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Introduction – Mercantile Investments Limited

May - 2011

Mercantile Investments Limited
Mercantile Investments Limited (MIL) is a registered finance company under the

Key Features
Total No of Shares CSE Listing Issue Type 3,006,000 Dirisavi Board Introduction

Central Bank of Sri Lanka (CBSL). The company is to list their ordinary shares on the Diri Savi Board of the CSE with the objective of compliance with the mandatory listing requirement of CBSL prior to end of June 2011 in order to broad base the share ownership structure and to improve the transparency of the firm.

Company Profile
Major Revenue Streams

MIL was incorporated in 1964 under the Companies Ordinance No 51 of 1938, is a mid scale registered finance company (RFC) with 7 fully fledged branches operating

5% 1% 6% 24%

in key cities in the island. The company’s major business interests are in the areas of Finance Leasing, Hire Purchase Financing, Consumer loans/ Business loans. . Future Business Plans The company intends to grow the lending portfolio annually by 20% and mobilize

64%

deposits at a growth rate of 25%. Further, company plans to carry out pawning services at selected locations.

Lease Finance Hire Purchase Loans Treasury Bills Interest from Deposits
Top 10 Shareholders

Key Financials - MFCL
LKR Mn Interest Income Net Interest Income Profit Before Tax 31.12.2010 1,030 547 777 657 5,479 11,249 3,904 4,684 219 1,558 31.03.2010 1,563 773 427 316 4,430 8,279 3,479 3,531 106 1,177 31.03.2009 1,633 644 254 233 5,204 7,877 2,774 2,694 78 898 31.03.2008 1,307 587 231 149 5,376 8,149 2,409 2,712 50 904

Shareholder Nilaveli Beach Hotels (Pvt) Ltd G G Ondaatjie A M Ondaatjie T J Ondaatjie Mercantile Fortunes (Pvt) Ltd G L A Ondaatjie Tangerine Tours Pvt Ltd P R Divitotalawela / R D Madugalle P R Divitotalawela / A D Galagoda N H V Perera Others

% Stake 20.83 15.88 15.88 15.88 13.66 8.93 6.67 0.42 0.42 0.33 1.1

Profit After Tax Loans & Advances Total Assets Deposits Shareholders Funds EPS (LKR) NAVPS (LKR)

Key Ratios
Key Ratios Gross NPL Ratio Capital Adequacy Ratio ROE ROA 31-Dec-10 7.33% 19.35% 14.00% 7% 31-Mar-10 10.27% 26.72% 8.96% 4% 31-Mar-09 8.98% 24.02% 8.64% 2.91%

Asha Phillip Securities Ltd – Equity Research Division

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Introduction – Mercantile Investments Limited

May - 2011

Board Of Directors Mr.Gerard George Ondaatjie Mr. Shermal Hemaka Jayasuriya Ms. Angeline Myrese Ondaatjie Mr. Travice John Ondaatijie Mrs. Mignonne Bernadette Assauw Mr. Pathiranage Mehes Amarasekara Mr. Justin Savarimuttu Dominic Saroja Hemakumar Jayawickrema H A SajithaTilakasiri Senanayake
Concentration of Credit Risk - Leasing

RFC Industry
Registered finance companies (RFC) in Sri Lanka are presently undergoing a rapid transformation phase fueled by the competition between industry incumbents and stringent regulatory barriers by the Central Bank of Sri Lanka. Presently, the industry possesses LKR 233.6 billion worth assets accounting for 3.4% of the financial sector assets. The industry had been a duopoly earlier recording 50% of the industry assets shared amongst the largest two firms ,The Finance PLC & the Central Finance PLC, dropped down to 37% in 2009.Further, largest 9 RFCs account for approximately 73% of the total assets, while 18 medium size RFCs record only 24% of total assets.

Finance Companies business had to face difficulties in 2009 due to high interest rates and the increased credit and liquidity risks caused due to the collapse of certain unregulated finance companies, leading to a loss of

Agriculture 7% 8% 39% 15% 1% Industrial Tourism Trading Transport Construction 14% 7% 9% Services Individual

investor confidence, which spread across the entire sector. The sector is steadily recovering as a result of the good governance and well adapted business practices undertaken by the RFCs together with the stringent regulations and supervision undertaken by the CBSL.
Asset Quality of RFC Industry
18 12 10 8 6 4 2 0 2006 2007 2008 Gross NPA Ratio(%) 2009 2010 Net NPA Ratio(%)
%

Concentration of Credit Risk – Hire purchasing
Rs.billion

16 14 12 10 8 6 4 2 0

2% 5% 6% 8% 43% 20% 9% 7%

Agriculture Industrial Tourism Trading Transport Construction Services Individual

