Listed Hemas Holdings’ 23.7% year-on-year earnings growth in the September 2024 quarter reflects its strategic agility and Sri Lanka’s gradual economic recovery. The company capitalized on currency appreciation, declining commodity prices, and rising demand for cost-effective healthcare and consumer goods, showcasing its resilience amid broader economic challenges. This performance signals improving consumer purchasing power and highlights Hemas’ ability to adapt to shifting market dynamics while driving growth in key segments.
Hemas Holdings operates in consumer goods, healthcare, and mobility.
In consumer goods, Hemas’ home and personal care division include brands such as Baby Cheramy, Velvet Naturals, Clogard Pro Clean, Fems Ultra-Thin, Vivya, and Prasara. The learning segment, led by the Atlas stationery brand, includes value-for-money products like Homerun and premium products under Innovate. The Atlas Learn platform provides digital educational content. Internationally, Hemas markets Kumarika hair oils, including Kumarika Cooling Oil and Actisef personal care soap, in Bangladesh while expanding exports to East Africa and the Middle East.
Hemas manages a pharmaceutical distribution network in healthcare and has introduced over 100 products focused on non-communicable diseases and essential medications. The pharmaceutical manufacturing arm includes brands like Empamor and Bisomor. Morison’s pharmaceutical plant supports domestic production and third-party manufacturing. Hemas’ hospitals specialize in cardiology, nephrology, and orthopaedics. Ambulatory Surgical Care offers same-day surgeries.
In mobility, Hemas operates in maritime and aviation logistics. It supports operations at the Port of Colombo and provides aviation services, benefiting from increased cargo and passenger traffic.
Hemas Holdings PLC (HHL) reported a 23.7% year-on-year earnings growth, reaching Rs1.5 billion in the September 2024 quarter. This growth stems from an expansion in the operating margin, which increased by 142 basis points to 10.7% from 10.6% in the previous quarter.
Financial analysts at First Capital Research highlight several factors contributing to the expansion of the operating margin. Reduced commodity prices and currency appreciation lowered the cost of imports, improving operational cost management. Additionally, electricity and fuel price reductions supported overall profit margin improvement. Hemas’ finance costs dropped by 58.2% from a year ago, further bolstering earnings growth.
The consumer brands and healthcare divisions led the earnings growth, recording 19.8% and 30% increases, respectively. These segments underpinned the overall profitability, showcasing Hemas’ strong position in these sectors. Conversely, the home and personal care segment saw a 4.6% decline in topline revenue due to price reductions and promotional discounts aimed at driving sales.
The pharmaceutical manufacturing segment experienced a volume rebound, marking its first growth since the pandemic. Growing consumer demand for affordable healthcare solutions contributed to this recovery. Hemas supported the momentum by expanding its production capacity, positioning the group to capitalize on the rising demand for cost-effective pharmaceuticals.
Hemas’ performance and Sri Lanka’s economic conditions are closely tied. First Capital Research projects economic growth of 2.0% to 3.0% in 2024 and anticipates continued deflationary trends, which could boost consumer purchasing power. This outlook, coupled with Hemas’ recent performance, suggests a positive trajectory for the company in the near term.
Despite these gains, broader economic recovery significantly impacted Hemas’ success. Operational costs fell partly due to the appreciation of the Sri Lankan rupee. In the company’s annual report for March 2024, Chairman Husein Esufally noted, “Despite the marginal growth in revenue, operating profit for the sector witnessed notable growth mainly due to reduced input costs, efficiency improvements, and working capital management initiatives.”
Former Group CEO Kasturi C. Wilson emphasized the challenges of fiscal adjustments such as VAT increases, personal tax changes, and utility price hikes. These measures dampened consumer spending and purchasing power, particularly among middle-class households. However, Hemas’ focus on affordability helped mitigate these impacts, particularly in the home, personal care, and healthcare sectors.
The group’s strategy reflects understanding its consumer base’s financial health. Alongside internal efficiency improvements, Hemas recognizes the importance of broader economic recovery in driving its gains. For example, the reduction in raw material costs was passed on to consumers through promotional offers, ensuring market competitiveness. While this led to a 4.6% year-on-year decline in topline revenue for the consumer brands segment, it enabled a 232 basis point expansion in operating margins.
The international home and personal care and healthcare segment faced challenges from rising operational costs and currency devaluation in Bangladesh. However, Hemas’ learning segment, comprising the Atlas stationary business, achieved a 30.6% revenue growth by launching value-for-money product ranges to address competition following the relaxation of import bans.
The healthcare segment’s 30% year-on-year earnings growth, amounting to Rs984.1 million in the September quarter, was driven by a 153.3% reduction in finance costs. The decline in the average weighted prime lending rate to 9.32% further supported the segment’s performance. The segment also benefitted from increasing demand for cost-effective pharmaceuticals, particularly diabetic drugs and vitamins.
Morison’s $18.5 million pharmaceuticals plant in Homagama operated at over 60% capacity, fulfilling government buyback orders and producing branded generics. This facility, capable of producing 5 billion tablets annually, represents a strategic shift towards high-margin products that align with consumer demand for affordability. The rising number of surgeries and medical screenings further bolstered the healthcare segment’s profitability.
Hemas’ strong results reflect its ability to adapt to a challenging economic environment while maintaining profitability. Its strategy of offering value-driven products under trusted brands has positioned the group for sustained growth. The consumer brands and healthcare segments, supported by cost-saving initiatives and reduced finance costs, are expected to continue driving performance.
First Capital Research projects that prevailing macroeconomic conditions, including potential salary hikes and declining inflation, will boost consumer spending. It notes that the consumer brands segment could grow at a compounded annual growth rate of 9.2% over the next few years.
Hemas’ strategic focus on value-for-money alternatives and operational efficiency has enabled the group to navigate economic volatility effectively. This approach, combined with ongoing capacity expansions and a commitment to affordability, positions Hemas to capitalize on evolving market dynamics and consumer preferences and sustain the group’s growth trajectory in the coming years.