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Equity Research Report

17 October 2011

BRS Research Team

Equity Research
Peoples Leasing Company Ltd (SUBSCRIBE : LKR 18.00)
Peoples Leasing Company, the market leader in the growing leasing industry, will go public with an IPO on 3rd November 2011. At the offer price of LKR 18.00, we believe PLC, a subsidiary of the state owned Peoples Bank, offers compelling investment value. In addition to the access to captive leasing portfolios of the parent, PLC is also able to operate on a significantly lower cost model with their ability to piggyback on the parents branch network. With a leasing portfolio of 25% of the specialized leasing companies asset base, PLCs disbursements dwarf even the Licensed Commercial Banks leasing segments. Our TP of LKR 22.00 is based on relative multiples (earnings and book) considering PLCs competitive positioning. SUBSCRIBE.
LKR 'mn Net interest income Growth in net interest income % Net interest margin % Cost to income ratio % Earnings per share (LKR) EPS growth % Book value per share (LKR) DPS (LKR) Return on assets % Return on equity % Lending portfolio Borrowings Total deposits Shareholders funds 2008 2,537 40.0% 11.8% 30.8% 0.96 33.2% 4.65 1.50 4.5% 23.0% 22,533 16,987 5,439 2009 3,455 36.2% 12.9% 30.0% 0.78 -18.3% 5.28 1.50 3.9% 19.9% 28,509 20,344 1,667 6,173 2010 5,014 45.1% 11.4% 29.4% 2.08 164.6% 5.85 1.50 5.4% 35.9% 55,629 42,063 4,647 8,383 2011E 6,012 19.9% 9.2% 33.2% 2.16 3.9% 11.83 0.22 3.9% 22.0% 70,187 53,658 7,900 18,456 2012E 7,567 25.9% 9.5% 31.4% 2.49 15.5% 13.95 0.25 4.3% 19.9% 83,278 60,948 10,270 21,755

Research Manager - Nikita Tissera Senior Research Analyst - Nusrath Mohideen Research Analyst - Vajirapanie Bandaranayake Research Analyst - Sahani De Silva Research Analyst - Jennita Silva Research Analyst - Thilini Yatawara Research Analyst - Rakshila Perera Technical Analyst - Stefan Jurianz

IPO - Salient Features

No of shares issued (mn) Post IPO no of shares (mn) Issue price (LKR) Amount to be raised (LKR' mn) Estimated Market Capitalization (LKR' mn) Free Float % EPS 2012E (LKR) EPS 2013E (LKR) PER 2012E (x) PER 2013E (x) Net Asset Value per share 2012E (LKR) Net Asset Value per share 2013E (LKR) 390 1,560 18.00 7,020 28,080 25% 2.16 2.49 8.30 7.20 11.30 12.70

12 Months TB Yield
%
20.00 17.00 14.00 11.00 8.00 5.00 2006 2007 2008 2009 2010 19-Aug-11

ASPI Movements
8,500 7,500

Loan book to see a 26% growth in FY 2012E with access to captive disbursements We expect the Peoples Leasing Company Ltd (PLC) loan book to grow to LKR 70.2bn in FY 2012E and LKR 83.3bn in FY 2013E securing a YoY growth of 26% and 19% respectively. IPO proceeds of LKR 7bn will also aid to leverage the balance sheet facilitating the portfolio growth. Profits to rise to LKR 2.9bn in FY 2012E (+13% YoY) on lower operational costs We expect PLC to see a recurring net profit of LKR 2.9bn (+13% YoY) for FY 2012E and LKR 4.0bn (+35% YoY) for FY 2013E. Increase in core income (Net Interest Income to grow 20% YoY to LKR 6.0bn in FY 2012E) on the back of expected growth in business volumes, growth in fee based income We expect a recurring EPS of LKR 2.16 for FY 2012E and LKR 2.49 FY 2013E respectively. Valuation - Target price LKR 22.03, upside potential 22% Based on forward earnings (FY 2012E), PLC has a forward PER of 8.3x and a historical PER of 8.65x cf. to the sector multiple of 14.1x (Oct 14, 2011). PLC trades at a historical PBV of 2.26x where the sample finance / leasing companies of comparable size trade at approximately 3.1x and the sample banking sector stocks trade at 1.95x. Based on relative valuations, the stock has a target price of LKR 22.03 with an upside of 22%.
Disclaimer : In compiling this report, Bartleet Religare Securities (Pvt) Ltd has made every endeavour to ensure its accuracy but cannot hold ourselves responsible for any errors that may be found herein. We further disclaim all responsibility for any loss or damage which may be suffered by any person relying upon such information or any options, conclusions or recommendations herein whether that loss or damage is caused by any fault or negligence on the part of BRS.

