Sri Lanka's economy accelerated following the end of its 30-year civil war in 2009. GDP growth averaged over 8% annually from 2010 to 2011 as tourism, investment and exports increased. Fiscal deficits narrowed as government revenue growth of 12% outpaced expenditure growth. Primary budget surpluses helped reduce interest payments as a share of GDP. Sri Lanka's credit ratings were upgraded as the economy strengthened and stability returned.

1. SRI LANKA:
VALUE IS BACK IN EQUITIES
150, St. Joseph’s Street, Colombo 14, Sri Lanka.
Tel: +94 112490900, Email: jbs@jb.lk, www.jbs.lk
JULY 2012
PRIVATE & CONFIDENTIAL

2. Page 2JB Securities Research July 2012
Contents
The party – end of the 30 year conflict
The inevitable after party – exuberance led to irrationality
Sobering reality – some concerns remain
The lion is not beaten – And… the good news…

3. Page 3JB Securities Research July 2012
Market SnapshotCountry Snapshot
Name Democratic Socialist Republic of Sri Lanka
Capital Sri Jayewardenepura
Commercial Capital Colombo
Time zone Standard time zone UTC +5.30
Nationality Sri Lankan
Population 20.9 Million
Total Area 65,610 Sq.km
Density 333/Sq.km
Currency Sri Lankan Rupee (LKR)
Exchange rates LKR 135.38/US$| LKR 168.20/€ | LKR 210.53/£
Economic size (2011)
GDP (Nominal) USD 59.2 Billion
GDP (PPP) Int’l D 115.2 Billion
GDP per capita (Nominal) USD 2,836
GDP per capita (PPP) Int’l D 5,609
Sovereign rating Moody’s: (B1) ‘Positive’ S&P: (B+) ‘Stable’ Fitch: (BB-) ‘Stable’
Official languages Sinhala, Tamil
Business language English
Literacy rate 91.9%
6°54′N
79°54′E
*As at 06/07/2012
Sri Jayawaredenepura
Colombo

4. Page 4JB Securities Research July 2012
Valuations
Market Capitalisation
LKR 1,881.7Bn
USD 13.89Bn
Market P/E* 10.18x
Market P/B 1.76x
Dividend Yield 2.55%
Indices
Current Change MTD Change YTD
All Share Price Index 4,986.7 1.0% -27.7%
Milanka Price Index 4,439.3 -0.1% -31.0%
S&P Sri Lanka 20 Index 2,797.4 0.8% -22.4%
Liquidity
Average daily Turnover** LKR 1,397.4Mn
Annualised share volume velocity*** 17.9%
Free Float**** 40.9%
* P/E data is as per Bloomberg L.P.
** and *** Figures are based on data from June 2011 to June 2012.
Year-to-date figures are as follows: Average Daily Turnover – 796.12Mn, Velocity – 4.9%
****Free Float reflects the public shareholding of the companies that comprise the top 50% of CSE market capitalisation
Diversified
23%
Banks &
Finance
22%F&B,
Tobacco
17%
Hotels &
Travels
7%
Telecoms
6%
Oil Palms
6%
Other
19%
Market Index
Decomposition*
*As at 05/07/2012
Equity Market Snapshot

5. Page 5JB Securities Research July 2012
The party – end of the 30 year conflict
May2009
Jul2009
Sep2009
Nov2009
Jan2010
Mar2010
May2010
Jul2010
Sep2010
Nov2010
Jan2011
Mar2011
May2011
Jul2011
Sep2011
Nov2011
Jan2012
Mar2012
May2012

6. Page 6JB Securities Research July 2012
LMDNielsonsBusinessConfidenceIndex
80
100
120
140
160
180
The news buzz set the tone … January 2009 – June 2011
Foreign
ministers of UK
and France, visit
Sri Lanka in a bid
to set up a
temporary cease
fire.
The ruling United
Peoples Freedom
Alliance wins the
parliamentary
election with a
large majority of
seats (64%). The
election saw the
lowest ever voter
turnout (62.26%).
The parliament passes
18th amendment to
the constitution.
Removes presidential
term limits and
increases presidential
power over the
Judiciary, police and
civil service.
The Defeated
candidate of the
election Gen Sarath
Fonseka arrested
for allegedly
violating rules
preventing the
discussion of political
matters while being
a member of the
military.
The President
appoints an 8
member Lessons
Learnt and
Reconciliation
commission,
headed by
former Attorney
General C. R. De
Silva
UN panel led by
Maruzuki
Darusman
publishes its
report on war
Accountability in
Sri Lanka
2009 2011
Sri Lanka announces
bid for
Commonwealth
Games 2018 in
Hambanthota
EU suspends Sri
Lanka's preferential
trade status (GSP +)
over allegations of
human rights
violations.
AG Mohan
Pieris
withdraws
murder
charges
against former
government
MP. Former CJ
questions
legality.
President Rajapakse
opens the 1st phase of
Hambanthota port,
funded by China.
Clashes over
proposed new
private sector
pension bill
intensifies. 1 worker
killed and 60
seriously injured.
Government
temporarily
suspends the bill.
2010
UNHCR holds a special
day session on SL and
under the backing of
India, China and Russia,
commends the
government humanitarian
effort.
With the 2/3rd Majority in the parliament
government sweeps through major legislative
reforms
Incumbent M.
Rajapakse wins the
presidential election
with a clear majority
against challenger
Gen Sarath Fonseka,
who led the SL Forces
to victory in the
recently concluded
war. (6m votes to
4m).
War Ends with the
killing of LTTE
leader V.
Prabhakaran.
60,000-100,000
total civilian
casualties estimated
in the 30 year old
conflict.
The UPFA capitalizes on the war victory and gets fresh mandates with
prescheduled elections, gets parliament supermajority.
The Government distances itself more from Western powers and inclines towards
China and India
China lends USD 1.2 billion
out of USD 2.2 billion,
emerging as the largest
lender surpassing ADB &
World Bank in 2009.
Latter stages of the war
DOMESTICINTERNATIONAL
International intervention fails to pause the
war
Start Value = 96
End Value = 141
Sources: Newspaper articles, Central Bank of Sri Lanka, LMD, The Nielson Company, JBS Research
High point = 173
Low point = 87

7. Page 7JB Securities Research July 2012
Source: Parliament of Sri Lanka, JBS Research Analysis
• UPFA won the Parliamentary
election with 63% of the votes in
April 2010
• UPFA is led by the President
Mahinda Rajapakse who won
the recent Presidential
Election(Jan 2010) with 58% of
the votes.
• In Q3 2010 17MP’s crossed over
from the UNF to support the
18th amendment.
• UNP, JVP(DNA) and TNA
contested separately for the
parliamentary election after
their common candidate was
defeated at the presidential
election in Jan 2010
• UNP is the main opposition
party
Composition of the 7th parliament-(2010-2016)
UPFA 144 (64%)
UNP-D 9 (4%)
SLMC 8 (4%)
UNP 43 (19%)
DNA 7 (3%)
TNA 14 (6%)
Government
(72%)
Opposition
(28%)
17 MP’s crossed over to the
government to support the
18th Amendment
The incumbent government consolidated power …

8. Page 8JB Securities Research July 2012
Real Interest Rates
Source : Central Bank of Sri Lanka, JBS Research Analysis* CCPI 2002 – Core Inflation 12 month MA, 1 year treasury bill yield
Conflict Post-conflict Post-conflictConflict
Easing inflation drove real interest rates back up…
0%
5%
10%
15%
20%
25%
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
T-bill rate
Inflation*
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11

9. Page 9JB Securities Research July 2012
Investment, private consumption and exports drove GDP growth
100%
110%
120%
130%
140%
150%
160%
170%
180%
190%
2009 2010 2011
Private consumption
Government consumption
Investment
Exports of goods and services
Total consumption (Private + Govt')
Imports of goods and services
CAGR
21.3%
35.3%
28.6%
6.6%
18.3%
21.3%
Source: CBSL annual report 2011, JBS Research Analysis
64.3% 65.8% 69.8%
-6.5% -9.1% -14.6%
24.5% 27.8% 29.9%
17.6% 15.6%
14.8%
2009 2010 2011
Private consumption Net exports
Investment Government consumption
Expenditure on GDP Growth in expenditure

10. Page 10JB Securities Research July 2012
Conflict affected areas rebounded from a low base …
Source: Census and Statistics Sri Lanka, JBS Research Analysis
Northern
Eastern
Central
Southern
North Central
Western
Uva
Sabaragamuwa
North Western
CAGR %
2008/10
10.13
6.45
8.83
6.84
6.63
5.34
5.27
4.78
2.90
Conflict affected areas
45.4% 45.8% 45.1%
10.5% 10.5% 10.7%
9.8% 9.8% 10.0%
9.9% 9.6% 9.4%
6.4% 6.1% 6.3%
5.6% 5.8% 5.9%
4.5% 4.5% 4.5%
4.7% 4.6% 4.8%
3.2% 3.2% 3.4%
2008 2009 2010
Northern
North Central
Uva
Eastern
Sabara-gamuwa
North Western
Central
Southern
Western
5.95% 3.53% 8.01%
YOY GDP growth
Provincial contribution to GDP
100%= LKR5.6BnLKR4.8BnLKR4.4Bn
Provincial growth
90%
95%
100%
105%
110%
115%
120%
125%
2008 2009 2010

