A walk through how the 16 May 2026 50% vehicle import surcharge intersects with a leasing & hire-purchase book that drives 71% of revenue at COCR — alongside the operating cash flow reversal, the rapid loan-book expansion, and what valuation at LKR 130.50 implies given those facts.
The note works through four things in sequence. One — what the levy actually is, who it hits, and the carve-out that matters. Two — exactly how vehicle-exposed COCR's balance sheet is, segment by segment, against the prior year. Three — the operating cash flow profile underneath the headline profit, because a 190% YoY profit growth quarter with a Rs 20.3 billion negative operating cash flow needs reconciling. Four — what LKR 130.50 implies on P/E, P/B, and dividend yield, framed against scenarios where the levy stays for 3 months versus becomes structurally extended.
The conclusion the public filings push toward — once you walk the segment table, the cash flow statement, and the levy gazette together — is that the levy lands directly on the part of the book that was growing fastest, in a period where COCR is already funding that growth with bank borrowings rather than operating cash. Whether the stock is overvalued depends entirely on what you assume about 1) levy duration beyond three months, and 2) whether the impairment reversal that flattered FY2026 9M earnings will recur.
| Category | What it covers | Relevance to COCR leasing |
|---|---|---|
| Public transport vehicles | ≥10 person carriers — buses, vans | Direct — fleet financing |
| Motor cars & station wagons | All cylinder capacities, all propulsion types | Direct — largest retail lease segment |
| Racing cars | Specified cylinder categories | Minor |
| Specialised vehicles | Ambulances, prison vans, hearses | Marginal |
| Motorhomes / golf cars | Recreational categories | Marginal |
| Propulsion coverage | Diesel · semi-diesel · spark-ignition · hybrid · electric — all in scope. No exemption for EVs or hybrids. | |
| Both GEN & PREF duty bases | Applies to both General and Preferential Customs Import Duty — bilateral trade agreement vehicles are not exempted. | |
The gazette says "three months". Markets price three-month policy shocks very differently from structural shifts. If the surcharge expires in mid-August 2026 as written, the disruption is a 90-day air pocket in lease originations followed by snapback. If it gets extended (which is the historical precedent — temporary import controls in Sri Lanka have routinely been renewed for fiscal or balance-of-payments reasons), the disruption becomes the new baseline.
The L/C carve-out on or before 15 May 2026 is more material than it sounds. Dealers and large fleet importers who had L/Cs already open will continue to land cheaper vehicles for 60–120 days. This creates an inventory tail that softens the immediate hit — but also pulls forward sales into Q1 FY2027, leaving a deeper hole in Q2 if the surcharge extends.
The retail-discourse question — "will EV exemption come back" — does not appear in this gazette. EVs, hybrids, and ICE vehicles are all covered. Any future carve-out would require a fresh notification.
| Segment | Revenue 9M Dec25 (LKR) | Revenue 9M Dec24 (LKR) | YoY | Segment assets Dec25 | % total assets |
|---|---|---|---|---|---|
| Finance Lease | 14,721,494,668 | 3,698,108,897 | +298.0% | 58,883,957,309 | 48.2% |
| Hire Purchase | 2,381,108,558 | 9,865,919,247 | −75.9% | 3,295,160,148 | 2.7% |
| Microfinance & SME | 1,462,333,893 | 1,511,678,467 | −3.3% | 2,188,330,994 | 1.8% |
| Gold Loan | 3,609,412,703 | 3,557,008,020 | +1.5% | 26,806,899,604 | 21.9% |
| Term Loan | 38,941,135 | 490,850,565 | −92.1% | 118,477,796 | 0.1% |
| Revolving Loans | 182,804,961 | 155,532,728 | +17.5% | — | — |
| Investments | 995,083,685 | 1,080,099,217 | −7.9% | 16,724,267,465 | 13.7% |
| Unallocated | 814,771,000 | 429,534,160 | +89.7% | 14,158,146,319 | 11.6% |
| Vehicle-financing total | 17,102,603,226 | 13,564,028,144 | +26.1% | 62,179,117,457 | 50.9% |
| Total | 24,205,950,602 | 20,788,731,301 | +16.4% | 122,175,239,635 | 100.0% |
1 · New-origination volume shock. The 12–18% sticker-price increase that flows through to the showroom is a demand-elastic event. CSE peers in the sector have historically shown monthly vehicle lease originations contract 15–30% in months following a 10%+ import cost increase. With Finance Lease at 48% of company assets and growing at +298% YoY revenue, even a 20% origination slowdown crystallises a material growth pause in the most profitable segment.