6,500 5,500 4,500 3,500 10-Mar-10 19-Sep-10 31-Mar-11 10-Oct-11

PLC - EPS
LKR 2.50

2.00

1.50 1.00

0.50 2008 2009 2010 2011 2012E 2013E

Sector PER and PBV Trend

PER (x)
PER PBV

PBV (x)
3.0

18.0 2.0 13.0 1.0

8.0

3.0 2007 2008 2009 2010 2011

0.0

13-Oct-11

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Year Ending 31 March Summary Information BRS EPS (LKR) BRS EPS growth (%) P/E (x) based on BRS EPS Historical/current sector P/E (x) Reported EPS LKR as per annual report NAV per share (LKR) Tangible NAV per share LKR P/BV (x) P/TBV (x) Historical/current sector P/BV (x) DPS LKR Dividend yield (%) Mkt price Weighted average shares (mn) Average mkt cap (LKR'mn) Income Statement (LKR'mn) Interest income Interest expenses Net interest income Other operating income Non operating income Total income Personnel cost Other cost Loan loss provisions Value added tax on financial services Profit from operations Share of associates /(loss) Exceptionals/non-recurrings Tax expense Net income Minorities & preference dividends Profit attributable to equity holders Balance sheet (LKR'mn) Cash & short-term funds Lease, HP receivables and loans and advances Property plant & equipment Intangible assets Other assets Total Assets Total deposits Borrowings Other liabilities Shareholders funds Minorities Total liabilities and equity Interest bearing assets Interest bearing liabilities Growth rates and margins Growth in interest income % Growth in interest expense % Growth in net interest income % Growth in personnel cost % Net interest margin % Cost to income ratio % Return on assets Return on equity Interest income to interest bearing assets Interest expenses to interest bearing liabilities Growth in interest earning assets % Growth in interest bearing liabilities % 2009 0.96 33.2% na 4.4 x 19.08 4.65 4.63 na na 0.6 x 1.50 na na 1,170 na 5,745 (3,208) 2,537 523 128 3,189 (323) (658) (55) (270) 1,882 (843) 1,040 1,040 1,654 22,533 628 20 702 25,538 16,987 3,113 5,439 25,538 23,726 16,987 44.6% 48.4% 40.0% 23.2% 11.8% 30.8% 4.5% 23.0% 26.7% 20.2% 23.0% 15.1% 2010 0.78 -18.3% na 11.6 x 18.33 5.28 4.97 na na 1.5 x 1.50 na na 1,170 na 6,776 (3,322) 3,455 489 163 4,106 (431) (802) (540) (275) 2,059 (906) 1,153 1,153 2,196 28,509 980 361 844 32,890 1,667 20,344 4,699 6,173 6 32,890 30,032 22,012 18.0% 3.5% 36.2% 33.3% 12.9% 30.0% 3.9% 19.9% 25.2% 17.0% 26.6% 29.6%

Company Information Note

17 October 2011

Peoples Leasing Company Ltd

Company profile
PLC was established in 1995 as a fully owned subsidiary of the state owned Peoples Bank. PLC has six subsidiaries under its purview. With its extensive reach (through its branch network of 37 and window - offices of 121) PLC has gained a competitive edge in the industry and is known to be the market leader among the Specialized Leasing Companies. (SLCs)
Growth in Net Interest Income % - LKR. Mn (FY 2008-13E)
26% 20% 45% 36% 1,812 40% 7,567

