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Introduction – Chilaw Finance Ltd

May - 2011

Chilaw Finance Limited
Chilaw Finance Limited(CFL) is a registered finance & specialized leasing establishment under the Central Bank of Sri Lanka (CBSL). The company is to list

Key Features
Total No of Shares CSE Listing Issue Type 28,083,948 Dirisavi Board Introduction

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
Chilaw Finance Limited (CFL) was incorporated in 1980 as a private limited
Major Revenue Streams

company under the Companies Ordinance No 51 of 1938, and reregistered under the Companies Act No 07 of 2007. Further, CFL is a small sized registered finance

9% 4%

2%
11%

company (RFC) with its operations mainly concentrated in the Wayamba Province. The company’s major business interests are in the areas of Finance Leasing, Hire Purchase Finance, Pawn Brokering, Micro Financing, Fixed Deposits and Savings

36%

38%

Accounts. The company has further business operations in running a milk food agency (Anchor) and the running of a reception hall which contribute 34% to the net

Finance Leases Hire Purchases Loans and advances Pawning Investment In Bank Deposits Treasury Bills

profit. The total advances portfolio stands at LKR 249 million as at 31st December 2010, an increase by 10% compared to LKR 223 Million recorded as at 31st March 2010. The company has only one branch under its wings,operating in Kuliyapitiya. The company is operational on a regional level and does not plan to expand any further

Top 05 Ordinary Voting Shareholders
Shareholder J A Don Noel Jayasuriya Ranjith Wimal Kulathunga Disanayake, Subashini Samarasinghe (Mrs) Sampath Waduge Silvia Anne Merline (Mrs) Weerasuriya, Don Sirisena % Stake 11.06 10.68 9.76 6.43 5.38

within the forseable future, but the company is planing to introduce more inovative products and has planed a new marketing strategy.

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 of assets accounting for 3.4% of the financial sector assets. The industry had been a duopoly earlier recording

Top 05 Ordinary Non Voting Shareholders
Shareholder Wanniarachchilage Sherly Chinthaka Perera Jayamaha Hitihamilage Nalin Susantha Kumara Indrawathi Bopage Bopage Jinadasa Hewa Welgamage Sarath % Stake 25.69 20.56 10.42 8.98 6.42

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.

Asha Phillip Securities Ltd – Equity Research Division

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Introduction – Chilaw Finance Ltd

May - 2011

Board Of Directors
Mr. N.M. Gnanalankara Mr. D.S. Weerasuriya Mr. S.C.O. Gunasekara Mr. D.W. De Silva Mr. R.H. Peethunanda Mr. J.A.D.N. Jayasuriya Mr. W.G.A. Fernando Mr. R.M.U. Rathnayake Mr. M.D.J.P.N. Perera Mr. R.W. Kulatunga Mr. L.J. Rubera (Alternate Director To Mr. R.W. Kulatunga)

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 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.

The following factors led to enhance the RFC businesses in the recent past; • With the increase in the middle income category in Sri Lanka during the recent past has resulted in the increase in demand for motor vehicles, real estate and
Total Assets

other domestic assets. The specialist functions of RFCs are to provide financing for this market. • The CBSL granted permission to accept customer deposits from the public and to maintain savings accounts; this enabled RFCs to offer attractive yields and attract prime customers who could have otherwise been attracted by commercial banks. This will further lead to RFC’s offering investors alternative investment products. • The RFC’s have been able to provide their customers with innovative products and high quality customer service, enhanced with speedier processing time and flexible terms. Key Financials - CFL

LKR Mn

800 700 600 500 400 300 200 100 0
2010 2009 2008 2007

LKR Mn Interest Income Net Interest Income Operating Profit Profit After Tax Loans & Advances Total Assets Deposits Shareholders Funds EPS (LKR) NAVPS (LKR)

31.12.2010 90 56 25 23 249 681 337 298 0.83 10.11

31.03.2010 31.03.2009 122 67 34 26 223 680 336 297 0.95 10.07 91 47 22 12 148 571 272 253 0.49 9.67

31.03.2008 60 29 18 15 105 424 201 185 0.80 10.28

Key Ratios

31/03/2010

31/12/2010

ROE Equity/ Total Assets NPA's to Equity Debt Ratio Cost to Income

11.45% 43.65% 15.51% 43.39% 66.27%

8.45% 43.76% 27.70% 49.50% 55.63%

Asha Phillip Securities Ltd – Equity Research Division

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Introduction – Chilaw Finance Ltd

May - 2011

Asset Quality of RFC Industry
18 16 14 12
Rs.billion

12 10 8 6 4 2 0 2006 2007 2008 Gross NPA Ratio(%) 2009 2010 Net NPA Ratio(%)
%

10 8 6 4 2 0

Gross NPA's (Rs Bn)

Competitor Analysis
Swarnamahal Finance 2009/2010 LKR 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 Return on Assets EPS DPS Equity/Total Assets Net Assets value per share 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% 0.69% 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% 3.82% 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% 3.17% 51.53 2.50 26% 449.6 -15.61% -209.9 -11% -142.85 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% 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% 2.91% 14.44 5.00 10% 50.72 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% 1.26% 1.18 1.00 12% 10.84

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

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