2 · Collateral value compression on existing book. Used-vehicle prices in Sri Lanka have historically moved inversely to new-vehicle import duties — when new vehicles get expensive, used values rise. This is mildly positive for COCR's existing repossession-recovery economics. But: it also means new originations get priced into a market where the collateral floor is elevated, which raises LTV risk if the levy reverses and used prices snap back.
3 · Yield-mix erosion. Finance Lease yields, on average, run 200–400bps higher than Gold Loan yields at Sri Lankan LFCs. As Finance Lease growth slows and Gold Loan (Rs 26.8 Bn book, growing modestly) becomes a larger share of new originations, the weighted average asset yield compresses. This shows up in Net Interest Margin 2-3 quarters after origination patterns shift.
4 · The L/C tail window. Dealers with L/Cs open before 15 May 2026 will keep landing pre-levy vehicles for roughly 60-120 days. COCR's lease originations should hold up through Q1 FY2027 (Apr-Jun 2026). The earliest the levy bites the P&L is Q2 FY2027 (Jul-Sep 2026), the heaviest impact lands Q3 FY2027 (Oct-Dec 2026) — assuming the levy holds for the full three months as gazetted.
| Line item | 9M Dec 2025 | 9M Dec 2024 | Variance |
|---|---|---|---|
| Profit before income tax | 9,390,926,037 | 3,410,984,610 | +175% |
| Operating profit before WC changes | 9,065,224,631 | 7,071,451,576 | +28% |
| (Increase) in Loans & Advances | (11,515,277,671) | 2,241,906,642 | −Rs 13.8 Bn swing |
| (Increase) in Lease Rentals Receivable | (13,610,043,043) | 4,348,509,766 | −Rs 18.0 Bn swing |
| (Decrease) in Amounts Due to Customers | (2,559,123,438) | (4,644,685,623) | Both negative |
| (Increase) in Other Financial Liabilities | 2,055,848,277 | (183,968,414) | Reversed |
| (Increase) in Other Liabilities | 5,747,488,446 | 1,402,851,334 | +Rs 4.3 Bn |
| Cash generated from operations | (10,761,437,814) | 9,657,930,074 | −Rs 20.4 Bn |
| Taxes paid | (9,473,928,163) | (4,993,514,977) | +90% taxes paid |
| Net cash flows from operating | (20,283,126,876) | 4,587,346,597 | −Rs 24.9 Bn |
| Net cash flows from investing | 702,661,895 | (1,478,596,145) | +Rs 2.2 Bn |
| Proceeds from Loans obtained | 19,750,000,000 | 16,374,541,238 | +21% |
| Repayment of Bank Loans | (10,086,666,062) | (12,073,429,190) | Lower repayments |
| Dividend paid | (1,908,446,190) | (1,272,297,460) | +50% paid out |
| Net cash flows from financing | 6,174,898,353 | 2,976,535,765 | +Rs 3.2 Bn |
| Net change in cash | (13,405,566,628) | 6,085,286,217 | −Rs 19.5 Bn |
| Liability | 31 Mar 2025 | 31 Dec 2025 | Change |
|---|---|---|---|
| Due to Banks | 15,115,938,248 | 23,926,919,337 | +58.3% |
| Due to Customers (deposits) | 55,708,839,672 | 53,149,716,234 | −4.6% |
| Debt instruments issued | 1,295,844,686 | 1,382,721,943 | +6.7% |
| Unsecured Subordinate Term Loan | 1,500,000,000 | 1,587,936,986 | +5.9% |
| Other Financial Liabilities | 1,907,970,958 | 3,963,819,235 | +107.7% |
| Total Liabilities | 81,713,913,106 | 89,681,019,290 | +9.8% |
Cash and bank balances fell from LKR 4.73 Bn to LKR 1.82 Bn — a 61.5% decline in nine months. Placements with Banks fell from Rs 4.71 Bn to Rs 2.64 Bn. Total Cash and Cash Equivalents (per the cash flow statement reconciliation) fell from Rs 16.77 Bn to Rs 3.37 Bn. This was a deliberate liquidity drawdown — management deployed cash buffers into the lease book at exactly the moment the largest macro headwind for that book was forming.
