Kelani Cables PLC Financial Summary and Investment Analysis

Executive Overview

Kelani Cables PLC is a leading manufacturer and distributor of power cables, telecommunication cables, and enamelled winding wires in Sri Lanka. As a subsidiary of Lanka Olex Cables (Private) Ltd (with ultimate parent ACL Cables PLC), the company holds a dominant market position locally and exports to 16 countries. Over the analyzed periods, spanning from Q3 2023 to Q2 2026, the company demonstrated notable resilience and growth, driven by a rebounding domestic construction sector and robust export demand.

Despite severe pressures on gross margins caused by a steep 36% escalation in global copper prices and a depreciating Sri Lankan Rupee, the company maintained bottom-line profitability through stringent operational cost controls, high finance income (notably from unit trusts and forex gains), and exceptional working capital management. Operating cash flows doubled in the latest full financial year, reflecting a highly liquid, nearly debt-free balance sheet that positions the company strongly for future capacity expansions and market penetrations.

Key Periods Covered: Q3 2023 to Q2 2026 (Calendar Quarters based on period-end dates up to 30 June 2026).

Financial Performance

Revenue and Profitability Trends

*Note: The table below aggregates quarterly and annual data in Rs. Millions (Mn). Annual periods correspond to the 12 months ended 31 March.*

Analysis:

• Revenue Growth: The company recorded its highest-ever annual revenue of Rs. 20.62 Bn for the year ended 31 March 2026, marking a 16.8% YoY growth. This was fueled by a rebound in domestic construction and a 14.5% growth in export revenue (to Rs. 3.24 Bn). Revenue remained stable into Q2 2026 at Rs. 4.94 Bn, up 8.5% compared to Q2 2025.
• Margin Contraction: Gross Profit declined by 5.2% YoY in the year ended March 2026, and the GP margin contracted sharply from 23.4% to 19.0%. Cost of sales outpaced revenue growth, rising 23.5% due to a steep escalation in London Metal Exchange (LME) copper prices (averaging a 24% increase in the second half of the year) and a depreciating Rupee.
• Net Profit Resilience: Despite gross margin compression, Profit Before Tax (PBT) grew by 5.8% to Rs. 3.42 Bn for the year ended 31 March 2026. This recovery was heavily supported by a 90% YoY surge in net finance income (reaching Rs. 719.3 Mn), primarily driven by Rs. 339 Mn in gains from unit trusts, Rs. 222 Mn in net forex gains, and high interest income, effectively offsetting operational cost pressures.

Balance Sheet Analysis

The company maintains an exceptionally robust and unleveraged balance sheet.

Analysis:

• Asset Base: Total assets grew 15.8% YoY to Rs. 19.23 Bn by the end of March 2026, largely due to high current assets, including Rs. 4.88 Bn in FVTPL financial assets (unit trusts) and Rs. 3.26 Bn in fixed deposits.
• Liquidity: The current ratio stood at an exceptionally high 5.0x as of 31 March 2026, improving slightly from 4.9x the prior year. The quick ratio also remained extremely healthy at 3.7x, demonstrating the company's ability to cover short-term obligations easily.
• Solvency: The company is predominantly equity-financed. Long-term debt capital is negligible (Rs. 14 Mn), and short-term debt is extremely low (Rs. 236 Mn). The capital structure provides substantial protection against interest rate volatility.

Cash Flow Analysis

Analysis:

• Operating Cash Flows: The company doubled its cash generated from operations to Rs. 1.36 Bn in the year ending March 2026. This 117% improvement highlights disciplined working capital management, particularly in inventory and receivables collections.
• Investing & Financing: The company utilized surplus cash to invest heavily in financial assets and property, plant, and equipment (CapEx Rs. 152 Mn). Financing outflows primarily consisted of a Rs. 320 Mn dividend payment, marking a sustainable dividend policy backed by strong cash generation.

Key Financial Ratios and Growth Indicators

*\*Restated to reflect a 10-for-1 stock split executed in December 2025.*

Growth Indicators:

• A 10-for-1 share subdivision was executed in December 2025, increasing outstanding shares from 21.8 Mn to 218 Mn to enhance retail liquidity.
• Capital expenditure included the construction of a new factory building to accommodate additional production equipment.
• Implementation of digital transformations (migration to Microsoft 365, ERP upgrades) indicates a focus on operational efficiency.

