Power and energy

The Comapny

LAUGFS Gas (LGL) is a subsidiary of LAUGFS Holdings. Established in 1994 the company entered into the liquefied petroleum gas (LPG) industry in Sri Lanka in 2001, in line with the Sri Lanka government’s move to liberalise the industry in the same year. Having consolidated itself as the second-largest player in the domestic LPG industry, LGL listed in the Colombo Stock Exchange (CSE) in 2010. At present the firm holds more than a 30% market share in the domestic and commercial sector, and 60% in the industrial bulk LPG market, along with an 85% market share in the auto gas retailing segment. Apart from being a front runner in the energy sector, LGL has also diversified into a number of other sectors, namely services, leisure, power and property servicing.

The company’s top-line growth increased to LKR11.5bn ($82.8m) in FY 2015, with a compound annual growth rate (CAGR) of 8% over FYs 2013-15. Gross profit margins and earnings before interest and tax (EBIT) improved to 29% and 17%, respectively, in FY 2015, compared to the 16% and 12% recorded in FY 2013. Meanwhile, bottom-line growth increased by 11% year-on-year in FY 2015 to LKR1.4bn ($10.1m), with a CAGR of 16% from FY 2013 to FY 2015. LGL entered into the power sector with the construction of a 0.5-MW hydro-power project in Balangoda during FY 2014. Meanwhile, LGL’s property development operations completed the construction of the unique luxury office complex in FY 2015, which is available for occupation in the near future.

Development Strategy

At present, LGL operates a storage and filling facility with a 2500-MT capacity. The company is looking to expand capacity to 4000 MT by 2016. Its cylinder plant can fill 8000 differently-sized cylinders per day.

LGL entered into an agreement with Sri Lanka Ports Authority to set up a LPG storage terminal in Hambantota by FY 2018 to cater to the neighbouring emerging Asian markets, Bangladesh and the Maldives. To facilitate the strategic move LGL also acquired a controlling stake (69%) in Petredec Elpiji for $19m. Petredec Elpiji is engaged in the downstream LPG business in Bangladesh, with a market share of 21%.

The parent company, LAUGFS Holdings, strategically resorted to competitive foreign currency borrowing to make viable and prudent investments in its subsidiaries, for further growth and development, with the most prominent ventures being investments into LPG carriers, hotels and the renewable energy sector.

Forecast

LGL’s purchase of two gas carriers in FY 2015 and FY 2016, with a combined capacity of over 6000 MT and a total value of $12.9m, enable more effective transportation and cost management, and help LGL maintain healthy inventory levels in the volatile LPG market. Under a strategic initiative to increase its market share in the LPG industry, LGL is aiming to target the lower-income category in the country, which as yet remains underserved, with a relatively low penetration rate of 30% compared to other peer countries.

LGL is in the process of enhancing the capacity of its hydropower project in Balangoda by 0.5 MW. The expansion is expected to be completed during FY 2016. In line with plans to further expand into renewable energy, during FY 2016 LGL decided to acquire 100% stakes in two companies that are currently in the process of setting up solar power generation projects, which have a combined capacity of 20 MW in Hambantota.

LGL’s entrance into the hotel sector occurred during FY 2015, with the opening of an 87-room resort in Chilaw. The company has also invested in two additional hotel projects in Pasikuda on the east coast and in Kalutara on the west coast.