11. Page 11JB Securities Research July 2012
Tourist arrivals increased
Tourist nights increased…
Record number of tourist arrivals… Earnings grew…
Source : Sri Lanka Tourism
494,008
438,475 447,890
654,476
855,975
331,238 321,079
358,188
516,538
668,343
52,116
37,261
38,473
83,270
68,097
110,654
80,135
51,229
54,668
119,535
-11.7% -11.2%
2.1%
46.1%
30.8%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2007 2008 2009 2010 2011
Other Business
Pleasure Growth
410 384
320 349
576
839
13.2% -6.3%
-16.9%
9.3%
64.9%
45.7%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
-
100
200
300
400
500
600
700
800
900
2006 2007 2008 2009 2010 2011
Tourist Receipts (USD millions)
Growth
5,793
4,940
4,166 4,075
6,548
8,560
21.9%
-14.7%
-15.7%
-2.2%
60.7%
30.7%
(0)
(0)
-
0
0
0
0
1
1
1
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2006 2007 2008 2009 2010 2011
Tourist Nights('000)*
Growth
* Tourist nights spent in both graded and ungraded establishments

12. Page 12JB Securities Research July 2012
GDP growth accelerated
1.63% 2.14%
4.22%
6.12%
7.06%
8.47% 7.95% 8.57% 7.91% 8.16% 8.44% 8.32%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010 2011
12.08%
4.76%
5.27%
16.37% 16.62%
17.04%
18.52%
16.64% 17.00%
15.58%
7.52%
Avg. Real
Growth
15.28%
Avg.
Nominal
Growth
14.59%15.19%
Source: Census and Statistics Sri Lanka, JBS Research Analysis

13. Page 13JB Securities Research July 2012
Strong economic growth led to fiscal consolidation…
Fiscal DeficitGovernment Revenue Government Expenditure
Source : Central Bank of Sri Lanka
LKR Bn
Deficit as a % of GDPRevenue as a % of GDP Expenditure as a % of GDP
3yr CAGR 12.3 %
3yr CAGR 12.0 %
22.6%
24.9%
22.8%
21.4%
2008 2009 2010 2011
15.6%
15.0% 14.9%
14.5%
2008 2009 2010 2011
-7.0%
-9.9%
-8.0%
-6.9%
2008 2009 2010 2011
996
1,202 1,280 1,400
2008 2009 2010 2011
686 726
834
950
2008 2009 2010 2011
(310)
(476) (446) (450)
2008 2009 2010 2011

14. Page 14JB Securities Research July 2012
Primary balance improved…
-
* Primary balance is government revenue minus all expenses
excluding interest. Assuming nominal interest rates equal
nominal GDP growth a primary surplus reduces debt to
GDP.
Deficit as a % of GDP
Interest cost as a % of GDP
Primary* deficit as a % of GDP
Source : JBS Research Analysis, Central Bank of Sri Lanka
-1.8%
-2.2%
-3.4%
-1.7% -1.4%
2007 2008 2009 2010 2011
6.9% 7.0%
9.9%
8.0%
6.9%
2007 2008 2009 2010 2011
5.1% 4.8%
6.4% 6.3%
5.5%
2007 2008 2009 2010 2011

15. Page 15JB Securities Research July 2012
Country Credit Standing improved…
Post-conflictConflict
Dec ’08 S&P:
Downgraded to B
‘Stable’”
Feb ‘09
Fitch:
Lowered to
B+ ‘Negative’
Aug ‘09
• S&P: Outlook lifted to B
'stable‘
• Fitch: Outlook lifted to
B+ 'stable‘
Jun ’10
S&P: Outlook
lifted to B
‘positive‘
Jun ’10
Central Bank
appoints top
committee to
boost sovereign
rating
Sep ’10
•Moody's initiating
coverage with B1
‘Stable’
•S&P: Rating raised
to B+ ‘Stable’
•Fitch: B+ Outlook
lifted to ‘Positive’
Jul ‘11
•Moody's: B1
Outlook lifted to
‘Positive’
•Fitch: BB- ‘Stable’
•S&P: B+ ‘Positive’
May ‘09
S&P: Cut
outlook to B
‘Negative’
Source: Lanka Business Online, IMF
Negative Positive
*
Feb ‘10
Jun ‘10
Nov ‘09
Jul ‘09
Sep ‘10
Apr ‘11
USD 329.1 Mn
USD 329.4 Mn
USD 218.3 Mn
USD 212.5 Mn
USD 407.8 Mn
IMF approves 20 month
Stand-By Arrangement of
USD 2.6bn equal to 400%
of the country’s quota
IMF holds back third
tranche after Q409
budget goes off track
Sri Lanka may not take
last IMF loan tranche:
Fitch analystJul ‘11
Sovereign ratingsIMF Stand-by Agreement
Review 1
Review 2+3
Review 4
Review 6
Feb ‘11 USD 216.6 MnReview 5
Minister Sarath
Amunugama highlights
the importance of the IMF
program for Sri Lanka
Oct ‘10
Dec ’08 Jul ‘11Jun ’10

16. Page 16JB Securities Research July 2012
Foreign appetite for sovereign paper increased
Post-conflictConflictConflict Post-conflict
Sep ‘10 Jul ‘11Oct ‘07 Oct‘09
$500mn
5yr
8.25%
$500mn
5.25yr
7.40%
$1billion
10yr
6.25%
$1billion
10yr
6.25%
3 X 7.5 X6 X13 X
Number of times oversubscribed
397 bp 373 bp 332 bp499 bp
Spread over US treasury
Foreign holding of government securitiesSovereign bond issue
Templeton fund
invests USD 875 mn
(approx. LKR 100 Bn)
Source : Central Bank of Sri Lanka
LKR Bn
50
18
145
184 187
6
40
57 64
2007 2008 2009 2010 Jun 11
Treasury bills
Treasury bonds

17. Page 17JB Securities Research July 2012
Foreign sources funded the fiscal deficit easing pressure on domestic sources
Foreign
borrowing
Domestic
bank
Domestic
non bank
Budget deficit Financing of budget deficit
101
(5)
231 244 21916 195
49
(2)
192
129
119
197
204
39
2007 2008 2009 2010 2011
41.0%
-1.5%
48.4%
54.7%
48.6%
6.4%
63.0%
10.3%
-0.4%
42.6%
52.6%
38.5%
41.2% 45.8%
8.8%
2007 2008 2009 2010 2011
246
310
476
446 450
Source : JBS Research Analysis, Central Bank of Sri Lanka
* Foreign borrowings include the non resident holding of government treasuries
Foreign borrowing
Domestic bank
Domestic non bank
LKR Bn
97% with
CBSL

18. Page 18JB Securities Research July 2012
Reserves increased due to borrowed funds
Months of ImportsReserves built-up
Gross official reserves
Total reserves
Source : Central Bank of Sri Lanka
USD Mn
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00

19. Page 19JB Securities Research July 2012
Credit, Monthly Change
Credit to SOEsNet Credit to Govt.
Credit to Private Sector
Source : Central Bank of Sri Lanka*All amounts in LKR Bn
Crowding out effect decreased enabling private sector credit expansion
-20%
0%
20%
40%
60%
80%
100%
120%
-
100
200
300
400
500
600
700
800
900
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Net Credit to Government
Annual Change (%)
-50%
0%
50%
100%
150%
200%
250%
-
20
40
60
80
100
120
140
160
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Credit to SOEs
Annual Change (%)
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Credit to the Private Sector
Annual Change (%)
-150
-100
-50
0
50
100
150
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Private
Corps.
Govt.

20. Page 20JB Securities Research July 2012
Monetary conditions eased
LKR Bn
Monetary policy instruments Growth in monetary aggregates
* SRR – Statutory Reserve Requirement
Unsterilized
absorption of the
USD 1 billion
sovereign bond
LKR Bn
-40
-20
0
20
40
60
80
100
120
140
160
5%
6%
7%
8%
9%
10%
11%
12%
13%
Jan-09
Feb-09
Mar-09
Apr-09
Jun-09
Jul-09
Aug-09
Sep-09
Nov-09
Dec-09
Jan-10
Feb-10
Apr-10
May-10
Jun-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Feb-11
Mar-11
May-11
Jun-11
Liquidity
Repo
Reverse Repo
SRR*
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
-
500
1,000
1,500
2,000
2,500
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Consolidated Broad Money(M2b)
Reserve Money
M2b growth
Credit to the Private Sector
Reserve Money growth

21. Page 21JB Securities Research July 2012
Improved liquidity kept interest rates in check…
Policy Rate Pass-through to Market Interest Rates
Source : Central Bank of Sri Lanka, JBS Research Analysis
5%
7%
9%
11%
13%
15%
17%
19%
21%
Jan-09
Feb-09
Apr-09
May-09
Jul-09
Aug-09
Oct-09
Nov-09
Dec-09
Feb-10
Apr-10
May-10
Jul-10
Aug-10
Oct-10
Nov-10
Jan-11
Feb-11
Apr-11
May-11
Repo
Reverse Repo
AWPLR
AWDR
Call Money Rate
3 month t-bill

22. Page 22JB Securities Research July 2012
Earnings rapidly picked up…
11.7 6.3
14.5
25.7
29.0 30.0
40.7
46.7 45.7
43.3
-10
0
10
20
30
40
50
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
Diversified
Banking & Finance
Food, Bev and Tobacco
Manufacturing
Telecommunications
Oil Palms
Investment Trusts
Hotels & Travels
Other
270%
CSE Quarterly Earnings
March 2009 – June 2011
LKR Bn
Source : JBS Research Analysis, Colombo Stock Exchange*Earnings figures have not been adjusted for the effect of Cross Holdings

23. Page 23JB Securities Research July 2012
1.1% 1.0%
4.0%
8.0%
Sep. 2008 Sep. 2009 Sep. 2010 Dec. 2011
6.7 7.4
33.3
79.0
Sep. 2008 Sep. 2009 Sep. 2010 Dec. 2011
EPF is the largest
investor in the CSE
LKR Bn
Equity asset allocation
Source : CBSL Financial System Stability Reviews and Annual Reports
Overall equity exposure
Employee Provident Fund* increased their asset allocation into equities
*The Employee Provident Fund (EPF) is the largest superannuation fund in the country. As at September 2011, the EPF accounted for close to 13.25% of
financial sector assets of the country, with over 2.3 million active accounts. It is administered by the Commissioner of Labour, while the management of
the fund is undertaken by the Monetary Board of the Central Bank of Sri Lanka

