/Decrease in Inventory 251 77 (327) 313 (237)
(Increase)/Decrease in Receivables (733) 15 8 (420) (541)
Increase/ (Decrease) in Payables 462 (448) 821 442 475
Cash generated from Operations 3,345 3,564 5,118 6,046 5,920
Interest Paid (467) (479) (558) (561) (443)
Income Tax Paid (94) (42) (573) (878) (1,117)
Retirement Benefit Obligation Paid (6) (6) (6) (7) (8)
Net Cash from Operating Activities 2,778 2,903 3,980 4,600 4,352
Cash Flow from Investing Activities
Purchase of Property, Plant & Equipment (583) (1,094) (1,987) (1,749) (1,416)
Intangible Asset Acquired - - - - -
Expenditure Incurred on Capital Work-in-progress (837) (4,350) - - -
Interest Received 86 77 1 1 1
Proceeds from sale of Property, Plant & Equipment 19 34 - - -
Investment/Withdrawals on Short-term Deposits (475) 1,617 (2) (2) (3)
Investment in shares - subsidiary (210) - - - -
Net Cash from/ (Used) Investing Activities (1,999) (3,717) (1,989) (1,750) (1,419)
Cash Flow From Financing Activities
Cost on capitalization of reserves - - - - -
Cost on issue of shares (4) (1) - - -
Net of Interest Bearing Loans & Borrowings 20 821 (183) (1,783) (1,126)
Dividend Paid (501) (398) (545) (756) (837)
Net Cash from/ (Used) In Financing Activities (485) 472 (728) (2,538) (1,963)
Net Income/ (Decrease) in Cash & Cash Equivalents 294 (342) 1,263 311 970
Cash & Cash equivalents at beginning of the period 370 787 490 148 1,411
Cash & Cash equivalents at beginning of the period 663 444 1,753 459 2,382
Bank Overdrafts (297) (424) (424) (424) (424)
367 21 1,330 35 1,958
Source: Annual Reports and FC Research Estimates

14
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