The Central Bank’s decision to lift the exchange cap of Rs 203 imposed on the USD to favour exporters including Teejay Lanka (TJL) Hayleys Fabrics(MGT )and Hela Apparel Holdings Limited (HELA) while enabling it to boost its top line, First Capital Research said.
However, power outages and fuel shortages, difficulties in importing raw materials and high operating costs are expected to pose an operational disruption to the above-mentioned counters, according to First Capital Research Apparel and Textile sector Update.
Although there is a daily disruption of fuel and electricity supply in Sri Lanka resulting in difficulties for manufacturing industries to function, on an optimistic note, the power ministry has recently issued a directive to provide power supply to 14 Export Processing Zones in the country to enable all factories in those zones to continue their operations without power interruptions although earlier only Katunayake Export Processing Zone got exempted from power shedding.
According to FC Research fabric manufacturers also face a host of issues concerning obtaining raw materials for exports and paying overseas suppliers promptly due to the forex crunch.
“Prices of certain commodities and goods reached multi-year highs in the recent few weeks due to higher global commodity prices, upward revisions made to prices after the rupee float and supply shortages. These are expected to result in higher operational costs for fabric manufacturers.”
However, FC Research expects near 35%-40% depreciation of the currency to result in more positive benefits while setting off the negativities. Accordingly, considering the positive impact to earnings from the currency depreciation, FC Research has maintained earnings although fair values were lowered considering the impact to valuations from higher risk-free rates with the rising interest rate environment.