ECONOMYNEXT – Sri Lanka’s consumer and retail sector has strong growth prospects given increasing disposable incomes and changing lifestyles, according to a new study by stock brokerage Asia Securities.

Mangalee Goonetilleke, research manager at Asia Securities, said that while new taxes in the government 2017 budget could reduce consumer spending, rising incomes means a shift to higher spending lifestyles.

Listed companies like Cargills, Singer (Sri Lanka), Ceylon Tobacco Company, Ceylon Cold Stores, Nestlé, Keells Food Products, Lion Brewery, Distilleries Company, Softlogic and Hemas stand to gain from higher consumer spending, she told a forum.

“The 2017 budget will have an impact on the sector with some companies raising prices which could reduce consumer spending,” she said. “But as incomes rise, there will be a shift to higher spending and lifestyle changes.”

Consumer firms that resort to “smart sourcing” should be able to withstand a slowdown in demand without hurting sales, she said.

Cargills is the largest food retailer, measured by sales and the number of stores. Its FMCG (fast moving consumer goods) business has a six percentage point margin difference over its retail and restaurant business and will be the future driver of growth, Goonetilleke said.

Singer is the largest consumer durables firms in sales and number of stores with an islandwide network and is close to consumers with a significant share of products made locally, such as fridges and washing machines, in which its unit Regnis is market leader.

Ceylon Cold Stores, which has reached the target price in Asia Securities buy recommendation, is the second largest food retailer and biggest ice cream vendor.

In the beverages business, Ceylon Cold Stores is market leader or neck-to-neck with Coca Cola, Goonetilleke said.

Ceylon Cold Stores is investing more money in new plant and should see strong growth in its impulse product range as it aims to catch up with market leader Cargills.

About 34-40% of Hemas’ sales come from FMCG and it is “aggressively marketing” its washing powder and soap brands and picking up market share from Unilever, Goonetilleke said.

Softlogic is third in consumer electronics, behind Abans and Singer, with its apparel business being able to capture the custom of high income people while its Samsung phones are doing well.

(COLOMBO, Nov 22, 2016)