Distilleries Company of Sri Lanka (DCSL) subsidiary, Lanka Bell needs to diversify into total solutions such as other telcos at least in the medium term, else it will lose out in the race and drag DCSL profits down, analysts said.
"Lanka Bell is affecting DCSL profits. The group telecom segment’s profit of Rs 76 million in 2009 turned into a loss of Rs 800 million. Things look a bit better for the telecommunication sector with interconnectivity charges and floor rates implemented by the regulator, but standalone fixed line companies such as Lanka Bell will not be making too much money,” an analyst told the Business Times.
DCSL, which has 97.81% in Lanka Bell, recorded a Rs 2. billion in profit for the year ended March 31, 2010 compared to the Rs. 3.4 million posted during the same period in 2009. “DCSL lost SLIC when it was handed over to the government by a Supreme Court decision last year and this has cut into its profits, together with the telecom segment’s losses,” the analyst said.
He pointed out that two big telecoms – Sri Lanka Telecom (SLT) and Dialog Axiata (Dialog) have moved into total solutions such as mobile, fixed line, broadband (e.g. with SLT-Mobitel and SLT Broadband and with Dialog – Dialog CDMA and Dialog Broadband).. “This product offer makes it much more attractive to firms who look for comprehensive communication solutions. This may be the way forward and Lanka Bell might be one of those to lose out because of this,” he added.
He said that the performance of the current DCSL subsidiaries is also not adding value to the group. “As such the DCSL prospects for the coming few quarters seems bleak but good in terms of a long term perspective. The way forward relies mainly on the receivables of the Rs. 6.7 billion due from the government (for SLIC) and also from DCSL’s ability to diversify,” he said.
Some analysts said that DCSL’s insurance arm, Continental Insurance may bring in some return, although the full benefits of that will not be seen next year. “Distilleries is generally cash rich and was so at the end of the last financial year and they may explore potential acquisitions,” Deshan Pushparajah Assistant Manager – Corporate Finance, Capital Alliance told the Business Times. He said the company may accelerate their investments into the tourism and transportation sectors.
“The DCSL Chairman (Harry Jayawardena) has indicated in the annual report (for last year) that tourism and transportation are two sectors that need immediate investment. This may be something to watch out for in the medium term,” he added.
Mr. Jayawardena has said in his statement that he foresees tourism and transportation as the two sectors that will need immediate investment. |
E-mail
