Royal Ceramics revenues moderate, profits sink as construction activity slumps

Revenues at Royal Ceramics Lanka PLC moderated and the overheads rose sharply, offering a proxy for the housing and broader construction sector slump in the country after the economy crashed sending the prices and interest rates soaring. 

The group reported a gross revenue of Rs.18.69 billion for the October-December quarter (3Q23), rising only 7.7 percent year-on-year (YoY), as people and developers stopped or postponed construction work when they could not afford the prices of materials needed for such activities.  

The group, which acts as a near monopoly in the tiles and ceramics industry, also has an export component, which may also have slowed, as the housing markets in the West and other markets eased in response to the sharp rise in the mortgage rates.

The group also has some interest in plantation and aluminium but at a much lesser scale compared to its outsize tile and related products business.  

In Sri Lanka, the housing, which is captured under the broader real estate sub-sector, including dwellings, reported a negative growth of 4.8 percent in the third quarter of 2022 from the same period a year ago.  Meanwhile, the broader construction sector suffered its worst decline by slumping 33.2 percent, as both the private and public developments came to a near standstill after the economy ran out of both foreign currency and fiscal space required to fund large infrastructure projects.

While the direct cost of the group has risen by less than 4 percent, the other overheads, which include the distribution and administration expenses, rose by 18.2 percent and 41.6 percent, respectively, weighing on the operating profits.

The group also saw its finance cost rising sharply to Rs.1.11 billion in the three months from Rs.177.9 million a year ago, due to both fresh short-term borrowings and the sharp rise in the interest rates. 

The short-term borrowings, which include a bank overdraft, rose to Rs.16.23 billion, from Rs.9.79 billion nine months ago. 

The group reported earnings of Rs.1.04 a share or Rs.1.15 billion in the three months to December 2022, compared to Rs.2.71 a share or Rs.3.00 billion in the comparable period in 2021. 

Vallibel One PLC, the investment vehicle of billionaire investor Dhammika Perera, has a 55.96 percent stake in Royal Ceramics, while the Employees’ Provident Fund has a 13.79 percent stake, being the second largest shareholder.