24. Page 24JB Securities Research July 2012
Massive bull market ensued…
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11
CBSL reaffirms its
commitment to equity
investment with a “long
term” outlook
Janus Fund enters the
market
Share Volume increased
rapidly during the boom
Galleon Fund begins
exiting the market
AllSharePriceIndex
Source : Central Bank of Sri Lanka, JBS Research Analysis
377%

25. Page 25JB Securities Research July 2012
Excess liquidity chased a limited number of shares…
31.0%
78.5%
28.0%
70.3%
60.0%
53.9%
15.6%
14.7%
15.8%
5.5%
18.5%
49.0%
84.5%
18.7%
7.3%
7.1%
6.5%
3.9%
3.1%
3.1%
3.0%
2.8%
2.5%
2.4%
2.3%
2.0%
2.0%
1.8%
50%
BUKI JKH CARS COMB HNB SPEN LOLC DIAL CTC SLTL CARG DFCC SAMP AHPL
Free Float*
Contribution to Growth
.
Company wise contribution to market cap growth
March 2009 – June 2011
Source : JBS Research Analysis
*Free float has been calculated as the average of period beginning and period end public holding percentage
** The ASI started from a low of 1639 to peak at 7811 within the period.
More than 50% of the Market
Cap growth during the period
can be attributed to growth in
14 companies, most of which
have relatively small free floats*

26. Page 26JB Securities Research July 2012
New capital raisings exploded …….Money like jam
CSE - Primary and secondary offerings
January 2009 to December 2011
Average degree of oversubscription at IPOs*
January 2009 to December 2011
-
5,000
10,000
15,000
20,000
09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4
Secondary offerings Primary offerings
1.1 1.7
11.9
15.9
21.2 21.8
141.0
2.9
4.4
1.4
09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4
Total amount of capital attracted by IPOs
Total amount of capital offered in IPOs
Quarterly degree of
oversubscription
=
Secondary offerings
accounted for
approx. 75%
LKR Mn
Source: JBS Research Analysis, CSE Data

27. Page 27JB Securities Research July 2012
and penny stocks became the new craze…
Penny stocks - Share volume velocity* Volatility of returns*
*Figures have been annualized
Penny stocks – stocks whose prices were less than LKR 10 at either the
beginning or end of a given quarter.
Source: JBS Research Analysis, CSE Data
9%
19% 20% 17%
27% 31%
53%
71%
94%
135%
09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2
37%
35%
44%
30%
25%
36%
59%
20%
26%
21%
15%
6% 6%
10%
5% 6%
8%
4%
9%
5%
09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2
Penny Stocks Overall Market

28. Page 28JB Securities Research July 2012
Bullish expectations drove the market …
Disaggregation of Market Cap growthContribution to Market Cap growth
64.3%
15.4%
20.3%
P/E Growth Earnings Growth Combined Effect
100%
132%
32%
42% 305%
Jun-09 P/E Growth Earnings
Growth
Combined
Effect
Jun-11
Source: JBS Research Analysis

29. Page 29JB Securities Research July 2012
The future looked increasingly rosy….
56.1% 50.5% 45.9%
43.9% 49.5% 54.1%
18% 20% 22%
Decomposition of market value
June 2009
Franchise
Value
Tangible
Value
Cost of Equity Cost of Equity
Decomposition of market value
June 2011
31.3% 27.4% 24.4%
68.7% 72.6% 75.6%
14% 16% 18%
Source: JBS Research Analysis

30. Page 30JB Securities Research July 2012
The inevitable after party – exuberance turned to irrationality
May2009
Jul2009
Sep2009
Nov2009
Jan2010
Mar2010
May2010
Jul2010
Sep2010
Nov2010
Jan2011
Mar2011
May2011
Jul2011
Sep2011
Nov2011
Jan2012
Mar2012
May2012

31. Page 31JB Securities Research July 2012
LMDNielsonsBusinessConfidenceIndex
Hubris displaced humility and benevolence ….
Nearly 20,000
metric tonnes
of tainted
petrol
released to
the public
causing close
to a thousand
vehicles to
suffer engine
failure.
President
appointed
commission
on Lessons
Learnt and
Reconciliati
publishes its
report.
Makes key
recommend
ations.
Sarath Fonseka,
ex-army chief
jailed for three
years over
charges of making
false statements
about the
president’s
brother, who is
also the secretary
of defense.
Q2Q4Q3
Clashes over
proposed new
private sector
pension bill
intensifies. 1 worker
killed and 60
seriously injured.
Government
temporary suspends
the bill.
Parliament
scraps
emergency
laws for the
first time in 6
years.
Strengthens
Prevention
of Terrorism
Act
temporarily.
Former
parliamentari
an Bharatha
Laksman and
others killed
in a post
election
interparty
shoot-out.
Dozens more
injured.
Controversial
expropriation
bill
nationalizing
37 businesses
deemed to be
“underperfor-
ming or
underutilized”
Q2
2011
Q1
With the 2/3rd Majority in the parliament government sweeps through major legislative
reforms
INTERNATIONALDOMESTIC
Sources: Newspaper articles, Central Bank of Sri Lanka, LMD, The Nielson Company, JBS Research
Low point = 105
80
100
120
140
160
180
Start Value = 150
End Value = 107
Sri Lanka
announces bid
for
Commonwealth
Games 2018 in
Hambanthota
2012
High point = 173
Sri Lanka
loses bid to
host the
2018
Commonwe
alth games.
EU expresses
concerns
over
censorship
of dissident
websites in
Sri Lanka.
Natural gas
deposits
discovered for
the first time in
Sri Lanka by
Cairn India.
US issues
sanctions on
Iranian oil. SL
currently
imports 93% of
all its crude oil
from Iran.
British Television
station Channel 4
airs video footage of
claimed atrocities
against civilians in
the latter stage of
the war
News report appears stating
India may not support Sri
Lanka at the UN HR vote due
to increased political pressure
from parties in Tamil Nadu.
SL loses key UNHRC
vote on war crimes. The
council urges Sri Lanka
to “credibly investigate”
allegations of war
crimes during the end of
the conflict.
Left wing
political
activists
Kumar
Gunarathnam
and Dimuthu
Atygala
abducted by
unknown
gunmen.
Abductees
found left
near a police
station.
Activist
Gunarathna
deported
from
country
citing visa
irregularities
Presidential
pardon
given to
Sarath
Fonseka.
Civic rights
abolished.
Intense diplomatic pressure exercised by Western nations over SL Government

32. Page 32JB Securities Research July 2012
Credit growth persisted…
Credit, Monthly Change
Net Credit to Govt. and SOEs
Credit to Private Sector
Source : Central Bank of Sri Lanka
*All amounts in LKR Bn
-20
0
20
40
60
80
100
120
140
160
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Private Corps. Govt.
32.5%
33.0%
33.5%
34.0%
34.5%
35.0%
35.5%
0
500
1,000
1,500
2,000
2,500
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Credit to the Private Sector
Annual Change (%)
0%
20%
40%
60%
80%
100%
120%
-
200
400
600
800
1,000
1,200
1,400
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Credit to SOEs
Net Credit to Government
Credit to Govt. growth
Credit to SOEs growth

33. Page 33JB Securities Research July 2012
CBSL attempted the impossible trinity – fixed exchange rate …
*NEER is the weighted average of nominal exchange rates of the 24 trading
partner and competitor countries including USD, GBP, JPY, INR and SDR
Source : Central Bank of Sri Lanka, JBS Research Analysis
95
96
97
98
99
100
101
102
103
104
95
100
105
110
115
120
125
130
135
140
Apr11
May11
Jun11
Jul11
Aug11
Sep11
Oct11
Nov11
Dec11
Jan12
Feb12
Mar12
Apr12
May12
LKR/USD(RHS)
NEER(LHS)
REER(LHS)
President in his
capacity as Finance
Minister depreciates
the rupee by 3%
CBSL sold USD to hold the peg
Reserves drained out
USD Mn CBSL says
intervention will
be limited to
settlement of oil
bills
USD Mn
-28%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
LKR
Currency mispriced…
INR devaluation
(700)
(600)
(500)
(400)
(300)
(200)
(100)
-
100
200
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12 Peg maintained

34. Page 34JB Securities Research July 2012
Impossible trinity …and an accommodative monetary policy…
Source: Central Bank of Sri Lanka, JBS Research Analysis
Policy instruments accommodative
* SRR – Statutory Reserve Requirement
LKR Bn
LKR Bn
5%
10%
15%
20%
25%
30%
35%
40%
-
500
1,000
1,500
2,000
2,500
3,000
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
Consolidated Broad Money(M2b:)
Reserve Money
M2b growth
Credit to the Private Sector
Reserve Money growth
-20
0
20
40
60
80
100
120
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
Apr-11
Apr-11
May-11
Jun-11
Jul-11
Jul-11
Aug-11
Sep-11
Sep-11
Oct-11
Nov-11
Dec-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
Apr-12
May-12
Jun-12
Money market liquidity
Repo
Reverse Repo
SRR*
Monetary aggregates expanded