2011 2.08 164.6% na 17.9 x 48.58 5.85 6.88 na na 2.8 x 1.50 na na 1,170 na 8,916 (3,902) 5,014 594 477 6,085 (686) (1,103) (52) (401) 3,844 (1,231) 2,612 2,612 3,013 55,629 1,624 333 3,253 63,852 4,647 42,063 8,659 8,383 100 63,852 57,727 46,710 31.6% 17.5% 45.1% 59.1% 11.4% 29.4% 5.4% 35.9% 20.3% 11.4% 92.2% 112.2%

2012E 2.16 3.9% 8.3 x 14.2 x na 11.83 13.85 1.5 x 1.3 x 2.2 x 0.22 1.2% 18.00 1,300 23,400 11,298 (5,286) 6,012 753 204 6,969 (870) (1,446) (284) (260) 4,109 1,386 (1,150) 2,958 2,958 9,551 70,187 2,222 453 4,424 86,837 7,900 53,658 6,723 18,456 100 86,837 73,042 61,558 26.7% 35.5% 19.9% 26.9% 9.2% 33.2% 3.9% 22.0% 17.3% 9.8% 26.5% 31.8%

2013E 2.49 15.5% 7.2 x 14.2 x na 13.95 13.61 1.3 x 1.3 x 2.2 x 0.25 1.4% 18.00 1,560 28,080 13,345 (5,778) 7,567 974 245 8,786 (1,028) (1,730) (125) (337) 5,566 (1,558) 4,008 4,008 8,737 83,278 2,904 524 5,123 100,565 10,270 60,948 7,493 21,755 100 100,565 86,583 71,218 18.1% 9.3% 25.9% 18.1% 9.5% 31.4% 4.3% 19.9% 16.7% 8.7% 18.5% 15.7%

2008

2009

2010

2011

2012E

2013E

2013E

Trend in NIM (2006-12E)

14.0% 12.0% 10.0% 8.0% 6.0% 2008 2009 2010 2011 2012E 2013E

Growth in Deposits % - LKR.Mn (FY 2008-13E)

14% 28% 107% 60,948

14,752

15%

20%

2008

2009

2010

2011

2012E

2013E

2013E

Growth in Lending Portfolio % - LKR.Mn (FY 2008-13E)

26% 95% 27% 19% 83,278

19,222

17%

2008

2009

2010

2011

2012E

2013E

2013E

Disclaimer : In compiling this note, Bartleet Religare Securities (Pvt) Ltd has made every endeavour to ensure its accuracy but cannot hold ourselves responsible for any errors that may be found herein.

Source: PLC Annual Reports, Prospectus, BRS Equity Research

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BRS Equity Research

Investment Case
Group Structure - Post IPO
Peoples' Bank

72%

People's Leasing Company Limited (PLC)

88%

100%

100%

100%

100%

100%

People's Finance PLC (SMLL)

People's Insurance Ltd

People's Microfinance Ltd

People's Leasing Fleet Management Ltd

People's Leasing Property Development Limited

People's Leasing Property Development Limited

Company Profile
Peoples Leasing Company Ltd (PLC) was established in 1995 and is a subsidiary of the state owned licensed specialized bank Peoples Bank. PLC has six subsidiaries under its purview. The notable contributors to the bottom-line being the holding Company- Peoples Leasing, and Peoples Leasing Finance Company. PLC has a competitive edge on its peers with its access to the leasing portfolio of the parent company Peoples Bank and the ability to piggy back on the parents extensive branch network to create low cost window offices. PLC holds ~25% of the specialized leasing sectors asset base. Even with the inclusion of the licensed commercial banks leasing portfolios, PLCs leasing disbursements dwarf the rest of the sector. Post IPO, Peoples banks holding of PLC will reduce to 72%.