Whether that timing was unlucky or aggressive is a judgement call. What is not a judgement call: COCR enters Q4 FY2026 with less than 20% of the cash buffer it had nine months ago, against a Rs 12.4 Bn larger interest-bearing asset book that is concentrated in vehicle financing, on the day a 50% surcharge on those same vehicles takes effect.
| Metric | 9M Dec 2025 | 9M Dec 2024 | YoY headline | YoY adjusted |
|---|---|---|---|---|
| Net Interest Income | 15.98 | 11.17 | +43% | +43% |
| Total Operating Income | 18.46 | 13.52 | +37% | +37% |
| Impairment charge/(reversal) | +0.85 | (3.05) | +Rs 3.90 Bn | Excluded |
| Net Operating Income | 19.31 | 10.47 | +84% | +37%* |
| Operating Expenses (total) | (7.31) | (5.93) | +23% | +23% |
| Profit before SSCL/VAT | 12.00 | 4.54 | +164% | +60% est.* |
| SSCL + VAT on FS | (2.61) | (1.13) | +131% | +131% |
| Profit Before Tax | 9.39 | 3.41 | +175% | ~+60%* |
| Income Tax | (3.38) | (1.34) | +152% | +152% |
| Profit for the Period | 6.01 | 2.07 | +190% | ~+50% est.* |
The impairment reversal in 9M FY2026 reflects credit-quality normalisation as Sri Lanka's macro environment improved (lower inflation, currency stability, easing rates). LFC books across the sector booked similar reversals — COCR is not an outlier here.
But this benefit is arithmetically non-recurring. The reversal cycle ends when the impairment provisions reach a "normal" level. From there, impairment charges will either stay flat (if credit quality holds) or rise (if the levy + slowing economy cause delinquencies).
If you forward-project COCR's earnings power on the 9M FY2026 annualised EPS of Rs 23.61 (Company) / Rs 25.87 (Group), you are implicitly assuming the impairment reversal continues. It cannot. A more conservative forward EPS — adjusting for normalised impairment and the levy-driven origination slowdown — is meaningfully lower. This is the single biggest input to the valuation question.
9M FY2026 EPS (Company) of LKR 18.90 annualises to LKR 25.20; the company's own quoted annualised EPS is LKR 23.61. At LKR 130.50, that is a P/E of roughly 5.2–5.5x.
This looks attractive against CSE LFC sector medians of 7–9x and Asian Pacific NBFI peers at 10–15x. But trailing multiples don't capture forward earnings power. The Q3 stand-alone EPS of LKR 5.90 annualises to LKR 23.60 — confirming the 9M run-rate isn't a one-off Q3 distortion. The distortion is sector-wide impairment normalisation that has now substantially completed.
If COCR's impairment charge had reverted to a "normal" 1.5–2% of average gross loans (broadly the historical FY2024/25 level), the 9M provision would have been approximately Rs 1.8–2.5 Bn instead of the +0.85 Bn reversal. The differential (Rs 2.7–3.4 Bn pre-tax, roughly Rs 1.7–2.2 Bn after tax) is the impairment cushion supporting reported earnings.