35. Page 35JB Securities Research July 2012
Imports exploded leading to a doubling of the trade deficit in 2011…
Increase in ExportsIncrease in Imports
USD Mn
Source: Central Bank of Sri Lanka, JBS Research Analysis
2.01 X
6,926 = 1.52 X 2010
1,933 = 1.22 X 2010
*Change in unclassified imports of USD 108mn and unclassified exports of USD 193mn have been netted off
4,821
9,7061,754
1,078
802
698
509
506
472
426
254
245
182
835
327
321
289 123 100 71 50 9 85
2010 Petroleum Other
Intermediate
Goods
Building
Materials
Diamonds
and Precious
Metals
Textiles Other
Consumer
Goods
Transport
Equipment &
Other
Vehicles Machinery
and
Equipment
Food and
Beverages
Ceramic
Products
Textiles and
Garments
Rubber
Products
Other
Industrial
Exports
Petroleum
Products
Gems,
Diamonds
and
Jewellery
Coconut Other
Agricultural
Products
Tea Mineral Unclassified* 2011
As a % of GDP
9.7%
16.4%

36. Page 36JB Securities Research July 2012
…and built pressure on the Current Account…
12%
19% 96% 25%
11% 15%
329%
25%101%
22%51%
45%
Services Account Income Account
20,269
9,710 9,258
4,615
10,559
3,084
1,985
467
1,114
5,145
562 60
Imports Exports Trade deficit Receipts Payments Receipts Payments Private
receipts
Private
payments
Official
transfers(net)
Merchandise trade Services Income Goods,
Services and
Income(net)
Current transfers Current
account
deficit
USD Mn
Services and Income
Accounts almost
offsetting each other
Private remittances
easing the pressure
Percentage increase over 2010
1,392
1,098
954 830
501 355
507 531
Inflows Outflows Inflows Outflows Inflows Inflows Outflows
Transportation Travel BPO, ITES Other Total
709 647
448 385
10 19 8
Outflows Inflows Outflows Inflows Outflows Inflows
Interest and Other
Charges
Direct Investment Compensation of
Employees
Income
account
balance
As a % of GDP
16.4%
7.8%
15.6%
Source: Central Bank of Sri Lanka, JBS Research Analysis

37. Page 37JB Securities Research July 2012
…resulting in a depletion of reserves
Months of ImportsReserves fell by USD 2.2 Bn in 8 months
Gross official reserves
Total reserves
USD Mn
Source: Central Bank of Sri Lanka
Jul-11
Aug-11
Aug-11
Sep-11
Oct-11
Oct-11
Nov-11
Dec-11
Dec-11
Jan-12
Feb-12
Feb-12
Mar-12
Apr-12
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
-23%

38. Page 38JB Securities Research July 2012
Liquidity rapidly dried up… Interest rates shot up…
Money market net liquidity
Loan to deposit ratio of banks
70% 70%
61%
76%
85%
2007 2008 2009 2010 2011
LKR Bn
Source: Central Bank of Sri Lanka, JBS Research Analysis
-20
0
20
40
60
80
100
120
140
160
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
Nov-10
Dec-10
Jan-11
Mar-11
May-11
Jun-11
Aug-11
Sep-11
Nov-11
Dec-11
Jan-12
Mar-12
May-12
Jun-12
Money market liquidity Repo
Reverse Repo AWPLR
AWDR Call Money Rate
3 month t-bill

39. Page 39JB Securities Research July 2012
The MPI was an early precursor of the impending collapse…
ASIMPI
The ASI and MPI
≈ 4½ months
MPI peaks in early
October 2010
ASI peaks in mid February
2011
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
Source : JBS Research Analysis
The All Share Price Index (ASI) and the Milanka Price Index (MPI) are market capitalization weighted indices. Whereas the ASI includes every
company listed in the CSE, the MPI only contains 25 companies. Criteria for inclusion in the MPI are as set out in http://cse.lk/mpi.do

40. Page 40JB Securities Research July 2012
The regulator tried in vain…
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
SEC suspends trading of
heavily manipulated
shares and imposes a
10% price band on all
securities
SEC mandates stock
broker companies to
refrain from extending
credits to any investor
beyond T+3 days
SEC mandates the force
sale of securities by T+5
SEC relaxes rules on
debt settlement
SEC introduces new rules
on share allotment to
retail investors, while
Central Bank places a cap
on total number of bank
guarantees to be issued
for IPO subscriptions
SEC relaxes
rules on
price bands
SEC further relaxes
rules on debt
settlement
SEC revokes directive
on price bands all
together
SEC directive permits brokers
to extend credit to investors
up to three times net adjusted
capital
SEC Chairperson resigns
SEC Director General
leaves office
The regulator became regulated…
MPI ASI
Source : Securities and Exchange Commission of Sri Lanka

41. Page 41JB Securities Research July 2012
Earnings plateaued out…
30.0
40.7
46.6
45.7
43.3
46.3
47.3
0
10
20
30
40
50
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Diversified
Banking & Finance
Food, Bev and Tobacco
Manufacturing
Telecommunications
Oil Palms
Investment Trusts
Hotels & Travels
Other
LKR Bn
Source : JBS Research Analysis, Colombo Stock Exchange*Earnings figures have not been adjusted for the effect of Cross Holdings

42. Page 42JB Securities Research July 2012
Even the penny stocks began to lose their luster….
31%
53%
71%
94%
135%
126%
45%
10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4
36%
59%
20%
26%
21%
37%
17%
6%
8%
4%
9%
5%
1%
3%
10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4
Penny Stocks Overall Market
Penny Stocks - Share volume velocity* Volatility of returns*
*Figures have been annualized
Source : JBS Research Analysis,

43. Page 43JB Securities Research July 2012
The market lost more than 40% of its value during the bust…
MPI ASI
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
8,000
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12
ASI -38.6%
MPI -45.8%

44. Page 44JB Securities Research July 2012
Sobering reality – some concerns remain
May2009
Jul2009
Sep2009
Nov2009
Jan2010
Mar2010
May2010
Jul2010
Sep2010
Nov2010
Jan2011
Mar2011
May2011
Jul2011
Sep2011
Nov2011
Jan2012
Mar2012
May2012

45. Page 45JB Securities Research July 2012
51.7
40.7**
2004 2006 2008 2010
56.9
52.6**
2004 2006 2008 2010
42.8
31.8**
2004 2006 2008 2010
Concentration of power leading to a weakening of state and civil institutions…
Control over corruption and unfair
dealing is slipping
“ the extent to which public power is exercised for
private gain, including both petty and grand forms of
corruption, as well as "capture" of the state by elites
and private interests. “
The perception of the rule of law has
deteriorated
“ the extent to which agents have confidence in and
abide by the rules of society, and in particular the quality
of contract enforcement, property rights, the police, and
the courts… “
Social freedoms and rights of franchise
are under friction
“the extent to which a country's citizens are able to
participate in selecting their government, as well as
freedom of expression, freedom of association, and a
free media. “
Constitutional amendments have strengthened the executive at the expense of other branches of government. This relative weakening of
parliamentary and judicial powers along with other civil institutions has contributed to greater concerns regarding the quality of governance
in the country.*
Source: World Bank, http://info.worldbank.org/governance/wgi/index.asp
Governance is slipping…
*Three of the six major dimensions of governance that are included in the World Banks’s indicative framework for governance as they apply to Sri Lanka are highlighted above.
**The ranking is based on a percentile; Higher values imply a better score.
*** The rankings provide a directional indication and not an absolute measure of governance. Therefore they should not be construed an absolute quantification of the country’s level of
governance, and at higher confidence levels the directional weakening suggested by the indicators may become statistically insignificant.

46. Page 46JB Securities Research July 2012
Devolution of Power – 25 years and still a work-in-progress
The 13th Amendment is a product of the Indo-Sri Lanka Accord of 1987. Drawing closely on the Indian federal system, it proposes a framework for
devolution of power which constitutes of the following:
 Establishment of a Provincial Council (PC) along with a High Court for each province.
 Making Tamil an official language while setting English as the link language.
 Delegation of certain legal and executive powers into the hands of the PCs as stipulated under three lists; the Reserved List, Provincial Council List and
the Concurrent List.
 Limited executive and legislative powers are delegated to PCs under the Provincial Council and Concurrent Lists. These powers cover issues related to
law and order, land and land settlement, provincial finances and education.
However, despite the 13th amendment being cited as one of the major stepping stones in achieving reconciliation, full implementation of the provisions
enshrined in the amendment has remained elusive under various governments over the past quarter of a century.
Signing of
Indo-Lanka
Peace
Accord
Indian Peace
Keeping Force
(IPKF) arrives in
Sri Lanka
13th
Amendment
debated and
certified
1st ever PC
election takes
place in 4
provinces
President Jayawardena
authorises the merger of
North & East provincial
councils
Sri Lanka & India
agree on terms of
withdrawal for
IPKF
IPKF
withdrawal
completed
Supreme Court
orders demerger of
North and East
President Rajapakse
pledges 13+ solution
to India
President discusses 13+
solution with Indian FM
and Congress Party
delegation
President announces that a
13+ solution should be sought
through a Parliamentary
Select Committee (PSC)
President reaffirms his
confidence in a PSC in
reaching a lasting solution
Further to the 13th amendment, several committees have been appointed by various government to explore the issue of devolution of power and other matters relating to the
13th Amendment. These include the Mangala Moonesinghe PSC of 1992, the Gunewardena Committee of 1995, the All Party Representative Committee (APRC) of 2006.
1987 1988 1989 1990 1991 1992 2006 2009 2010 2011 2012

47. Page 47JB Securities Research July 2012
Source : Ministry of Finance and Planning
Inflation is on the increase…
2%
3%
4%
5%
6%
7%
8%
9%
10%
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Headline - YoY
Core - YoY
Headline - 12m MA
Core - 12m MA
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Food Inflation
Non Food Inflation
7.1%
11.2%
9.3%
5.8%

