Financial Times

Hemas gets set for acquisitions, expansion
Hemas Holdings Ltd. last week made further moves to position itself as a newly emergent conglomerate with a share sale that brought in institutional investors who would support its future growth and plans to hire a director legal to enhance the group’s skills required for acquisitions and expansion.

The strategic sell down by key shareholders of eight million shares for over a billion rupees increased the group’s public float to 25 percent from 17 percent and made the stock the top pick in Monday’s trading on the Colombo bourse.
“It was mainly done to facilitate the entry of institutional investors (into the share ownership) – those who found that the number of shares available in the market was not enough,” Hemas group CEO Husein Esufally told The Sunday Times FT. “Later on, if we want to raise money for rights or to expand, they could play a role.”

The major shareholders still collectively hold 75 percent of the group. The shares sold on Monday were bought by four foreign funds and three local funds. The new Institutional investors are Arisaig Partners and First State Investments, both of Singapore, HSBC and Lloyd George Management, both from Hong Kong, the Employees Provident Fund, National Savings Bank, and Sri Lanka Insurance Corporation (Life fund).

Monday’s share sale by Hemas at Rs 130 each helped boost the market turnover for the day to a whopping two billion rupees. The share rose to a high of 140, but closed trade for the day at 134, Bartleet Mallory Stockbrokers said. Hemas Holdings Ltd. (HHL) has also advertised for a director of legal services to support its acquisition and expansion plans.

“We’re looking at more acquisitions,” Esufally said. “We want to get into larger areas. One of the skills we felt was important was to have good legal support to go about acquisitions – to draw up agreements, for joint ventures and also maybe in negotiating agreements.”Esufally said the group was keen to expand further in the FMCG (fast moving consumer goods) sector.

“Right now we’re very strong in the personal care business,” he said. “We’re also into soaps. But we looking at acquiring more companies in this industry. Recently we bought the paper company, Nimex.” Esufally said the group was also keen to enter the hospitals business.

“We’re looking at several options – whether to go with a partner or by ourselves. We feel there’s a lot of unfulfilled demand - all the hospitals are full up and there’s a need for more.”

Any foray into the hospitals industry would allow the group to make use of synergies between its existing health care business and the planned new hospital venture. In a recent analysis of the Hemas group strengths and weakness, Bartleet Mallory Stockbrokers said the firm enjoys largely inelastic demand in its key business segments allowing it to maintain a stable earnings flow.

“HHL has cleverly shown a trend of small scale low cost acquisitions to strengthen existing segments which require no major costs to acclimatize,” the brokers said.

The group has good leverage between equity and debt and opportunities to exploit sub segments in its key segments while its power project’s success will allow more opportunities to dig deeper into power supply where returns are the highest, they said.

Low interest rates will foster higher spending and consumption while an ageing population will create growth opportunities for its key markets, Bartleet Mallory Stockbrokers said.

Listing the Hemas group weakness, the brokers said its brand building has yet to create a major impact within an industry where campaign wars are common.
The two key segments of HHL remain heavily competed for while some of its late investments have reaped low returns, Bartleet Mallory Stockbrokers said.

“HHL faces stiff competition in its key markets - we believe some of its markets are becoming increasingly fragmented,” they said. “HHL’s late venture into Food and Beverage may be a difficult one with strong established players having large slices of the pie.” The government’s 2005 budget which made 50 percent of advertising spend tax disallowable was “not the best news for a FMCG giant.”

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