Economic and Market Context

• Macroeconomic Recovery: Sri Lanka's economy stabilized significantly in 2025, with GDP growing by 5.0% and the construction sector reviving with 9.2% growth. Lowered policy rates spurred private-sector credit and boosted household purchasing power.
• Commodity Headwinds: Global copper prices on the LME surged roughly 36% throughout the financial year ending March 2026 (from ~$9,192 to ~$12,499 per tonne). This drastically impacted procurement costs and inventory valuations.
• Natural Disasters: Cyclone Ditwah in November 2025 caused severe domestic macro disruptions (flooding, displaced populations). While Kelani Cables' manufacturing facilities were physically untouched, broader supply chain and project execution delays temporarily softened demand.
• Exchange Rate Dynamics: The Sri Lankan Rupee experienced modest depreciation against the USD, creating compounded cost pressures alongside the rising raw material prices.

Future Potential and Outlook

• Strategic Expansions: The company successfully expanded into new overseas markets, specifically deepening footprints in the Maldives and Bangladesh via dedicated sales offices. It currently exports to 16 countries, mitigating reliance on the domestic market.
• Product Diversification: The introduction of the 'Fire Shield' product range caters to new SLSI standards and capitalizes on growing infrastructure safety requirements. The company is heavily involved in supplying cables for solar energy and renewable transition projects.
• Operational Excellence: The management is actively embedding '5S' and 'Kaizen' practices, optimizing inventory, and utilizing data analytics to reduce wastage, aiming to structurally improve gross margins going forward.

Risks and Challenges

• Raw Material Price Volatility: Heavy reliance on imported copper and aluminum subjects the company to global commodity cycles. Mitigation: Strategic long-term supplier partnerships, safety stock maintenance, and disciplined forward-pricing mechanisms.
• Foreign Exchange Risk: The USD/LKR exchange rate directly impacts the cost of raw materials. Mitigation: Maintenance of foreign currency liquidity buffers and hedging through export revenues.
• Capacity & Equipment Constraints: Ageing machinery could lead to inefficiencies or downtime. Mitigation: Ongoing capital investments in advanced manufacturing technologies, predictive maintenance, and the construction of new facilities.

Shareholder and Corporate Information

• Major Shareholder: Lanka Olex Cables (Private) Ltd holds a commanding 75.00% stake. The ultimate parent is ACL Cables PLC (holding an additional 4.28%).
• Public Holding: The public float stands at 20.2%, representing 4,318 shareholders (as of June 2026).
• Share Price Trends: The stock price closed at Rs. 102.50 on 31 March 2026 (post-split) and slightly appreciated to Rs. 108.50 by 30 June 2026.
• Dividends: Maintained an attractive dividend payout, declaring interim dividends of Rs. 15.00 per share (pre-split equivalent) during the year.

Investment Decision Indicators

Strengths:

• Exceptional Liquidity & Solvency: A current ratio of 5.0x and near-zero debt eliminate interest rate and insolvency risks.
• Strong Cash Generation: Doubling of operating cash flows highlights exceptional working capital control.
• Market Leadership: Unmatched brand equity locally and a growing international presence (14.5% export growth).
• High Investment Income: Substantial capital buffers in unit trusts and fixed deposits actively contribute to the bottom line, insulating the company from temporary gross margin dips.

Weaknesses:

• Margin Vulnerability: High susceptibility to LME copper price fluctuations, which led to a 440-basis-point drop in GP margins.
• Import Reliance: Exposure to global supply chain shocks and local currency depreciations.

Opportunities:

• Infrastructure Revival: Resumed government and private construction projects in Sri Lanka provide a steady pipeline of demand.
• Renewable Energy: Growing demand for specialized cables for solar grids offers a high-margin growth avenue.

Threats:

• Geopolitical & Trade Tensions: Could lead to continued commodity inflation or supply chain bottlenecks.
• Climate Risks: Domestic vulnerability to extreme weather events (e.g., Cyclone Ditwah) which can stall national construction output.

Overall Assessment: Kelani Cables PLC presents the profile of a fundamentally sound, highly liquid, and deeply entrenched market leader. The company’s ability to grow its bottom line and double its operating cash flows during a period of massive raw material inflation underscores the strength of its treasury management and operational discipline. While gross margins are currently compressed due to external commodity cycles, the company's expansion into exports, zero-debt balance sheet, and strategic capital investments provide a massive safety net. Investors should weigh the highly defensive balance sheet and robust dividend history against the cyclicality of global copper prices.