Chevron September net up 20% amid intense competition; EPF sheds stake

Chevron Lubricant Lanka PLC, Sri Lanka’s lubricants market leader increased its September quarter net profit by 20 percent to Rs.1.0 billion from a year ago amid growing competition in the local lubricant market, the firm’s interim financial accounts released to the Colombo bourse showed.  

 
The earnings per share rose to Rs.4.17 cents from Rs.3.48. Following the release of financial performance, Chevron’s share ended 1.31 percent up at Rs.170.20 at last week’s close. The Cabinet approval was given in August for a Treasury’s proposal to liberalise the lubricant market for anyone to import and sell lubricant products at a time when the existing industry is highly fragmented with 13 players fighting for a 58 million-litre market. 

Sri Lanka’s lube market is Rs.23.5 billion in size and grew as little as 3.6 percent in 2015, the Public Utilities Commission 
data showed.  

Chevron increased its sales by 8 percent year-on-year to Rs.3.2 billion but its market share declined to 47.58 percent in 2015 from 49.30 percent in 2014. Its closest competitor, Indian Oil Corporation Limited (LIOC), upped its market share to 14.86 percent from 12.59 percent. 
The state-owned Ceylon Petroleum Corporation had a market share of 9.19 percent, down from 10.54 percent in 2014. 
Meanwhile, for the nine months ended in September 30, 2016, the company posted a net profit of Rs.2.8 billion with an earnings per share of Rs.11.62, a 17 percent increase yoy on a revenue of Rs.9.1 billion. 
Apart from the increasing demand for automotive lubricants due to the growing number of vehicles, the company could also benefit from institutional sales this year as the government will have to generate more thermal power as opposed to less lubricant-intensive coal and hydro power generation. 
Furthermore the resumption of construction activities could also stir demand for Chevron. 
However the absolute liberalisation of the market and the reduction of the duty gap between the imported and locally manufactured lubes could outweigh these benefits and more importantly disincentives the local production. 
Chevron is the largest among the three lube blenders in Sri Lanka with a share of 75 percent followed by 20 percent by LIOC and 5 percent by Laugfs Holdings Limited.

Sri Lanka’s policy makers, without ensuring healthy competition, tend to open up markets until they become overcrowded and later bring legislations forcing industry consolidation. 
Meanwhile, many changes in the shareholding structure of Chevron have taken place, where some emerging market funds had cut their exposures, while a few others had bought in. 

The Employees’ Provident Fund, the state-controlled private sector pension fund, appeared to have disposed of its 0.84 percent stake during the September quarter as it was not among the top 20 list. 
Chevron Ceylon Limited held 51 percent stake in the company.