Financial Outlook Lending Portfolio

PLCs main concentration is on Leasing and Hire Purchase products. We expect the lending portfolio to grow to LKR 70.2bn in FY 2012E and LKR 83.3bn in FY 2013E securing a YoY growth of 26% and 19% respectively. Growth in the lending portfolio is expected to stem from business volume growth on the back of increased economic activities and positive developments in the macroeconomic front. IPO proceeds of LKR 7bn will also aid to leverage the balance sheet facilitating the portfolio growth. PLC achieved a heavy portfolio growth of 95% in FY 2011. However, despite seeing a high growth in the lending portfolio, PLC managed to achieve a sound asset quality during FY 2011. According to Company sources, in FY 2011 the Gross www.bartleetstock.com 3

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Non Performing Advances (NPA) ratio stood at a stellar 1.2% compared to the SLC industry average of 5% (source: CBSL Annual report) and the NPA ratio for the Licensed Commercial Banking industry. Healthy asset quality depicts PLCs strong recovery efforts and industry best practices in ascertaining creditworthiness.

Funding
PLCs main source of funding is borrowings. However, owing to the strong parental backing and reputation, PLC has been able to source funds from diversified avenues like promissory notes, securitization, long-term loans, debentures and short-term loans. Majority of PLCs borrowings comprised of promissory notes (~40% as at end FY 2011). Promissory notes are less expensive compared to other modes of borrowings, easing the burden on interest expense. Also, promissory notes with long term maturity assist PLC to weather maturity mismatch problems. We believe that receipt of IPO proceeds will aid to reduce PLCs reliance on expensive short-term borrowings. On that note, we have factored a fall in shortterm borrowings for FY 2012E and FY 2013E respectively. We expect PLCs borrowings to grow YoY 28% (LKR 53.6bn) and 14% (LKR 60.9bn) in FY 2012E and FY 2013E respectively to aid the lending portfolio growth. PLC is at a distinct advantage compared to other SLCs as the Group has access to low cost deposits following the acquisition of former Seylan Merchant Leasing PLC (now renamed as Peoples Finance PLC) in FY 2010. We expect the Groups deposit base to see a growth of 70% to LKR 7.9bn in FY 2012E partly owing to the low base effect. For Q1 FY 2012E, the Group deposit saw an impressive growth of 32% (for the first 3 months of FY 2012E) to LKR 6.1bn. In our view, high growth in the SMLL deposit base shows the return of public confidence to the former distressed registered finance Company SMLL, which is now under the purview of a new management; PLC.

Growth in Lending Portfolio % - LKR.Mn (FY 2008-13E)

26% 95% 27% 14,752 19% 83,278

Growth in Deposits % - LKR.Mn (FY 2008-13E)

14% 28% 107% 60,948

19,222

17%

15%

20%

2008

2009

2010

2011

2012E

2013E

2013E

2008

2009

2010

2011

2012E

2013E

2013E

Source: PLC Annual Reports, Prospectus, and BRS Equity Research

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Net Interest Income

We expect Net Interest Income (NII) to see a YoY growth of 20% (LKR 6.0bn) and 26% (LKR 7.6bn) in FY 2012E and FY 2013E. Growth in business volumes is expected to facilitate the growth in NII despite a low interest rate environment. We have factored an interest rate differential of 2% between leasing and hire purchase yields for FY 2012E and FY 2013E. However, we expect Net Interest Margins (NIM) to come down to 9.5% in FY 2012E from 11.4% in FY 2011 on the back of low rates environment. Yet, expected high volume growth will result in increasing NII despite falling NIMs and squeezing spreads.

