CAL URBAN PRICE INDEX (CAL UPI)

The CAL UPI (+21%YoY) Vs. CCPI (+10% YoY)

CAL UPI (2012) vs. CCPI (2006/2007) 125 120 115 110 105 100 95 Jan-12 Apr-12 Jul-12 CAP UPI CCPI Oct-12 Jan-13 110 121

CAL developed the Urban Price Index (UPI) to measure the inflation middle class households in cities endure with a greater degree of accuracy than the govts CCPI. The CAL UPI uses the Laspeyres* method to calculate changes in prices with 2012 as the base year. CAL assumes a monthly income of LKR 80k/household of four with 56% of the income spent on goods in the basket (Jan 2012). The basket includes food and beverages, communication, transportation and energy costs. The CAL UPI shows a 20.6% YoY increase in the costs of living for an urban household while the CCPI depicts only a 9.8% increase. The CAL UPI applies to over half of all city dwellers.
CAL UPI accounted for 56% of household income in 2012 (Base year) CALs 80k average income is based on the Household Income and Expenditure Survey - 2009/10. CAL has adjusted the 2010 average urban household income of LKR 60k (which represent +54% of Sri Lankan urban households in 2010) to LKR 80k (based on per capita income growth). CAL UPI is based on the Laspeyres method CALs UPI basket will not change over time and therefore should provide a more accurate depiction of price changes.
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CAL UPI +21% YoY vs. CCPI +10% YoY Primarily due to energy, food and beverage price hikes in 2012, the CAL UPI was c.11% higher than the CCPI (2006/07). In January 2013, c.70% of household income was spent on items in the CAL basket (+21% YoY).
* Refer Appendix 3

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See page 7 for important disclaimer

In 2012, c.55% of all Sri Lanka households earned more than 59k/month
Household income (Sri Lanka) - 2009/10

Average income for 2012 is LKR 60k after adjusting for wage hikes.

39.5%

14.6% 7.1% 8.7% 10.8%

1.6%

2.9%

3.9%

4.9%

6.0%

In 2012, CAL estimates c.54% of urban households earned c.80k/month

Household income (Urban) - 2009/10

Average income for 2012 is LKR 80k after adjusting for wage hikes.

38.2%

Nominal per Capita GDP % increase in income Avg. income in 2009 Avg. income in 2012

2009 236,445

2010 271,346

2011 313,511 33% 60,390 80,073

15.1% 7.2% 8.8% 11.1%

1.7%

2.9%

4.0%

5.0%

6.0%

Sources: Household Income and Expenditure Survey - 2009/10 and CAL Estimates

In Jan 2013, CALs weightage expects 70% of urban income spent on essentials vs. CCPIs 49% (Jan 2012: 58% vs. 44%)
Weightage for CAL UPI vs. CCPI

41.0% 23.7% 47.9% 33.6%

Basket Items Food and Drink Fuel and Light Communication Transportation Savings and Others Total

LKR/Month 22,073 15,494 4,000 4,560 33,873 80,000

4.8% 8.7% Communication CCPI (2006/07)

12.3% 9.9% Transportation

Food and Drink

Fuel and Light CAL UPI (2012)

CAL UPI +21% vs. CCPI +10% YoY

CAL UPI (2012) vs. CCPI (2006/2007) 125
Fuel price hike (+9%) and subsequent price increases in transport (+21%) and electricity (+40%)

Vegetable price hike due to flood and drought

120

121

115

110

110

105

100

95 Jan-12 Apr-12 Jul-12 CAP UPI CCPI Oct-12 Jan-13

Sources: Household Income and Expenditure Survey - 2009/10 and CAL Estimates

Appendix 1 - Assumptions

Income Level
We have assumed a LKR 80k average middle class household income per month, taking two working members in a family of four.

CAL UPI Basket

The items in the CAL UPI basket are samples that represent a wider range of goods and services purchased by urban middle class households. There are 30 individual goods and services in the basket, as listed in Table 1 & 2. Certain items have been taken as proxies for others not included, but exhibit similar price changes. For example, Chili powder is in the basket, but turmeric and pepper are not. Expenditure on pepper (and other spices not in the basket) is allocated to chili powder proportionate to spending. The following items have not been considered in the CAL UPI basket.

Health - Primary level universal health care is provided free of charge in Sri Lanka. Further, a majority of the middle class population is covered by insurance schemes paid by the employers. Education - Sri Lanka has a free, compulsory education system for primary and secondary students up to the age of 18. Accommodation For a more objective analysis, we have not included rents.

Appendix 2 The CAL UPI Basket

Foods and Drinks

Items Beans (Green) carrots Tomatoes Potatoes Rice (Samba) Wheat flour Bread (Loafs) Mysore Dhal Coconuts Chicken (Broiler) Fish (Kelewalla) Dried fish (Katta) Milk (Anchor) Eggs (Packed) Sugar (White) Tea Dust Fruits - Banana (Ambul) Coconut oil(Bottled) Bombay (Big) onions Green chili Garlic Chili powder Other Foods

kgs/ltrs 2.6 2.2 2.2 3.4 22.2 4.0 20.6 4.6 17.3 5.7 7.0 2.4 6.0 31.6 4.2 1.0 3.8 2.4 6.3 1.4 1.6 1.1 2.4

Fuel, Light, Transportation & Communication

Items Petrol (ltr) Electricity (Units) Water (Units) L.P. Gas (kgs) Bus fare (Journeys) Communication (Minutes)

kgs/ltrs 84 137 28 9 240 2,000

Sources: CAL Estimates

Appendix 3 Computation Method

The CAL UPI is calculated using the price relative form of the base weighted Laspeyres formula.

Laspeyres formula

The Laspeyres index measures the change in cost of purchasing the same basket of goods and services in the current period as was purchased in the specified base period (2012 for CAL). The prices are weighted by quantities in the base period. Maintaining CALs basket going forward should provide a more accurate depiction of cost of living for an urban household of four.

Price Collection Centers

Food and Beverages Keells Super, Cargills Food City, Laugf Sunup Petrol Ceylon Petroleum Corporation L.P.Gas Laugf Gas Communication Dialog Axiata Public Transportation Ceylon Transportation Board Water Bill National Water Board Electricity Bill Ceylon Electricity Board

DISCLAIMER
This document has been prepared and issued on the basis of publicly available information, internally developed data and other sources, believed to be reliable. Capital Alliance Securities (Private) Limited however does not warrant its completeness or accuracy. Opinions and estimates given constitute a judgment as of the date of the material and are subject to change without notice. This report is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The recipient of this report must make their own independent decision regarding any securities, investments or financial instruments mentioned herein. Securities or financial instruments mentioned may not be suitable to all investors. Capital Alliance Securities (Private) Limited its directors, officers, consultants, employees, outsourced research providers associates or business partner, will not be responsible, for any claims damages, compensation, suits, damages, loss, costs, charges, expenses, outgoing or payments including attorneys fees which recipients of the reports suffers or incurs directly or indirectly arising out actions taken as a result of this report. This report is for the use of the intended recipient only. Access, disclosure, copying, distribution or reliance on any of it by anyone else is prohibited and may be a criminal offence.

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