Leading consumer durables retailer, Singer Sri Lanka PLC group increased its December quarter net profits 51 percent year-on-year (yoy) to Rs.385 million, supported by higher consumer spending seen throughout last year, the group interim results showed.  

The group’s earnings per share for the quarter rose to Rs.3.08 from Rs.2.04 a year ago. The Singer share closed 20 cents or 0.16 percent lower at Rs.124.20 at last week’s close. 

The group top line grew 31 percent to Rs.11.6 billion while the cost of sales rose 37 percent yoy to Rs.8.3 billion, resulting in a gross profit of Rs.3.1 billion, up 18 percent yoy. 

“Despite the challenge of a sharp 5 percent devaluation of the rupee in September, strong fourth quarter results were indicative of Singer Sri Lanka’s strong market standing,” the group Chief Executive Asoka Pieris said in an earnings release.  The faster rise in cost of sales over the revenues in 4Q15 was indicative of the currency depreciation which took toll on the company margins.

But it all depends on the extent to which the company could pass on the currency related cost increases to the consumer. Conducive demand environment for consumer durables is likely to persist due to increased purchasing power as a result of low energy prices and public sector salary hikes.  However it will be interesting to see how the rising interest rates and the core-inflation could play out in 2016 for the industry. 

In house hire-purchase (HP) programmes contribute to around 40 percent of the sector revenues and HP financing improves the affordability of durable goods especially among rural households, which accounts for about 75 percent of the population. 

HP financing is sensitive to interest rates movements and thus higher interest rates could dent HP finance-driven demand for durables. 

Nevertheless HP sales fetch higher margins as such sales are generally priced at a premium to cash sales. 

Meanwhile for the year ended December 31, 2015, the group posted a net profit of Rs.1.15 billion, up 61.4 percent. The earnings per share rose to Rs.9.21 from Rs.5.70.  The top line rose 30 percent to Rs.38.7 billion and the cost of sales rose 38 percent to Rs. 26.6 billion. The gross profit increased 18 percent to Rs.11.46 billion. 

Currently the industry is seeing shift in the revenue mix towards IT and Communication (ITC) products. 

“The top retailers have heightened their focus on ITC sales as they believe the shorter replacement cycle and relatively small ticket sizes of such products will result in higher volumes compared with white goods, and drive top-line growth,” Fitch Ratings Lanka said in a recent sector report.  However, they added such shift in mix would have adverse impact on sector profitability as ITC products have low margins.  

This is aptly demonstrated through the growth rates seen in traditional product lines and new product categories. Traditional product lines such as refrigerators grew 25 percent, panel televisions 24 percent and sewing machines 15 percent. Mobile phones grew 93 percent, deep freezers 82 percent and computers 50 percent.

“The new distributorships/brands of Dell, Sony, Sharp and Mitsubishi, which were obtained in 2014 and 2015 did very well with sales of Rs. 3.6 billion in 2015 compared to sales of Rs. 0.8 billion in 2014 – an increase of 450 percent,” Pieris said.  Home appliances segment remains the cash cow of the group followed by consumer electronics.  This January the group acquired 83.55 percent stake in Singer Industries (Ceylon) PLC for a total cash consideration of Rs. 664.1 million.  

A month later the group acquired 58.29 percent stake in Regnis Lanka PLC for a total cash consideration of Rs. 722.5 million.  The board proposed dividend of Rs.4.20 per share amounting to Rs.525.9 million payable on April 11 upon the AGM ratification. The parent company, Singer Sri Lanka BV held 86.11 percent stake in Singer Sir Lanka as of December 31, 2015.