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By K. A. S. Perera


Dankotuwa Porcelain PLC, which experienced financial constraints in the recent past, has finally come under the Environmental Resources Investment PLC on 2nd September 2010 in an announcement made to the Colombo Stock Exchange on 3rd September. Two directors have been initially appointed, namely, Dr. Kosala Heengama and Gregory Scott Newsome whose short profiles are included here and are revealing and also reflect the management quality of ERI and other members, one a former governor Central Bank, a top official in CAS and a career diplomat.


Apart from the use of outdated and fuel inefficient machinery, another major constraint of the company had been the inability to procure raw materials due to suspension of bank advances. Accordingly, the company has been operating at 60% of its capacity. The immediate target therefore would be to attain full capacity. Under the 2nd stage, it is proposed to enhance the capacity.


With the infusion of a substantial capital of Rs. 433million, the company could easily meet the raw material requirements in time and also make gains by purchasing at the appropriate time. It should be noted that the purchase of a modern and fuel efficient kiln would involve a long period of decision making process, fabrication and final installation. Consequently, apart from meeting working capital requirements, the company would be in a position to repay the entire debt amounting to Rs. 245 million, as per financial statements ending 30th June 10. The Company may as an alternative repay only high cost facilities such as overdrafts amounting to Rs. 77 million, as per balance sheet of 30 June 10. The Company may also divert some funds for repair of some existing machinery for greater efficiency.


The Environment Resources Investment PLC although officially acquired Dankotuwa on 2nd September 10, has been involved with the company earlier in marketing, specially in the EU and Asia and the 17% increase in turnover during the last quarter ending 30 June may be due this effort.


For the benefit of present investors and prospective investors without internet access, the profiles of the directors appointed are reproduced below.


Mr. G.S Newsome


Gregory Scott has been a leader of many companies. Mr. Newsome is an electronic trading professional with over a decade of experience and is a multi – exchange consultant for US, Europe and South Asian Stock Exchanges and is a skilled presenter of technical materials in seminars and training sessions. He has authored "Soes Book", a technical text book and reference guide for trading in the NASDAQ index.


His vision is to evolve blueprints for the future growth for companies as well as national stock exchanges. Mr. Newsome holds a B.B.A Degree in Finance with a focus on Derivative Securities and Investments from James Madison University, Harrisonburg, Virginia U.S.A ( 1994)


Dr. Kosala Heengama


Kosala Heenagama brings in more than a decade of specialized ICT (Cryptography), management experience in leading and expanding large global IT service organizations. He has also been instrumental in implementing low cost simplified enterprise systems and technologies which work seamlessly for efficient information distribution in multilayer platforms. Earlier, he was attached to the Ministry of Finance as a ICT Chief Advisor for the Government of Sri Lanka. Dr. Heengama , who worked on improved efficiencies and processes in many industries , ventured into financial services and multi- strategic arbitrage investments in Environmental Resources Investment PLC ( ERI) .He holds a Ph. D. in Computer Science , a MSC in information Security and a Bachelor of Electrical and Electronic Engineering and is a Member of the Institute of Electrical Engineers (MIEEE) USA.


Ceylon Leather Products PLC (CLPL) which was on the verge of bankruptcy and transferred to the default board for the non payment of around Rs. 175,000 to CSE, is today a holding company with an annualized earnings per share of Rs. 7.28 based on June 10 financial results. It is the management quality as seen above with innovation and substantial financial resources that made the huge difference. This has been achieved with the same staff and the managing director.


Today, it is the envy of many blue chip companies and for instance warrants issued by them are immensely popular so much so another company recently has declared rights with attached warrants.


It would be interesting for the investors and prospective investors to note that Dankotuwa is likely to record a modest net profit during the current quarter and significant increase in profits for the next quarter ending Dec 2010. Being a December company it is expected near 100% capacity during entire next financial year 2011 with a substantial net profits perhaps highest for past 10 years.


The company may evaluate the extent of increase in capacity required after reaching 100% capacity and if the performance justifies a substantial increase, the company either may obtain financial backing from ERI or a resort as in the case of CLPL for a right issue with attached warrants.


The investors of ERI should note that the Dankotuwa has been purchased at Rs. 9 per share and how the net assets value of ERI would gain with the price increase of DPL is indicate below.


Price of DPL gain for ERI


Rs. 80 Rs. 2982 M


Rs. 144 highest record Rs. 5670 M


Rs. 185 Rs. 7392M


It should be noted by those connected to the stock market including stock brokers, investors and writers that restructuring and rehabilitation of an industry is more complicated than a similar exercise in other sick companies.


It requires special skill with regard to production process, product mix, efficient lay out , procurement of materials in time , modern machinery etc., Proper implementation of remedial measures would ensure a profitable industry as would be seen in Dankotuwa PLC under ERI efficient management. Certain adverse comments made in the recent past could be attributed to sheer ignorance of a specialized subject.


In an earlier article the writer has justified a price range of Rs. 85 to 95 for Dankotuwa with the expectation of a turnaround only next financial year. Due to the new development where the turnaround may take place from the current quarter the price range has been revised upwards to Rs. 95 to 105. Similarly considering the expected substantial turnaround next financial year partly based on fundamentals, sentiment attached to Dankotuwa.


ERI and also bullish sentiment of the stock market expected to be extended to year 2011 the writer expect a price range of Rs. 165 to 180 in the medium term. The bullish sentiment is such The Finance with a frightening loss of Rs. 2154 million ( EPS minus Rs. 105) as of 30.12.09 and worst net assets value per share in the stock market at minus ( Rs. 33) was heavily traded recently ultimately rising to Rs. 65 on 3 d Sep. 10. It is more frightening to note RS. 26 billion in public deposits with investors not permitted to withdraw.


Today out of 72 million shares 83% is held by foreign and local institutions and approximate only 12 million shares are held by individual investors. The Dankotuwa PLC is a basic industry, a national asset, marketed under the Sri Lankan brand name and considering the substantial potential it is strongly recommended for institutions and high net-worth investors.


About the author


K. A. S. Perera was a Senior member of the executive management of a state bank with 35 years experience and presently a senior consultant in banking, finance, investment , restructuring , & industrial projects. He is a graduate, an associate member of Institution of Bankers, London , respected prolific writer in newspapers etc., on financial matters including the stock market for nearly 20 years. He has served on company boards and was an active member of the govt. think tank on industrial development of the country headed by Dr.Gamini Corea from 1994 to 2000. He has vast experience in industrial and development credit, rehabilitation of sick industrial units, foreign trade, finance ,audit and was a Bank CEO of a foreign country.


 
 
 
 
 
 
 
 
 
 
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