Lanka IOC back in black as firm cuts costs amid temporary erosion in demand

Lanka Indian Oil Company PLC (LIOC) returned to profit during the quarter ended on June 30, 2018 (1Q19), as the company managed to contain the costs as the top line edged down, perhaps due to the shift in sales to the state-owned distributor for a short period, due to the sizable price differential between the two players. 

LIOC reported earnings of 46 cents a share or Rs.245.9 million in total earnings for the April-June period, compared to a loss per share of 25 cents or Rs.135.2 million loss reported for the same period, last year.  The top line of the second and the only private sector distributor of refined petroleum dropped to Rs.19.1 billion for the period under review, from Rs.20.5 billion during the same period last year.

Meanwhile, the cost of sales, which mainly contains of the purchase price of refined oil, shrank by nearly 10 percent to Rs.17.9 billion from a year ago. 

The contraction in revenues was perhaps a result of the temporary shift in sales to the state-owned refiner and distributor, Ceylon Petroleum Corporation, when LIOC raised the prices but the latter was late to respond. 

However, after much infighting among the governing law makers, the Finance Ministry introduced the long delayed automatic fuel pricing formula in May, through which the prices were already revised upwards twice. 

For the financial year ended March 31, 2018, LIOC made a loss of Rs.744.2 million, on revenue of Rs.91.3 billion, up 13 percent YoY. 

LIOC, the only private sector importer and distributor of refined petroleum products, has three storages in Kolonnawa, Muthurajawela and Trincomalee. 

Meanwhile, the era of low global oil prices have ended with the OPEC— the cartel of key producers of crude oil, which has the power to manipulate the price of the commodity— stood steadfast since end-2016 on maintaining prices close to US $ 80 a barrel.

Further global oil prices rallied after the Trump administration in the United States re-imposed sanctions on Iran as the US walked away from the nuclear deal it earlier had with Iran. 

Meanwhile, LIOC is seen gradually increasing its refined oil storage after the country ran out of fuel last year when the government sent back a ship containing inferior quality fuel. 

The inventories rose to Rs.12.8 billion by end-June from Rs.10.1 billion in March and Rs.4.8 billion a year earlier.  

Indian Oil Corporation Limited owns a 75.12 percent stake in LIOC.