48. Page 48JB Securities Research July 2012
27.6%
24.7%
21.4%
18.5%
14.5%
12.0%
Vietnam Malaysia Thailand India Sri Lanka Bangladesh
Revenue as a % of GDP
Source : IMF, Central Bank of Sri Lanka
14.2%
13.3%
12.8%
12.9%
12.4%
13.3%
15.8%
14.9%
14.5% 14.6%
14.3%
14.7%
16.6%
15.6%
15.0% 14.9%
14.5%
15.0%
2007 2008 2009 2010 2011 2012 F
Tax
Tax + Non tax
Tax + Non tax + Grants
Sources of revenue
85.5% 85.3% 85.3% 86.9% 85.5%
9.4% 10.1% 11.1% 11.1% 12.9%
5.1% 4.5% 3.6% 2.0% 1.6%
2007 2008 2009 2010 2011
Grants
Non tax
Tax
Government revenue low compared to peers…

49. Page 49JB Securities Research July 2012
73.8 58.2
146.3
182.7
2008 2009 2010 2011
-0.5%
-1.5%
-0.5%
-0.3%
-1.8%
2007 2008 2009 2010 2011
120.0
26.4
0.15
16.4
1.08
0.17
19.3
0.59
64.0
0.23
Combined loss (LKR Bn)
Combined loss (USD Bn)
5 year
average of
-0.9%
Combined operating losses of main State
Owned Enterprises
Combined earnings of the market
Combined operating loss as a % of GDP
LKR Bn
LKR Bn 1.29
1.65
0.51
Combined earnings (USD Bn)
Source: Ministry of Finance and Planning, CSE, JBS Research Analysis
0.68
* Cross holdings have not been eliminated
The SOE monsters keep bleeding …
7.1
(11.1) (7.7)
(20.3)
(85.2)
(22.3)
(33.9)
(7.4)
5.0
(19.3)
2.0
(11.0)
(6.6) (0.3)
(13.5)
(6.1)
(8.0)
(4.6) (0.8)
(2.0)
2007 2008 2009 2010 2011
Sri Lanka Transport Board
Airlines
Ceylon Electricity Board
Ceylon Petroleum Corporation

50. Page 50JB Securities Research July 2012
30.7%
27.8% 26.3%
22.6%
20.3%
5.1%
3.7%
8.5%
10.9%
11.7%
1.3%
1.3%
1.6% 2.6%
3.6%
2007 2008 2009 2010 2011
82.9% 84.7%
72.2%
62.6%
57.0%
13.7% 11.3%
23.3%
30.2%
32.8%
3.4% 4.0% 4.5% 7.3% 10.1%
2007 2008 2009 2010 2011
Concessional
Loans
Non-
Concessional
Loans
Commercial
Loans
37.1%
32.8%
36.4% 36.1% 35.6%
* Sovereign bonds and foreign holding of treasuries are classified as commercial loans
Foreign borrowings of the government (%GDP) Loan mix
Source : Central Bank of Sri Lanka
Shift in reliance to non-concessional and commercial loans…

51. Page 51JB Securities Research July 2012
-
17.9%
21.6% 23.7%
6.6%
6.2%
6.3%
2009 2010 2011
Government
Private
Private
Net private
transfers
Government
21.7% 20.8%
16.5%
-3.7% -2.1% -1.1%
5.8% 6.0%
6.7%
2009 2010 2011
National Savings/GDP
-0.7%
-3.1%
-7.8%
2009 2010 2011
Investment savings gap/GDP
Investment - savings gap has widened
Investment/GDP
Source: Central Bank of Sri Lanka , JBS Research

52. Page 52JB Securities Research July 2012
Government borrowing
Grants and transfers
FDI
FPI
Trade liabilities
Reserve movement
Other – Commercial bank
net assets & errors
-0.7%
-3.1%
-7.8%
2009 2010 2011
Investment savings gap/GDP
0.9% 0.9%
1.5%
-0.5% -0.3%
0.7% 0.4%
0.4%
5.3%
4.7% 4.2%
0.7%
-1.8%
-0.1%
-6.5%
1.6%
-1.1%
-0.4%
-2.2%
-1.8%
Financing the resource gap/GDP
0.0%
Mostly financed by govt. borrowings
Source: Central Bank of Sri Lanka, JBS Research Analysis

53. Page 53JB Securities Research July 2012
USD Mn
Source : Central Bank of Sri Lanka, World Bank
1.86% 1.85%
0.96% 0.96%
1.62%
2007 2008 2009 2010 2011
Foreign Direct Investment FDI as a % of GDP
223
411
154 195 218
221
131
19
44 33
159
210
231
239
705
2007 2008 2009 2010 2011
603
752
404
478
956
* FDIs excludes loans as per the UNCTAD presentation
7.5%
3.9%
3.0%
1.6% 1.4% 0.9%
Vietnam
Malaysia
Thailand
SriLanka
India
Bangladesh
Low compared to peers…
* All data for 2010 except for Sri Lanka(2011)
FDI yet low…
Reinvested
earnings
Other
capital
Equity capital
Includes land
purchases

54. Page 54JB Securities Research July 2012
Source: Census and Statistics Sri Lanka, JBS Research Analysis
2,365,501
2,863,854
396,853 -11,938
113,439
GDP-2008 Capital intensity Capital productivity Labour force growth GDP-2011
CAGR
2008/11
=-0.14%
CAGR
1.33%
CAGR
6.58%
CAGR
X
80%
-2%
22%
Contribution
to GDP
5.31%
CAGR
X
Labour productivity
LKR Mn
5.19%
Capital intensity driving growth NOT total factor productivity (TFP)
Note
CAGR of GDP = [(1+CAGR of Capital Intensity)*(1+CAGR of Capital Productivity)*(1+CAGR of Labour Force)]-1

55. Page 55JB Securities Research July 2012
The lion is not beaten – And… the good news…

56. Page 56JB Securities Research July 2012
Competitiveness is improving relative to peers…
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
End of war
61/75
59/80
68/102
73/104
98/117
79/125
70/131
77/133
Ranking/No of countries ranked
57/75
54/80
56/102
55/104
45/117
43/125
48/131
50/133
33/75
35/80
32/102
34/104
36/117
35/125
28/131
34/133
Thailand Sri Lanka India
36/133 79/133 49/133
Source: World Economic Forum, World investment report 2011 UNCTD, Central Bank of Sri Lanka, JBS Research Analysis
62/139 51/13938/139
39/142 52/142 56/142
Competitiveness ranking has increased
by 38% after the war
60/75
65/80
60/102
77/104
81/117
77/125
68/131
70/133
Vietnam
75/133
59/139
65/142
CompetitivenessHigh Low

57. Page 57JB Securities Research July 2012
Key contributor being the greater stability from the end of the conflict…
CompetitivenessHigh Low
0% 25% 50% 75% 100%
Innovation
Business sophistication
Innovation & sophistication
Market size
Technological readiness
Fin. market development
Labour market efficiency
Goods market efficiency
Higher education & training
Efficiency enhancers
health & primary education
Macroeconomic environment
Infrastructure
Institutions
Basic requirements
Overall Ranking
Improving competitiveness
will depend on improving
these key problem areas
37% 57%
2012 Ranking out
of 142 Countries
2009 Ranking out
of 134 Countries
Improvement
Source: World Economic Forum, World Investment Report 2012 UNCTD, JBS Research Analysis
Current Rank - 2012
Improvement over 2009
Deterioration over 2009
Overall Ranking
Efficiency Enhancements
Basic Requirements
Innovation & Sophistication

58. Page 58JB Securities Research July 2012
Ease of doing business rank has improved
134 132
78
98102
2011 2012
India Vietnam Sri Lanka
Sri Lanka Vietnam
2011 2012 2011 2012
Overall 102 89 78 98
Starting a business 34 38 100 103
Construction permits 169 111 62 67
Getting electricity n/a 95 n/a 135
Registering property 155 161 43 47
Getting credit 72 78 15 24
Protecting investors 74 46 173 166
Paying taxes 166 173 124 151
Trading across
borders
72 53 63 68
Enforcing contracts 137 136 31 30
Resolving insolvency 43 42 124 142
89
The World Bank Doing Business Ranking out of 183 countries
Source: Doing Business, The World Bank, 2012
Thailand 17
Sri Lanka 89
Vietnam 98
India 132
Philippines 136
India
2011 2012
134 132
165 166
177 181
n/a 98
94 97
32 40
44 46
164 147
100 109
182 182
134 128

59. Page 59JB Securities Research July 2012
Country is experiencing a demographic dividend…
Population between the age of 15-64 years Population aged 0-14 and above 64, divided by 15-64 age
Source : Key Indicators for Asia and the Pacific 2011 - ADB
2010 2010
66.0%
69.5%
64.1%
60.0%
Sri Lanka Vietnam India Pakistan
51.5%
43.9%
56.0%
66.7%
Sri Lanka Vietnam India Pakistan
Dependency Ratio% of population in productive age

60. Page 60JB Securities Research July 2012
Labour force is literate…
Primary school completion rate *
Literacy rate
Average years of schooling**
*Latest data available
** The years of formal schooling received, on average, by adults over age 15
* The primary completion rate =(No. of primary school graduates/No. of children in
primary school age). The ratio can go above 100 percent, which can be a
symptom of late entry, grade repetition, or of an enrollment push at some point
in the past, perhaps as a consequence of a school enrollment campaign
Source: Key Indicators for Asia and the Pacific 2011 – ADB, Annual Report 2011
97.5%
102.3%
94.8%
61.1%
Sri Lanka Vietnam India Pakistan
91.9% 92.8%
62.8%
55.5%
Sri Lanka Vietnam India Pakistan
8.4
6.4
5.1
5.6
Sri Lanka Vietnam India Pakistan

