Listed company earnings in Sri Lanka rose sharply in the March 2025 quarter. According to First Capital Research, total reported earnings increased by 57.4% year-on-year to Rs 182 billion, marking the sixth consecutive quarter of growth in reported profits, primarily driven by higher operating income in the banking sector and lower finance costs across many industries. During the quarter, the All Share Index declined by about 2.5%.
However, normalised figures paint a more subdued picture. When non-re curring gains are excluded, earnings grew by only 1.6%. The previous year’s results were significantly influenced by one-off items amounting to Rs 73 billion from Browns Investments, Brown & Company and LOLC. The absence of such gains this year highlights a slowdown in underlying earnings growth.
Compared to the December 2024 quarter, reported earnings declined by 20%, from Rs 227 billion to Rs 182 billion. This decline reflects the high base effect of the previous quarter, which included income reversals linked to sovereign bond valuations. Adjusting for these, however, normalised earnings increased by 4.3% quarter-on-quarter, indicating a modest improvement in core operating performance across listed companies.
The banking sector was the most significant contributor to the annual increase in earnings. Sector-wide profits rose by 44% to Rs48 billion. The bulk of this came from seven banks: Commercial Bank, HNB, Sampath Bank, Nations Trust Bank, NDB, Seylan Bank, and Pan Asia Bank. These banks posted a combined 52.9% rise in earnings. The gains were driven by higher net interest income, which expanded as falling interest expenses outpaced the decline in interest income.
While lending rates declined during the period, the reduction in deposit costs and wholesale funding expenses helped preserve bank margins. In addition, increased usage of credit and debit cards, along with rising digital transactions, boosted fee and commission income. Impairment charges also declined, suggesting an improvement in borrower quality or more conservative provisioning. However, rising operating expenses across the sector eroded some of these gains, and a few institutions, including DFCC, Sanasa and Housing Development Finance, recorded declines in their net profits.
Earnings in the Food, Beverage and Tobacco sector increased by 175% to Rs 45 billion. The performance was attributed to revenue growth, margin expansion and lower financing costs. The segment benefited from an easing in raw material costs, modest currency appreciation and lower interest expenses. A recovery in disposable incomes and consumer demand contributed to top line growth. Seven companies, Ceylon Tobacco, Melstacorp, Carson Cumberbatch, Distilleries, Bukit Darah, Ceylon Cold Stores and Lion Brewery, accounted for more than 60% of the sector’s profits.
The segment’s performance suggests stronger consumer sentiment compared to the same period last year, though the gains were concentrated among a few large firms. Other sectors delivered mixed results. The Consumer Durables and Apparel sector reported a net loss of Rs8.2 billion, reversing a profit of Rs 7.7 billion in the March 2024 quarter. Hela Apparel and Dankotuwa Porcelain primarily caused the swing. Hela reported a Rs8.7 billion loss, compared to a Rs6 billion profit the previous year.
The reversal was attributed to declining gross margins, rising operational expenses and impair ment charges on goodwill and financial assets. Dankotuwa Porcelain, meanwhile, suffered from a 31% drop in revenue and a 113% rise in selling and distribution expenses. These figures suggest intensifying cost pressures and limited pricing power in a highly competitive market. The earnings growth reflects the improving economic conditions. Sri Lanka’s gross domestic product grew by 4.8% in the first quarter of 2025, marking the seventh consecutive quarter of economic growth, beginning from the third quarter of 2023.
The statistics office attributed the continued recovery to several sectors. These include financial and insurance services, manufacturing, construction, mining and quarrying, and accommodation. These sectors recorded consistent growth, which helped lift the broader economy.