Lanka IOC March quarter in red; but record-low oil prices could help turn fortunes

Despite higher revenues, Lanka IOC PLC swung to a loss during the three months to March 2020 (4Q), as the prices relevant for oil deliveries through March-end remained elevated, before they crashed recently amid the demand slump caused by the shuttered economies since mid-March, due to the coronavirus.

Lanka IOC, the only other distributor of gasoline and other fuels in the country after the state-owned Ceylon Petroleum Corporation (CPC), increased revenues by 20 percent year-on-year (YoY) to Rs.22.2 billion, for the January-March quarter, from Rs.18.5 billion in the year earlier period. 

The direct costs, the bulk of which comprised of oils imported, however rose by 26 percent YoY to Rs.21.6 billion, from Rs.17.1 billion. 

Lanka IOC is into lubricants, bunkering, bitumen and petrochemicals and is the second largest lubricant marketer in the country.    

The prices of oil at global markets, which is sold and bought in futures exchanges, fell from a high of US $ 66.25 a barrel to US $ 26.35 a barrel, from January through March-end, according to Brent futures exchange. 

The prices first fell below US $ 50 a barrel on March 5, when the market jitters became more intense with the virus spreading rapidly in Europe.

However, as global oil futures typically operate on the basis of the deliveries taken in few months later, Lanka IOC may not have been able to take the advantage of the easing oil prices in March.

While the advantage of the lower oil prices may reflect in the company’s ongoing quarter and in the next quarter more clearly, it is unknown to what extent that could be translated into higher profits because for the most part, mobility was greatly limited, as people were in mandatory shelter-in-place.

The government did not budge to reduce the prices at the pump, which could bode well to overcome some of the financial difficulties faced by both Lanka IOC and CPC.  

The world is also running out of storage capacity for oil. 

Lanka IOC reported a loss of 66 cents a share for the three months under review or Rs.346.2 million, compared to Rs.1.76 a share or Rs.937.1 million it reported in the same period last year. 

For the full year, the company reported earnings of 79 cents a share or Rs.421.8 million, briefly surpassing last financial year’s 76 cents a share or Rs.403.4 million profit.   

The full-year revenue fell from Rs.86.3 billion to Rs.81.9 billion, due to the muted economic activities prevailed during the nine months to December 2019. 

Meanwhile, the company continued to increase its borrowings since the beginning of the financial year, from Rs.2.3 billion to Rs.17 billion by March 2020. 

The bulk of it is in short-term investments, which rose from just Rs.700 million to Rs.12.7 billion. 

It is rather unusual to carry such borrowings in short-term investments, unless the company is gearing to make some investments.

Indian Oil Corporation Limited has a 75.12 percent stake in Lanka IOC. 

Lanka IOC revises petrol prices to match CPC

The retail selling prices of Lanka Petrol 92 was revised from Rs.142 per litre to Rs.137 per litre, from April 6 midnight, Lanka IOC said.
With this revision, the prices of both petrol and diesel are same as applicable at CPC filling stations.