61. Page 61JB Securities Research July 2012
Socio Economic indicators are healthy…
14
51
11
48
38
0
10
20
30
40
50
60
Sri Lanka Vientnam Thailand India Bangladesh
S. Asia Avg. 52
Global Avg. 41
Life Expectancy (Years | 2010)
Infant Mortality Rate (Per 1,000 live births | 2010)
*Total Healthcare expenditure includes private and government
expenditure on healthcare
75 75
74
65
69
60
62
64
66
68
70
72
74
76
Sri Lanka Vientnam Thailand India Bangladesh
Global Avg.
70
S. Asia Avg.
65
2.90%
6.80%
3.90%
4.10%
3.50%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Sri Lanka Vientnam Thailand India Bangladesh
S. Asia Avg.
3.8%
Total Healthcare Expense*
(% of GDP | 2010)
Source :World Development Indicators 2012 – World Bank 2012

62. Page 62JB Securities Research July 2012
Labour supply conditions are favourable…
Source: United Nations ,Population Division (2011). World Population Prospects: The 2010 Revision/ Sri Lanka Labour Force Survey 2011
28%
21%
61%
63%
10%
16%
2010 E2017
100% (000’) = 13,921 14,402
Older
(55+)
Prime
(25-54)
Young
(15-24)
Composition of Working age population
(aged 15 to 64 years)
Current labour supply, YE2011
20,869
15,459
7,013
6,691
5,410
8,446
322
Total Population
Population < 15
Years
Working Age
Population, 15+
Years
Not Participating
Total Labor Force
Unemployed
Labor Force
Employed Labor
26%
74%
66%
34%
Male
Female
In 000’

63. Page 63JB Securities Research July 2012
Relatively higher tertiary educated labour force.…quality concerns exist
Source: McKinsey Global Institute -The world at work – Jobs, pay, and skills for 3.5billion people, June 2012/CBSL annual report 2012
30%
25%
70%
46%
53%
61%
23%
46%
16%
13%
7%
8%
Sri Lanka
Malaysia
India
Indonesia
Primary or lower Secondary Tertiary
4,405
5,142
4,012
4,830 4,432
2,198
2,301
2,547
2,705
2,704
2,348
1,492
2,274
2,504
2,028
896 901 1294
943
797
809 894
1,114
1,157
1,307327 208
345
425
392730 1067
1372
1388
1,382
2006 2007 2008 2009 2010
other
Law L.L.B.
Engineering
B.Sc. (Eng.)
Medicine
M.B.B.S.
Science B.Sc.
Commerce &
Mgt. Studies
Arts & Oriental
Studies
Educational attainments of the workforce, 2010
(% of working age population)
No of graduates from the government universities
11,713 12,005
12,958
13,952
13,042

64. Page 64JB Securities Research July 2012
Urbanization will be a growth enabler…
0%
5%
10%
15%
20%
25%
30%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Urbanization* forecasted to increase
Urbanization* is officially defined as people belonging to the smallest administrative division
(i.e. Municipal Council or village council). Other methodologies place Sri Lanka’s real
urbanization rate as high as 40%.
Economic Density* low compared to the region
Western
Southern
Central
North. W.
Sab.
North. C
Nothern
-
250
500
750
1,000
1,250
1,500
1,750
- 50 100 150 200 250 300 350 400 450 500
PopulationDensity(pplperKm2)
Gross Regional Product Per Capita (LKR 000’s)
Potential for bridging the gap
R2 =0.89
Economic Density = GDP per unit Area
Sri Lanka: Reshaping Economic Geography – WB 2011World Urbanization Prospects: The 2011 Revision – UNDESA 2011, Annual Report 2011 – CBSL 2012
Colombo = $15Mn/km2
Bangkok = $88Mn/km2
Singapore= $269Mn/km2
Ho Chi Minh
city =
$73Mn/km2

65. Page 65JB Securities Research July 2012
Diaspora opportunity…
Mid. East (000's)
Saudi Arabia 600
U.A.E. 300
Kuwait 300
Qatar 100
Lebanon 100
Israel 8
1,408
W. Europe (000's)
France 150
Germany 60
Switzerland 55
Netherlands 10
275
*Currently living or working on a temporary or permanent basis outside of SL
*Not official estimates of the Government of Sri Lanka
Canada
300,000
Italy
60,000
Australia
100,000
India
200,000
New Zealand
7,000
Sweden
8,000
Norway
14,000
U.K.
200,000 S. Korea
20,000
Japan
20,000
Denmark
13,000
Aggregate (000's)
Mid. East 1,408
Europe 560
N. America 335
S. & East Asia 240
Australasia 107
2,650
U.S.A.
35,000
Regions with significant populations of Sri Lankans*

66. Page 66JB Securities Research July 2012
Ongoing infrastructure development plans – Power and Highways
Source: Ministry of Ports and Highways, Ministry of Power and Energy, Department of External Resources, Treasury Annual Reports, Central Bank of Sri Lanka, RDA
Project Investment Completion
Upper Kotmale Hydro Power Plant
(150MW)
USD 335Mn June 2012
Norochcholai Coal Fired Power Plant –
Phase II (600MW)
USD 891Mn 2013
Uma Oya Development Project
(120MW)
USD 526Mn 2015
Trincomalee Coal Power Plant
(500MW)
USD 500Mn 2017
Project Investment Completion
Southern Expressway Extension (35km) USD 168Mn* 2013
Colombo-Katunayake Expressway
(25km)
USD 292Mn 2012/13
Colombo Outer Circular Highway
(29.1km)
USD 935Mn 2015
Colombo-Kandy Expressway
(98km)
USD 1,231Mn
(Feasibility Stage)
n/a
Major Power Projects underway and planned
Major Road Development projects underway and planned
*Estimated figure
5
6
7
8
1
3
2
4
4
3
2
1
5
6
7
8

67. Page 67JB Securities Research July 2012
Project Investment Completion
Colombo – South Harbour Development
Project – 9.6mn TEU of transshipments
USD 1,075Mn 2013&14
Hambantota – Commercial operations &
Bunkering tank farm (80,000MT)
USD 1,037Mn 2011,12&15
Galle – Yacht marina and general
infrastructure development
JPY 14.5Bn +
LKR 525Mn
n/a
Oluvil – Fisheries port development EUR 46.1Mn n/a
Mattala International Airport (1 million
passengers p/a)
USD 209Mn 2012
Bandaranaike International Airport Expansion
– (6 million passengers p/a)
USD 425Mn 2015
Major Port and Airport Projects undergoing and planned
Telecommunications – National Backbone (NBN)
• Telecommunication Regulatory Commission of Sri Lanka (TRCSL) has initiated an
island-wide fibre backbone network
• The key goal is to provide all-island broadband connectivity through 5 fibre
optical cable rings
• Completion by 2014
• This will provide high speed internet connectivity to all regions of the country
Major Telecommunications projects currently undergoing
1
2
3
4
5
6
1
2
3
4
5
6
Source : Sri Lanka Ports Authority, Ministry of Ports and Highways, TRCSL
Ongoing infrastructure development plans – Ports and Telecommunications

68. Page 68JB Securities Research July 2012
0%
1%
2%
3%
4%
5%
6%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -
March
• 2.3 Mn Internet users as of Dec/11
Source: www.internetworldstats.com, TRCSLSource: TRC Sri Lanka
• Mid-year population 20.9 Mn in 2011
Internet and Email Subscribers
(As a percentage of tot. population |Dec 2011)
Internet and Broadband usage expanding but trailing peers
1.09
1.23
Indonisia India Sri Lanka Vietnam Thailand
Broadband connections
(Per 100 people| 2012)
Fixed
Wireless
0.90
0.79
4.61
4.13
2.32

69. Page 69JB Securities Research July 2012
Primary balance improvements not at the expense of capital exp...
15.6%
15.0% 14.9%
14.5%
15.0%
2008 2009 2010 2011 2012 F
12.5% 12.7%
11.2% 10.4% 10.3%
5.3%
5.7%
5.4%
5.5% 6.0%
2008 2009 2010 2011 2012 F
-2.2%
-3.4%
-1.7%
-1.4% -1.3%
2008 2009 2010 2011 2012 F
Revenue as a % of GDP
Primary Expenditure as a % of GDP
Primary deficit as a % of GDP
-
Primary Recurrent
Expenditure + Net
Lending
Capital Expenditure
16.3%
17.8%
18.5%
16.6%
15.9%
Source: Central Bank of Sri Lanka, JBS Research Analysis

70. Page 70JB Securities Research July 2012
122,706
407,702
59,183
132,054
90,835
62,107
Tamil Nadu
Andhra Pr.
Karnataka
Kerala
GDP of Southern
states of India
Sri Lanka 7x
Four southern states of India - 7x Sri
Lanka’s GDP
(2011, Nominal GDP $Mn)
Source: Directorate of Economics Statistics of respective State Governments, and for All-India — Central Statistical Organization / CBSL Annual report 2011
Large economic opportunity at the country’s door step…
GDP CAGR* 8.41%
Contribution to
national economy
In 2011
5.73%
GDP CAGR* 8.09%
Contribution to
national economy
In 2011
3.96%
GDP CAGR* 8.68%
Contribution to
national economy
In 2011
7.82%
GDP CAGR* 8.01%
Contribution to
national economy
In 2011
8.01%
GDP CAGR* 6.42%
CAGR 2007/11*

71. Page 71JB Securities Research July 2012
Major Trade Route
Sri Lanka is ideally located along the
major East-West trade route.
Regional Growth
Trade growth in the Indian Subcontinent
(ISC)
Poor Regional
Infrastructure
Congestion within Indian ports and strict
cabotage laws make transshipments at
Sri Lankan ports a more viable option for
ship owners
Sri Lanka’s Competitiveness as a Maritime Hub Regional trade routes with Sri Lanka as a Hub
Sri Lanka
2.7
2.9
3.0
3.2
3.2
3.6
4.6
5.2
5.8
7.1
China - ME & Africa
EU - China
EU - Other Asia
EU -ME & Africa
US - China
Other Asia - EU
China - Other Asia
Other Asia - Other Asia
China - EU
China - US
World’s top 10 liner routes (TEU Mn)*
Colombo’s reckoning as a maritime hub
2.4 Mn
TEU
4.1 Mn
TEU
2005 2010
2005
Ranked 35th among the
world’s major ports
2010
Ranked 29th among the
world’s major ports
Source : IHS Fairplay, World Trade Service, World Shipping Council.* Liner Volumes are for 2009
Sri Lanka’s strategic
location places it on 6 of
the 10 largest trade routes
in the world and within
reach of over 26% of all
the world’s container
traffic
Trade routes that pass by Sri Lanka
Sri Lanka’s strategic
location places it on 6 of
the 10 largest trade routes
in the world and within
reach of over 26% of all
the world’s container
traffic
Progressing towards a ports and maritime hub