Growth in Net Interest Income % - LKR. Mn (FY 2008-13E)

26% 20% 45% 36% 1,812 40% 7,567

Trend in NIM (2006-12E)

14.0% 12.0% 10.0% 8.0% 6.0%

2008

2009

2010

2011

2012E

2013E

2013E

2008

2009

2010

2011

2012E

2013E

Source: PLC Annual Reports, Prospectus, and BRS Equity Research

Operating Cost
We have factored a 30% and a 19% growth in opex on the back of expected business expansion. However, it is interesting to note that, PLC has a high operating efficiency level as depicted by its low cost to income ratio. PLCs cost to income ratio stood at 29.4% in FY 2011 and we expect this to slightly edge up to 31.4% by FY 2013E. However, PLCs operating efficiency ratio is remarkably better than its competing SLCs, RFCs and even banking peers. According to the prospectus, cost to income ratio for the SLCs usually hovers at 70% while BRS research has witnessed that in the domestic Licensed Commercial Banks industry the ratio stands on average 50%+. PLCs high operating efficiency is attributable to its exclusive structure. PLC had a branch network of 37 as at June 2011. Other than the branch network, PLC operates through window offices by leveraging on the extensive reach of Peoples bank island wide network. Peoples Bank is the largest bank in the country in terms of branch network. By March 2011, Peoples Bank had a network of 329 branches. PLC has window offices in 121 of Peoples Banks branches as at present. According to Company sources, operating cost of window office is 50% less compared to a traditional

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cost of a window office is 50% less compared to a traditional branch unit. Cost savings arising from lean structure has enabled PLC to provide additional provision over and above regulatory requirements against loan losses.

Growth in Operating Cost % - LKR.Mn (FY 2008-13E)

19% 30% 45% 26% 817 20% 2,758

Trend in NIM (2008-13E)

14.0% 12.0% 10.0% 8.0% 6.0%

2008

2009

2010

2011

2012E

2013E

2013E

2008

2009

2010

2011

2012E

2013E

Source: PLC Annual Reports, Prospectus, and BRS Equity Research

Profitability
We expect PLC to see a recurring net profit of LKR 2.9bn (+13% YoY) for FY 2012E and LKR 4.0bn (+35% YoY) for FY 2013E. Increase in core income on the back of expected growth in business volumes, growth in fee based income and positive impact from corporate and VAT tax cuts will be the drivers for the recurring profit growth. We expect the net profit inclusive of non-recurring items to be LKR 3.9bn in FY 2012E. This is inclusive of LKR 1.6bn provision reversal PLC did in Q1 FY 2012E and the IPO cost of LKR 225mn.

Growth in Net Profit % - LKR. Mn (FY 2008-13E)

35% 13% 126% 4,008

Trend in ROA and ROE (2007-12E)

ROA 5.5% 5.0% 4.5%
ROA ROE

ROE 39.0% 33.0% 27.0% 21.0% 15.0% 2008 2009 2010 2011 2012E 2013E

11% 803 29%

4.0% 3.5%

2008

2009

2010

2011

2012E

2013E

2013E

Source: PLC Annual Reports, Prospectus, and BRS Equity Research

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Peer Group Comparison

PLC Price NBVPS PBV ( x on current price) EPS (FY2012E) Forward PER ( x on current price) Total Assets -LKR mn Lease portfolio LKR mn Cost to Income Ratio (%) No of Branches No of Employees No of shares (mn) 18.00 7.87 2.29 2.16 8.33 63,852 61,774 28% 37 964 1,170.00 CFIN 250.00 121.62 2.06 12.16 20.56 43,645 17,495 42% 57 1,818 104.88 LOFC 10.20 1.32 7.73 0.45 22.92 24,291 16,439 34% 42 na 2,800.00 COMB 111.70 50.07 2.23 8.93 12.51 397,734 15,246 47% 215 4,420 817.45 HNB 196.00 98.97 1.98 15.47 12.67 355,932 18,641 64% 212 4,424 357.54 SAMP 215.00 138.81 1.55 24.06 8.94 223,100 5,828 58% 199 2,964 156.33

Source: Company Annual Reports, PLC Prospectus, and BRS Equity Research

Valuations
PLC trades at a historical PBV of 2.26x where the sample finance / leasing companies of comparable size trade at approximately 3.1x and the sample banking sector stocks trade at 1.95x. BFI sector index trades at 2.2x. We believe that PLC should trade closer to the banking sector multiples, given the size of the leasing portfolio and the superior asset quality of PLC even in comparison to the Licensed Commercial Banks. Although banks have lower deposit costs and higher asset bases, the overall leasing portfolio of PLC supersedes the banks. Given the relative valuations, and the comparative strengths of PLC, we believe the Company should trade at a fair value of LKR 22.03 with a 22% upside to issue price.

