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John Keells Holdings highlights investment potential in retail sector

28 May 2021

By Imsha Iqbal    John Keells Holdings PLC (JKH), in its investor presentation for the final quarter (Q4) of the financial year (FY) 2021, highlighted its operations in the retail sector as one of their more resilient investment opportunities even during a crucial juncture such as the pandemic.  JKH noted that Sri Lanka has a comparatively higher modern trade density, i.e. population per store ratio, against regional peers. Thus, there is major potential for an expansion in modern trade in Sri Lanka, as trade penetration is considerably low.  According to AC Nielsen statistics of retail and shopper trends in the Asia Pacific region, Sri Lanka’s modern trade density stands at 30,000 population per store, making it the country with the third-lowest trade density next to India and Vietnam, in that order.  Other countries who belong to the Asia Pacific region include the Philippines, Indonesia, Thailand, Malaysia, Singapore, China, Hong Kong, Australia, New Zealand, Taiwan, and Korea. The latter has a modern trade density of 0.9 which means Korea has a store per 900 population members.  As at 31 March 2021, the present share of modern retail in Sri Lanka is distributed among Keells, Cargills, Arpico, Laugfs, SPAR, and Glomark, while the total number of Keells outlets is 123. These Keells outlets have been established mainly in Colombo, Negombo, Galle, and Kandy, according to data from the Central Bank of Sri Lanka (CBSL), Nomura Research Institute, and Unilever Corporation. Further, the cumulative earnings before interest, taxes, depreciation, and amortisation (EBITDA ) for the year ended 31 March 2021 demonstrates that the retail group could reach an earning of Rs. 5.5 billion amidst the pandemic. In comparison, it is a growth of 8% year-on-year (YoY) in the aforementioned industry group while 2020 earnings stood at Rs. 5.1 billion.  The EBITDA for the final quarter (Q4) for the year ended by 31 March 2021 only contributed Rs. 1.9 billion in the retail sector while during the year before Q4 could earn Rs. 1.4 billion. It is a YoY growth of 32%.  The EBITDA is a measure of a company’s overall performance since it illustrates the corporate performance on earnings prior to the influence of accounting and financial deductions.  Modern trade has an organised approach of distribution of diverse product ranges such as supermarket chains, mini-markets, hypermarkets, etc. Modern trade is different from traditional trade in certain aspects such as customer interaction, product range, economies of scale, and credit cycle.  With regard to customer interaction, in modern trade, the customer can pick and choose the items while evaluating multiple products side by side.  The product range in modern trade is extravagant unlike traditional trade. In terms of economies of scale, retailers can absorb costs while offering promotional discounts in order to drive purchases. The credit cycle is longer in modern trade when compared to traditional trade.  Thus, JKH looks forward to establishing approximately another 200 outlets by FY22/23. 


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