72. Page 72JB Securities Research July 2012
Colombo & Hambantota
Current Sri Lankan transshipment capacity: ≈ 4.5mn TEU
Capacity after completion of proposed expansion: > 14mn TEU
Transshipment Services
-
5
10
15
20
2000 2003 2006 2009
TEUMillions
Transshipment Activity in the
Indian Subcontinent
Total container volume handled at
ports within the Indian Subcontinent
Container volume transshipped
from Colombo
Total transshipment activity related
to the ISC
Bunkering Services
Colombo & Hambantota
Current Sri Lankan bunkering capacity: ≈ 35,000 MT
Capacity after completion of proposed expansions: > 115,000 MT
168 253 133 259
524
2007 2008 2009 2010 2011
Bunkers and Aviation fuel sales in
Sri Lanka (USD Mn)
Commercial Ship repair
Colombo, Galle & Hambantota
Current maximum commercial dry docking
capacity : 125,000dwt (at Colombo)
Capacity for afloat repairs should increase at
Colombo once port expansion concludes.
Major Ports of Sri Lanka
Colombo
Galle Hambantota
Trincomalee
89 78 66 74 74
101
82
82 75 91
2007 2008 2009 2010 2011
Dry
dockings
Afloat
repairs
Ship repair volumes - Colombo
Source : Colombo Dockyard PLC annual reports, Drewry Maritime Research, Treasury Annual Reports
Ports and maritime hub cont...

73. Page 73JB Securities Research July 2012
Tourism – “One Island, A Thousand Treasures”
Note: 2011/12 VFF figures are based on 14-16% of total arrivals, this category is forecasted to grow at 10% till 2016
Source : SLTDA
Total tourist arrivals including VFF (SLTDA)
Tourists
537,569
725,889
275,438 329,479
2,300,000
1,451,777
116,907
130,086
52,464.32
58,143
200,000
200,000
2010 2011 Jan-May
2011
Jan-May
2012
Scenario
1
Scenario
2
3x
2x
F2016
654,476
855,975
327,902
387,622
2,500,000
1,651,777
F2016
Scenario 1: Tourist arrivals estimated by SLTDA(2.5Mn)
Scenario 2: Tourist arrivals increase by 2x
Visiting Friends and Family (VFF)
VFF=SLTDA arrivals –(Foreign guest nights /10)
Tourist arrivals (adjusted for VFF)

74. Page 74JB Securities Research July 2012
Tourism – Room inventory projected to increase …
Forecast assumptions
Avg. occupancy 70%
Avg. stay 8days
Avg. room sharing 1.6persons
Scenario 1: Tourist arrivals estimated by SLTDA (2.5Mn)
Scenario 2: Tourist arrivals increase by 2x of YE2011
Approved new hotel projects 209
Expected investment $2,046Mn
Incentives on offer for selected hotel projects:
• Tax holidays for 1st 10 yrs.
• Reduced tax rate of 6% or half the applicable rate (currently 12%)
• Payee tax exemptions on expatriate workers
• Withholding tax exemptions (i.e. interest on deposits,
management fees, royalty & marketing fees)
• Exemptions on VAT, PAL & Customs duty on imported or locally
purchased project related goods
Source : SLTDA ,JBS Research Analysis
Required room stock
14,653
42,074
28,411
6,141
13,967
6,350 7,313
Scenario 1
Scenario 2
Inventory mismatch
Expected room
inventory based on
approved projects
Current room
inventory
(YE2011)
Un-graded
Graded
Note: Major portion of room inventory expected in 2016
20,794
Projectedroominventory
tomeetdemandin
YE2016
Major hotel brands entering Sri Lanka
+ -

75. Page 75JB Securities Research July 2012
C1
C2
C3
C4
C5
M1
M2
M3
M4
M5
M8
M6
M7
M9
M10
S1
Exploration Blocks : M1
$2,250Mn
Seismic Surveys
Exploratory Drilling
Appraisal of commercial
viability
Setting up sub- sea completion
(Upstream)
Setting up transport
infrastructure (midstream)
Downstream activities
2010 2011 2012 2013 2014 2015 2016 2017 2018
150
100
1,500
1,000
500
Time line
Cost ($Mn) incurred by Cairn Lanka Open to investors
Operated by Cairn Lanka Pvt. Ltd
Potential for bridging the fossil fuel deficit…
Source : PRDS Sri Lanka, CBSL annual report 2011,JBS Research
Mannar basin Cauvery basin Southern
Reserve Guestimate for the Mannar basin
Confirmed existence of Working Hydrocarbon systems
5%4%
6%
17%
21%
47%
Diesel
Furnace Oil
LPG
KeroseneOther139.5
4.4
Expected energy yeild
from exploration
Energy demand
(YE2011)
TOEMn
32 X
Petrol
TOE-Ton of oil equivalent : Energy released by burning
1 MT of crude oil
Energy
decomposition
(TOE basis)
Expected energy yield
from exploration

76. Page 76JB Securities Research July 2012
Presence
Sri Lanka is an experienced player with a
comparatively long involvement in the
global apparel industry
Labour
Highly skilled labor force combined with
closely involved local entrepreneurship
Capabilities
Broader skill set that transcends the ability
to simply cut-make and trim, extending into
greater value added portions of the supply
chain
Value Addition
Increasing tendency of exporters to extend
product lines into the greater value added
segments and develop strategic
relationships with buyers
Reputation
Solid CSR track record , close compliance
with labour laws and reputation for being
the source of “clothing with a conscience”
Source: World Bank, Central Bank of Sri Lanka
Drivers of competitiveness
1,786 1,921 1,774 1,887 2,068
1,816 1,898 1,764 1,842
1,892
2007 2008 2009 2010 2011
Knit Woven
84.6 87.2 87.8 92.3 102.3
2007 2008 2009 2010 2011
Apparel Exports - Composition
Apparel Exports – Value added*
* 2002 Constant Factor Prices
USD Mn
LKR Bn
Apparel – largest industry…moving up the value chain

77. Page 77JB Securities Research July 2012
475
623 598 695 667
185
202 179
220 251
121
136
117
135 145
89
102
95
120 126
155
209
196
271 302
2007 2008 2009 2010 2011
Source: World Bank, Central Bank of Sri Lanka, Sri Lanka Tea Board
Higher value addition
Composition of Black tea Exports (MT)
Greater diversification of markets
Export destinations – USD Mn
211 208 185
142 133
74 85
79 148 155
22 21
20
31 28
2007 2008 2009 2010 2011
Bulk Packets Bags
Ceylon tea … the connoisseur’s choice
2.87
3.14
3.28 3.26
2.99
2.31
2.49
2.71 2.73
2.47
2008 2009 2010 2011 2012
Mombasa
Colombo
World
Kolkata
Chittagong
Cochin
Commanding a price premium..
Annual average tea prices (USD/kg)*
*World price is as at 31st March of every year. March 2012 prices are spot prices and
have not been averaged over a given period.
Middle East
Russia
EU
Other OECD
Other
Mar 2012

78. Page 78JB Securities Research July 2012
Source: Treasury Report 2011, Ministry of Finance & Planning, AT Kearney Global Services Location
Index – 2011, ATKEARNEY
Industry recovering after the global
economic crisis
NominalUSDMn.
Sri Lanka Ranked 21st in the AT Kearney Global Services Location Index
2.45
3.23
3.23
3.21
0.76
2.54
2.14
3.05
2.97
3.20
2.48
2.84
0.45
2.82
0.91
2.41
2.48
2.56
2.02
2.31
2.44
3.18
3.27
3.05
2.68
3.24
3.10
2.78
2.62
3.11
1.58
0.78
1.16
0.69
2.17
1.03
1.27
0.81
0.77
0.95
1.79
0.94
2.88
0.88
2.26
0.94
0.93
0.93
2.07
0.95
1.27
1.31
1.19
1.38
1.60
1.53
1.36
1.38
2.55
2.76
1.09
1.11
0.76
1.28
2.27
1.65
1.81
1.37
1.49
1.11
1.07
1.56
2.01
1.67
2.23
2.05
2.02
1.96
1.38
2.24
1.82
1.16
1.24
1.29
1.44
1.01
1.35
1.83
1.31
1.14
0 2 4 6 8
Argentina
Senegal
Pakistan
Ghana
Germany
Romania
Poland
Tunisia
Jordan
Sri Lanka
Russia
Costa Rica
USA
Bulgaria
UK
UAE
Lithuania
Latvia
Brazil
Estonia
Chile
Philippines
Vietnam
Thailand
Mexico
Indonesia
Egypt
Malaysia
China
India
Financial attractiveness
People skills and
availability
Business environment
175
230
245
265
387
79%
31%
7%
8%
46%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
50
100
150
200
250
300
350
400
450
2007 2008 2009 2010 2011
Series1 Series2Industry Export Revenue Year on Year Growth
IT/BPO industry – a rising star
Moved up 4
places in 2011