Shareholder List
Pre IPO % People's Bank Employees of PLC group IPO Shareholders Total 95.0 5.0 100.0 % 72.0 3.0 25.0 100.0 Post IPO No of shares (mn) 1,115.4 54.6 390.0 1,560.0

Shareholder

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BRS Equity Research

Strategic Industry Overview

According to the CBSL, Countrys leasing and hire purchase industry is driven by 15 licensed commercial banks, 34 registered finance companies and 21 Specialized Leasing Companies (SLC). The total assets of Specialized Leasing Companies (SLC) recorded at LKR 154bn, up 38% YoY (source: Central Bank of Sri Lanka Annual Report 2010). Rise in assets was driven by surged demand for accommodation on the back of low interest rate environment and custom duty and excise tax on vehicle imports. Consequently, SLC industry saw its interest margin increasing to 7% in 2010 from 5% in 2009. According to the CBSL sources, total accommodations grew at 32% YoY despite Non Performing Accommodations (NPA) slowing down to 5% in 2010 from 8% in the previous year on the back of positive development in the macro- economic front and low interest rate regime. Competition Competition within the sector has grown fiercely with Licensed Commercial Banks (LCBs) also entering to the leasing and hire purchasing businesses to enjoy higher returns and infringed tax incentives. LCBs are in a better position to offer competitive rates facilitated with low cost funding supported by their wider reach. However, PLC is at a distinguished advantage than many of its peers, since the Company is strongly backed by the exclusively wider window offices operated in 121 Peoples Banks branch network. Presently, PLC has its own branch network of 37. The ability to have window offices at the approximate cost of LKR 45,000 p.m has given the Group a significant cost advantage over the peers with the clear lead on Cost to Income ratios. Negative maturity gaps Maturity mismatches are quite common in the leasing industry. This is because the industry players find the longer end of the yield curve relatively illiquid to invest in long-term products like leasing and hire purchase. Hence, the industry is compelled to borrow short term to lend long term. In PLCs case, there is a wide negative maturity gap in less than 1 year bucket and more than 5 years bucket. However, PLC is at a distinct position when compared to its peers as the Group has easy access to money markets and credit lines backed by its strong parental presence, reputation and healthy earnings. PLC also has a high concentration on promissory notes (it is the main source of funds for PLC 39% of borrowings as at end FY 2011.) as a source with long-term maturities to help with maturity mismatches. Increasing the reliance on fee based income and timely re-pricing will aid to cushion maturity mismatches to a certain extent. Another advantage PLC has over the peers in specialized leasing group is their link to Peoples Leasing Finance, which is authorized to accept deposits. We see PLCs ability to source low cost financing from both the parent- Peoples bank and Peoples Leasing Finance as a significant strength.
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Less diversity in the product mix Domestic leasing market has a less diversified product mix and vehicle financing is the most popular product. According to the Asian Development Banks (ADB) Report and Recommendation on Proposed Loans (October 2007), vehicle financing is the single largest product constituting to 81% in the leasing product portfolio. Readily available market for repossessed vehicles id the prime driver behind high concentration on vehicle financing. However, the industry still has not properly tapped in to infrastructure financing, which we believe has a strong growth potential given the positive developments in the macroeconomic front. The main downside of infrastructure financing which make the product unattractive is poor resale value. Booming SME sector Small and Medium Enterprises (SME) sector is a key priority of the Government. This is a market which the leasing industry can tap in to as the formal banking sector (except for few banks like Hatton National Bank, Commercial Bank, Development Finance Bank and Sanasa Development Bank) is somewhat resistant on the back of relatively high credit risk. This has also resulted in SME loans being charged high rates to compensate the risk of default. According to the ADB report, the formal banking sector is reluctant to enter in to the SME lending owing to strong risk adverse bias and weaknesses in the judicial system. However, PLC has already realized the potential in this niche industry by having its presence in the industry by establishing a micro finance subsidiary (Peoples Microfinance Limited) in 2010. We believe PLCs extensive reach offers a unique competitive advantage in exploiting the SME financing market. Macro economic developments Reduction in import duties for vehicles in June 2010 acted in favour of the sector increasing the demand for leasing products. This also resulted in shifting a considerable demand from the Hire Purchase to Leasing products. According to the Department of Motor Traffic, new vehicle registrations saw a heavy 75% YoY in jump in 2010 (359,243 new registrations). The Budget 2011 proposed to remove VAT on leasing for passenger transportation buses, lorries and tractors in aid to facilitate economic growth. According to statistics released by the CBSL (Bulletin June 2011) the move by the government has been positively welcomed by industrialists. As per the statistics, in Q1 2011 new registration of passenger transport buses and tractors have seen staggering growth YoY. Further, economic development activities in the North and East provinces have created fresh demand for leasing and hire purchasing products particularly in Agriculture, Fisheries and Trading sectors. Increasing disposable income will also foster volume growth in the vehicle financing segment.