Applying that adjustment: normalised 9M PAT lands at roughly Rs 4.0–4.3 Bn instead of Rs 6.01 Bn. Annualised normalised EPS lands at LKR 16.8–18.0. At LKR 130.50, P/E expands to 7.2–7.8x — still not expensive, but no longer the "deep value" signal that the headline 5.5x suggests.
Apply a further 15–20% origination volume haircut for the levy's Q3 FY2027 impact, and the forward P/E approaches 8.5–10x — in line with the LFC sector median, not below it.
Net Assets Per Share (Company) is LKR 102.16. At LKR 130.50 you pay a 27.7% premium to book. P/B of 1.28x is normal for a profitable LFC but offers no margin-of-safety cushion against operating disappointment.
Within that LKR 102.16 of book value per share, what is the underlying asset quality? Roughly LKR 38 of every Rs 102 is invested in the vehicle leasing book (50.9% of total assets / NAV ratio). Another LKR 17 is in Gold Loans (well-collateralised, low impairment). LKR 11 is investment property. The remainder is cash, placements, and other.
If a stress scenario reduces vehicle book value by 10–15% (through impairment, repricing, or yield compression), book value per share could compress to LKR 96–99. P/B at LKR 130.50 then becomes 1.32–1.36x. The cushion thins fast.
LKR 130.50 is not deep value — and it is not obviously overvalued either. It is priced for a base-case world where the levy is genuinely a 90-day air pocket, the impairment cycle ends cleanly, and the company executes the funding-mix transition back toward deposits.
The asymmetry sits in the tails. The bear-case downside (~25–35% from current) is materially larger than the bull-case upside (~20–30%). This is partly a function of where COCR sits in the cycle — having already priced in the post-ban recovery and the impairment normalisation, the easy gains are behind. The remaining catalysts are mostly negative-skewed (levy extension, deposit flight, levy on EVs that hits hybrid lease residual values).
A 12% net dividend yield assumption is unlikely to repeat (FY24 yield of 10.64% reflected a much lower stock price). At LKR 130.50, the FY25 dividend of LKR 6.00 prints a 4.6% yield, in line with the LK market median of 4.7% — adequate, not generous.
What public disclosures show today is a company that has executed strongly through a sector recovery, captured significant share gains in finance lease origination, but is now arriving at the next test with thin liquidity, a non-recurring profit tailwind ending, and the largest macro headwind for its core product taking effect on the day this note is written.
Commercial Credit and Finance is a Licensed Finance Company with a strong franchise in vehicle financing, a meaningful Gold Loan secondary book, and a public float (19.01%) tightly held among three related-party investment vehicles (B.G. Investments, Group Lease Holdings in liquidation, and LOLC Finance — together holding 80.25%).
The franchise has executed strongly through Sri Lanka's post-crisis recovery. Net Interest Income grew 43% YoY, Operating Income grew 37%, and Profit-for-Period grew 190%. These are genuinely strong results — until you walk three things together: 1) the profit growth is approximately two-thirds non-recurring impairment reversal, 2) the cash funding the loan book expansion came from bank borrowings (+58%), not customer deposits (which shrank −4.6%), and 3) the 16 May 2026 vehicle import surcharge attacks the part of the book that grew fastest.
The retail-discourse framing — "COCR P/E 5.5x looks cheap" — has the multiple right but the EPS wrong. Adjusting for normalised impairment, the forward P/E sits in the 7.5–10x range, broadly in line with the CSE LFC sector median. At LKR 130.50, COCR is reasonably priced for a base-case world where the levy is a 90-day air pocket. It carries downside skew against either of two scenarios — levy extension, or further deposit-funding stress.
Whether public disclosures support buying, holding, or trimming at LKR 130.50 is a decision that depends on your own time horizon, your own view of policy persistence, and your conviction on the impairment cycle completing cleanly. The data is here. The conclusion is yours.