Gross NPA's (Rs Bn)

Asha Phillip Securities Ltd – Equity Research Division

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Introduction – Mercantile Investments Limited

May - 2011

Competitor Analysis
Mercentile Investments 2009/2010 LKR Interest Income Net Interest Income Operating profit Profit/ (loss) before tax Net Profit Total assets Total equity Operating Profit Margin Net Profit Margin Return on Equity EPS DPS Equity/Total Assets Net Assets value per share 1,563,999,000 772,691,000 487,970,000 426,948,000 316,504,000 8,279,375,000 3,531,883,000 31.20% 20.24% 8.96% 105.5 4.60 43% 1,177 Commercial Credit 2009/2010 LKR 346,843,191 140,142,197 7,823,352 (25,942,410) 45,190,103 2,300,686,646 226,924,740 2.26% 13.03% 19.91% 9.33 10% 46.82 The Finance Company 2009/2010 LKR 5,203,999,903 -1,011,656,895 -3,692,079,619 -4,285,937,282 -4,285,937,282 27,454,894,383 -2,916,806,296 -70.95% -82.36% 146.94% -209.9 -11% -142.85 Softlogic Finance 2009/2010 LKR 346,881,422 144,508,859 34,217,600 26,162,207 23,604,647 1,867,708,068 217,520,802 9.86% 6.80% 10.85% 1.18 1.00 12% 10.84

Multi Finance 2009/2010 LKR 80,643,915 57,185,344 13,517,112 13,589,126 5,896,930 423,290,818 247,949,486 16.76% 7.31% 2.38% 0.33 59% 13.79

Swarnamahal 2009/2010 LKR 425,680,931 143,750,578 25,676,676 23,392,952 16,782,611 2,418,684,523 230,984,854 6.03% 3.94% 7.27% 0.72 10% 9.24

Chilaw Finance 2009/2010 LKR 122,217,218 67,473,984 43,042,851 33,974,513 25,975,281 679,610,678 296,621,943 35.22% 21.25% 8.76% 0.95 0.75 44% 10.07

Central Finance 2009/2010 LKR 7,601,262,000 2,664,593,000 1,842,517,000 2,040,094,000 1,124,835,000 35,477,281,000 9,126,954,000 24.24% 14.80% 12.32% 51.53 2.50 26% 449.6

L B Finance 2009/2010 LKR 4,130,993,392 1,703,227,212 1,038,033,655 878,290,108 500,161,124 17,185,262,704 1,756,432,609 25.13% 12.11% 28.48% 14.44 5.00 10% 50.72

Unaudited Financials as at 31st December 2010
Mercentile Investments 9 M Ended 31/12/2010 LKR Interest Income Net Interest Income Operating profit Profit/ (loss) before tax Net Profit Total assets Total equity ROE ROA EPS Net Assets value per share 1,030,125,000 546,701,000 785,352,000 777,373,000 656,973,000 11,249,167,000 4,684,883,000 14.02% 6.98% 218.99 1,558

Commercial Credit 9 M Ended 31/12/2010 LKR 642,111,223 380,775,362 203,604,712 186,013,342 177,772,951 4,205,213,985 501,619,630 35.44% 4.84% 30.01 34.50

Multi Finance 9 M Ended 31/12/2010 LKR 92,648,644 58,848,357 74,010,993 24,363,457 18,697,986 689,421,103 265,748,656 7.04% 10.74% 1.04 14.78

Swarnamahal 9 M Ended 31/12/2010 LKR 465,566,587 203,520,217 85,148,071 72,118,485 52,118,485 3,810,322,177 283,103,338 18.41% 2.23% 2.08 11.32

Chilaw Finance 9 M Ended 31/12/2010 LKR 90,251,832 55,773,661 36,821,316 25,170,139 23,248,853 680,652,323 297,885,255 7.80% 5.41% 0.83 10.11

This document has been prepared and issued by Asha Phillip Securities Ltd, on the basis of publicly available information, internally developed data and other sources, believed to be reliable. Whilst all responsible care has been taken to ensure that the facts stated are accurate and the opinions given are fair and reasonable neither Asha Phillip Securities Ltd, nor any Director, Officer or employee, shall in any way be responsible for the contents. Asha Phillip Securities Ltd may act as a Broker in the investments which are the subject of this document or related investments and may have acted upon or used the information contained in this document, or the research or analysis on which it is based, before its publication. Asha Phillip Securities Ltd., Its Directors, Officers or Employees may also have a

position or be otherwise interested in the investments referred to in this document. This is not an offer to sell or buy the investments referred to in this document.
Asha Phillip Securities Ltd – Equity Research Division 3