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Risk Evaluation
Government increasing vehicle taxes The motor vehicle industry in Sri Lanka is regulated to a great extent and is subjected to ad-hoc changes in import duties. However, going forward we are of the view that the increases in taxation for vehicles maybe limited given that vehicle imports constitute only ~4% of the total imports in the 2010 even accounting for the recent surge in vehicle imports. According to Finance Ministry officials, (source: LBO Duty Gains 25.08.2010) the Government has earned LKR 1.7bn in July 2010 on vehicle import tax revenue following import tax cut in June 2010. Since the domestic leasing industry lacks diversity of product mix and places a high reliance on vehicle financing, a further increase in import and duty taxes may affect negatively to the industry growth. Funding PLC (the leasing Company) is not allowed to accept public deposits the way a licensed commercial bank or a registered finance Company is allowed to. However, PLC is at a special advantage here as in June 2010 the Company acquired the controlling stake of former Seylan Merchant Leasing Co (Now renamed as Peoples Finance PLC) which is a registered finance Company with an asset base of LKR 8bn (12.5% of PLC Group assets). Given the fact that PLCs funding alternatives are limited to loan capital and equity, the sources of funding for leases maybe more expensive than that of a licensed commercial bank. We however see the IPO consideration of LKR 7.02bn being a strength for PLC making way for significant gains for the Group. (approximately LKR 842mn at a cost of 12% interest payable p.a). Interest rate risk Adverse interest rate movements could have a negative impact on PLCs cost of borrowings as well as yield on assets giving a cascading negative impact on margins, spreads and asset quality. However, the CBSL expects to keep inflation rates under a single digit level, which will have a cascading effect on reducing the pressure on interest rates. The CBSL has not changed its policy rates since January 2011, signaling its intention to keep cost of funds at a low level to promote economic growth. We expect deposit rates to climb upwards in future on the back of high competition among financial institutions to mobilize low cost funds. However, with the surge in demand for credit from the private sector, we expect interest rates to make a slight upward movement in the future.