79. Page 79JB Securities Research July 2012
108,709 113,777 113,087 107,816
50,848
61,320 71,114
67,703
60,757
56,194
64,755
67,612
18,707
15,918
17,489 19,829
2008 2009 2010 2011
No. of persons
House Maids
Skilled
Semi and
Unskilled
Other
1,745
1,995
2,474
3,030
525
603
724
885
175
203
247
401
128
148
177
232
90
100
144
206
55
57
82
103
200
224
568
288
2008 2009 2010 2011
Middle
East
EU
Far East
Non EU
SE Asia
AUS & NZ
Other
5,141
4,416
3,330
2,918
USD Mn262,960266,445
247,209
239,021
Departures for Employment Inward Remittances
Remittances remain healthy…
As a % of GDP
8.7%
8.9%
7.9%
7.2%
Source: Central Bank of Sri Lanka

80. Page 80JB Securities Research July 2012
7.50
10.50
10.50
12.08
Domestic(>
60 units)
Industrial
* April 2011 – April 2012 figures are provisional
Structural reforms easing pressure on the trade account…
Source: Central Bank of Sri Lanka, Ceylon Petroleum Corporation
30
50
70
90
110
130
150
2007 2008 2009 2010 2011 2012
Petrol (90 Octane)
Auto Diesel
Kerosene
Furnace Oil
Price subsidies being reduced…
LKR.PerLtr
Rs.PerLtr
Merchandise trade USD Mn
115
73
51
32
149
115
106
90
Petrol (90
Octane)
Auto Diesel
Kerosene
Furnace Oil 2012
2009
40%
29.6%
57.5%
181.3%
15%
Electricity
tariff
(Rs./KWh)
1,568
1,236
1,634
1,490
1,683
1,669
1,770
1,837
1,763
1,757
1,986
1,876
1,915
1,581
1,697
1,441
923
817
931
749
836
820
962
954
858
889
886
933
918
880
836
680
-645
-419
-703
-742
-847
-848
-808
-883
-904
-868
-1,101
-942
-997
-701
-861
-761
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
Jan11
Feb11
Mar11
Apr11
May11
Jun11
Jul11
Aug11
Sep11
Oct11
Nov11
Dec11
Jan12
Feb12
Mar12
Apr12
Imports
Exports
Balance of Trade107.8%

81. Page 81JB Securities Research July 2012
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Jan11
Feb11
Mar11
Apr11
May11
Jun11
Jul11
Aug11
Sep11
Oct11
Nov11
Dec11
Jan12
Feb12
Mar12
Apr12
May12
Sri Lankan rupee (LKR)
Bangladeshi taka (BDT)
Vietnamese dong (VND)
Indian rupee (INR)
Chinese yuan (CNY)
USD against regional currencies
95
96
97
98
99
100
101
102
103
104
105
105
110
115
120
125
130
135
140
Jan11
Feb11
Mar11
Apr11
May11
Jun11
Jul11
Aug11
Sep11
Oct11
Nov11
Dec11
Jan12
Feb12
Mar12
Apr12
May12
LKR/USD(RHS) NEER(LHS)
REER(LHS)
Source: forexpros.com, Central Bank of Sri Lanka, JBS Research
LKR devaluation has kept up with peers…expected to stabilise…
LKR

82. Page 82JB Securities Research July 2012
8.0% 8.3%
7.8%
6.8%
6.0%
7.8%
5.9%
4.1%
2010 2011 CBSL Estimate* IMF Estimate JBS Estimate** Developing Asia ASEAN-5 Newly
industrialized
Asian economies
* CBSL expects GDP growth of 7.2% in 2012 and 8% in the medium term
** JBS estimate = Investment rate (27%) / ICOR average (4.5)
Source : Central Bank of Sri Lanka, IMF, JBS Research
Medium term GDP growth projections (2012 – 2017)
Sustainable GDP growth expected to average 6% in the medium term…

83. Page 83JB Securities Research July 2012
65.5%
57.8% 51.7%
34.5%
42.2% 48.3%
15% 17% 19%
31.3% 27.4% 24.4%
68.7% 72.6% 75.6%
14% 16% 18%
Decomposition of market value
June 2011
Decomposition of market value
July 2012
Cost of Equity Cost of Equity
Franchise
Value
Tangible
Value
Source : JBS Research Analysis
Equity valuations have reversed to more reasonable levels…
*Current treasury rates: 1yr 12.99%, 5yr 14.15%, 10yr 14.75% (6th July 2012)

84. Page 84JB Securities Research July 2012
1.28
3.42
1.37 1.32
2009 2010 2011 March 2011
1.71 1.75
1.12
Thailand Phillippines India
Bank P/B Multiples – Sri Lanka* Bank P/B Multiples – Peers**
*Peer comparisons are for March 2012
** P/B Multiples are for “Systemically Important” banks. In cases where such classification was not available, the six largest listed banks by asset size were taken into
consideration
June 2012
Source: Various Stock Exchange Filings
Sector Multiples – Banking…

85. Page 85JB Securities Research July 2012
Major Conglomerates – P/E Multiples Major Conglomerates – Returns on Equity
Source: Various Stock Exchange Filings
Sector Multiples – Diversified…
15.7
12.0
21.0 20.9
9.7 9.2
JKH SPEN CTHR CARS HAYL HHL
15.0% 15.8%
11.4%
16.9%
14.9%
12.2%
JKH SPEN CTHR CARS HAYL HHL

86. Page 86JB Securities Research July 2012
Concluding remarks - Economy
 Economy sailing through head winds in the short term due to weak global conditions and domestic
structural imbalances.
 Next major elections are in 2015 thus fiscal consolidation can continue – this will mean more taxes and
fewer subsidies. Ideally it should be done by casting the tax net wider and better targeting of subsidies.
 Inflation differentials accumulated over the last 5 years led to the large depreciation of the currency –
the currency should stabilize going forward.
 Tight monetary conditions will have to continue for at least the next 12 months to keep inflation and
the exchange rate in check.
 Absence of a conflict is a necessary condition but not a sufficient condition for high rates of economic
growth. Sustainable medium term economic growth will be around 6% due to low domestic savings and
low capital productivity.
 Higher economic growth is possible by focusing on improving total factor productivity – this will require
economic restructuring (shift of resources to more productive activity - SOE privatization, a more liberal
trade policy, controlling rent seeking behaviour, etc.), investments in human resources (education and
skills upgrading) and technical progress (technological and organization advances).
 The best years for the country lie ahead – there lies a real possibility of Sri Lanka being a “Breakout
Nation*”
* Cited in “Breakout Nations” by Ruchir Sharma, Head of Emerging Market Equities & Global Macro at Morgan Stanley Investment Management

87. Page 87JB Securities Research July 2012
Concluding remarks - Equities
 Bull markets are 7 year cycles (1993-4, 2002-3 and 2009-11) – next one is not due anytime soon. Thus
there will be no rising tide to lift ALL boats.
 Equity market is in its consolidation phase – market will go sideways for the remainder of this year.
Nevertheless, a sideways market offers many opportunities to invest in undervalued securities as
the potential for mispricing is larger.
 The low free float large market cap stocks in the indices are masking the true extent of the fall in the
market – many stocks have fallen 50-60% from their peak.
 Nominal GDP growth will be around 13-14% in the medium term – large firm revenues will grow at a
CAGR of around 16-17%, EBITDA will grow 18-19%.
 Free float is further constrained since there will be reluctance to sell at a loss especially amongst state
controlled institutions.
 Value is returning to the market – some stocks are now trading below their intrinsic values.
 Trying to time the market is futile – jumping on the band wagon when its moving is a losing
proposition.
 Build a diversified portfolio by accumulating equities in stages – 10%:20%:30%:40%.

88. Page 88JB Securities Research July 2012
About us
JB Securities Ltd is a full service brokerage firm that is licensed to operate on the Colombo Stock Exchange (CSE).
The firm was a founding member of the Colombo Stock Exchange in 1985 and has extensive experience dealing
with domestic and foreign institutional investors and high net worth individuals and family offices.
In order to provide unique investment insights to our clients we conduct extensive deep-dive research in the
industry verticals pertaining to the large listed companies to identify their industry and business dynamics. This
process is aided by the largest team of equity analysts in the country, a majority of them either being CFA charter
holders or CFA candidates who have undergone a 20 month intensive in-house training program based on
international curricula. The firm continues to invest in the development of its analyst team to widen and deepen
its research coverage.
The firm is part of the family owned Jafferjee Brothers group based in Sri Lanka that was founded in 1944. The
group’s business interest spans a wide array of activities in trading, manufacturing and services and has extensive
experience dealing with global companies.
The core ethical values of the family have been enshrined in all its businesses. All employees of JB Securities
have signed off on a code of ethics and standards of professional conduct that is based on that of the CFA
Institute.

89. Page 89JB Securities Research July 2012
Legal disclosures
© Copyright 2012, JB Securities (Pvt) Ltd, All rights reserved.
This research is for our clients only. Other than disclosures relating to JB Securities, this research is based on
current publicly available information that we consider reliable, but we do not represent it as accurate or
complete, and it should not be construed as such. We seek to update our research as appropriate.
JB Securities shall have no liability, contingent or otherwise, to the user or to third parties, for the quality,
accuracy, timeliness, continued availability or completeness of the data or calculations in this document, nor
for any special, indirect, incidental or consequential damages which may be incurred or experienced
because of the use of the data or calculations made available herein.
JB Securities does and seeks to do business with companies covered in its research reports. Investors should
be aware that the firm may have a conflict of interest that could affect the objective of this report. Investors
would consider this report as only a single aid in making their investment decision.
No part of this material may be modified or altered without the prior consent of the firm.

90. Page 90JB Securities Research July 2012
For further information contact:
Murtaza Jafferjee CFA
+94 11 2490900
murtaza.jaff@jb.lk
150, St. Joseph’s Street, Colombo 14, Sri Lanka.
Tel: +94 112490900, Email: jbs@jb.lk, www.jbs.lk