brand logo

Listing company earnings  to drop by 25% due to taxes

01 Nov 2022

  • 2023 earnings to see record drop, driven by taxes and reduced consumption
  • Stockbrokers anticipate recovery after IMF disbursement, debt restructuring
By Imesh Ranasinghe Corporate earnings of listed companies in Sri Lanka are expected to increase by 30% year-on-year (YoY) in 2022 and subsequently reduce by 20-25% YoY in 2023, with the introduction of taxes and reduction in consumption, a market analyst said. Speaking at an event held yesterday (31), Softlogic Stockbrokers Head of Research Mahesh Udugampola said that corporate earnings are expected to rise 30% YoY, which is a slowdown from the 80% increase in corporate earnings in the first half of 2022 (1H22). Moreover, he said that in 2023, with the introduction of taxes and reduction in consumption leading to the normalisation of very high margins, most of the companies have made on certain products, the corporate earnings could reduce by 20-25% in 2023. “However, if we value the market at a price-to-earnings (P/E) ratio of around seven to eight times, we are looking at a 15-20% gain from the current levels, which is a good gain when it comes to ASPI,” he added. State Minister of Finance Ranjith Siyambalapitiya said in a statement yesterday that the Government’s income will be raised by 65% through the Budget 2023, of which 90% is expected to be obtained via taxes. Further, when it comes to valuation, Udugampola noted that the current market is trading at a P/E ratio of five times, whereas the market had seen a P/E ratio of over 11 times on average over the last 5-10 years. But he said that if Sri Lanka is expecting a recovery going forward from the current economic conditions, he expects that “there needs to be a rerating of the P/E ratio upward to at least seven to eight times”.  Also, he said certain companies who have taken advantage of the crisis, such as DIMO Lanka, which changed its structure from automobile to agriculture, and CIC Holdings, which caters to most of the essentials, can continue to perform well despite shortages. He added that recovery in the economy can be expected in 1H23, with the disbursement of funds from the International Monetary Fund (IMF), completion of the debt restructuring process, and an extension of credit from multilateral parties.


More News..