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Financial Analysis
Income Statement - People's Leasing Co Limited
All numbers in LKR' mn Interest Income YoY Growth % Interest Expense YoY Growth % Net Interest Income Other Operating Income Non operating income Total Income Operating expenses Operating profit before loan loss provisions YoY Growth % Loan loss provisions VAT on financial services Recurring profit before tax YoY Growth % Income tax expense Recurring profit after tax (550) 803 (223) (36) 1,353 1,812 488 129 2,429 (817) 1,612 (2,161) 2008 3,973 2009 5,745 44.6% (3,208) 48.4% 2,537 523 128 3,189 (981) 2,208 37.0% (55) (270) 1,883 39.1% (843) 1,040 2010 6,776 18.0% (3,322) 3.5% 3,455 489 163 4,106 (1,232) 2,875 30.2% (540) (275) 2,060 9.4% (906) 1,154 2011 8,916 31.6% (3,902) 17.5% 5,014 594 477 6,085 (1,787) 4,298 49.5% (52) (401) 3,845 86.6% (1,231) 2,613 2012E 11,298 26.7% (5,286) 35.5% 6,012 753 204 6,969 (2,316) 4,653 8.3% (284) (260) 4,109 6.9% (1,150) 2,958 2013E 13,345 18.1% (5,778) 9.3% 7,567 974 245 8,786 (2,758) 6,029 29.6% (125) (337) 5,566 35.5% (1,558) 4,008

Attributable to: Recurring Profits to equity holders of the parent Recurring profit after tax 803 803 1,039 1,040 1,153 1,154 2,605 2,613 2,958 2,958 4,008 4,008

Profit after tax (with non recurring items) (Note 1) EPS (Note 2)

803 0.72

1,040 0.96

1,154 0.78

2,613 2.08

3,956 2.16

4,008 2.49

Source: Company Financial Reports, Prospectus and BRS Equity Research Note 1 : Includes cost of IPO (LKR 225mn) and reveresal of general provision reserve (LKR 1.6bn) Note 1: Based on earnings as reported (recurring) share data adjusted for bonus issue and share split and preference dividends

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Bartleet Religare Securities (Pvt) Ltd

BRS Equity Research

Financial Analysis
Balance sheet - People's Leasing Co Limited
All numbers in LKR' mn Assets Cash and short term funds Securities purchased under re-sale agreement Deposits with banks and financial institutions Inventories Dealing securities Investment securities Loans and other advances Lease and Hire Purchase receivables Deferred tax assets Investment in subsidiaries Other assets Property plant and equipment Investment property Intangible assets Total Assets Liabilites Deposits Short term borrowings Other liabilities evidenced by paper Borrowings Tax payable Deferred tax payable Samurdhi authority Other liabilities Total Liabilities Equity Stated capital General reserve Tax equilisation fund Reserve fund Investment fund reserve Retained earnings Shareholders' Funds Minority interest Total Liabilities & Equity 850 300 100 113 2,254 3,617 20,672 1,850 300 100 166 3,023 5,439 25,538 1,850 300 100 226 3,698 6,173 6 32,891 1,850 300 100 376 71 5,686 8,383 100 63,852 12,488 300 100 524 244 4,799 18,456 100 86,837 12,288 300 100 724 469 7,874 21,755 100 100,565 1,009 8,527 5,217 115 147 2,039 17,055 485 10,782 5,720 321 250 145 2,397 20,099 1,667 783 15,271 4,290 871 25 3,802 26,711 4,647 1,359 26,122 14,582 664 44 25 7,927 55,369 7,900 2,650 33,122 17,886 575 44 25 6,079 68,281 10,270 3,010 37,622 20,316 779 44 25 6,644 78,710 321 279 20 20,672 409 25 50 252 50 536 18,686 44 461 143 1,050 163 51 1,063 21,471 489 628 20 25,538 498 980 361 32,890 673 629 894 45 27 246 1,770 26,739 28 914 1,416 683 269 64 246 3,345 52,284 2,673 1,624 333 63,852 6,697 1,925 929 366 87 335 4,549 65,639 3,635 2,222 453 86,837 5,432 2,230 1,076 424 101 388 5,268 78,010 4,210 2,904 524 100,565 2008 2009 2010 2011 2012E 2013E

Source: Company Financial Reports, Prospectus and BRS Equity Research

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Bartleet Religare Securities (Pvt) Ltd

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