It appears that the slowdown in the vehicle imports, liberalization of lubricants imports, lax regulations and intense competition have taken toll on Sri Lanka’s lubricants market leader, Chevron Lubricants Lanka PLC (LLUB), as its sales for the most recent quarter remained flat while the profits narrowed.
Commencing the March earnings season LLUB, the local unit of the American multinational, reported earnings of Rs.3.42 or Rs. 821.7 million for the January-March period, down 17 percent from a year ago.
This is the second such quarter in a row the downstream lubricant operator reported narrowing profits as during the October-December quarter the company saw its profits declining by 3.0 percent to Rs. 692.9 million.
The sales for the March quarter also remained flat at Rs. 3.1 billion. Even in the December quarter sales remained flat from a year ago at Rs.2.95 billion.
The March earnings season began on a negative note as many expected because of the slowing economy. Higher interest rates and the taxes have started biting into the people’s disposable incomes hurting the consumer demand.
Consumption stimulated Sri Lanka’s economic growth during 2015 and 2016 as the Central Bank kept its key policy rates low and made the money cheap.
On top of that, the government irrationally cut taxes to boost growth but it all backfired when the country ran into a balance of payment crisis, compelling the Central Bank to raise interest rates and the government to slap higher taxes.
This has cut down the number of vehicles imported to the country significantly, possibly affecting lube players among many others.
Meanwhile, making the matters worse, the government also liberalized the lubricants import market, which is already overcrowded with 13 licenced players fighting for an almost static 58 million litre market.
Sri Lanka’s lube market is Rs.23.5 billion in size and grew by a little 3.6 percent in 2015, the Public Utilities Commission data showed.
Chevron is the market leader with 47.58 percent in 2015 compared to 49.30 percent in 2014. The number two player, Lanka Indian Oil Corporation PLC, upped its market share to 14.86 percent from 12.59 percent in 2014.
Ceylon Petroleum Corporation PLC, the largest downstream oil player in the market, had a share of 9.19 percent in 2015, a drop from 10.54 percent in 2014.
LLUB Managing Director Dr. Kishu Gomes recently called for tougher regulation for the industry to clamp down on unethical practices by certain players.
According to analyst, the higher thermal power generation should bode well for the lubricants market as it demands more lube. Sri Lanka now generates more thermal power due to the prolonged drought condition.
As of March 31, 2017, Chevron Ceylon Limited held 51.0 percent shares in LLUB.