The prevailing gloomy economic condition in Sri Lanka arising from inflationary pressure, rising interest rates, deprecating rupee and rising energy cost has exposed firms to a high degree of earnings volatility and risk. Thereby, sustainability of recording strong earnings and margins has become uncertain. Despite the above factors, GLAS with their monopolistic status so far has witnessed growth in revenues and profits. However, owing to the bearish trend in the Sri Lankan equity market coupled with macroeconomic concerns, the firm has lost circa 34% in market value over a 52-week time horizon.
Revenues continued to upsurge during 1QFY13, registering a YOY growth of 15.3% to LKR 1,274.5mn from LKR 1,105.2mn last year. Exports rose 27% YoY, of which the premium segment persisted as the category that yields the highest margins.
By the end of 1QFY13, cost of sales increased 16.2% YoY, to LKR 923.5mn as opposed to the same quarter last year. Despite the above rise in cost of sales, the company registered a Gross Profit of LKR 350.9mn edging up 13% YoY against LKR 310.6mn reported in 1QFY12. However, from a margin point of view Gross profit margin saw a decline from 28.1% to 27.5% during the same period.
The share is trading at 7.9x PER (on a share price of LKR 5.70 and an FY12 EPS of LKR 0.72), while the 4 quarter trailing PER is 8.0x and the sector PER is 7.6x, compared to a market PER of 13.1x.
On a forecasted earnings of LKR 758.0mn for FY13E the forward PER is 7.1x. Further, on a forecasted earnings of LKR 749.0mn and LKR 753.5mn for FY14E and FY15E we derive a forward PE multiple of 7.2x on a price level of LKR 5.70.