Lanka IOC returns to black as oil prices ease

Lanka IOC PLC returned to profits during the three months ended December 31, 2019 from a year earlier, but the top line declined reflecting the slowdown in the economy, which took toll on overall economic activities. 

Filing the interim financial accounts for the October-December period (3Q20), the local unit of Indian Oil Corporation Limited reported earnings of 92 cents a share on a total profit of Rs.489.8 million. 

The company suffered a loss of Rs.1.85 a share or Rs.986.9 million during the corresponding period last year. 

The downstream crude oil operator appears to have benefited from the easing global oil prices, which fell from about US$ 65 per barrel to US$ 58 per barrel in the Brent futures exchange during the three months to October 2019. 

As a result, the cost of sales declined by 20 percent year-on-year (YoY) to Rs.18.5 billion during the three months under review. The decline in the top line was 14.3 percent YoY.
However, the global oil prices rose to US$ 66 per barrel towards end-2019. 

Importers purchase crude oil in futures exchanges, paying months in advance for future delivery. 

However, the global oil price at Brent eased to US$ 60 per barrel for the March delivery to end last week, underscoring the bets that Middle East tensions will ease and supplies won’t be disrupted.  

Meanwhile, the International Monetary Fund (IMF) tipped the global growth higher in 2020 but the coronavirus, which is spreading in China and elsewhere, could put a damper on growth unless the authorities arrest the epidemic from spreading further. 

Meanwhile Lanka IOC reported earnings of Rs.1.44 a share or Rs.767.9 million for the nine months ended December 31, 2019, compared to a loss of Rs.533.7 million in the year earlier period. 

Sales stood at Rs.59.7 billion, down from Rs.67.8 billion a year ago. 

The company was seen substantially increasing its short term investments during the nine months while the inventories declined and loans substantially rose. The company had parked Rs.15.1 billion in short term investments by the end of December 2019, up from Rs.672.9 million in March 2019. This generated an income of Rs.264.5 million during the three months and Rs.548.7 million during the nine months. 

Despite the increase in the loans, finance expenses fell sharply, as the interest rates eased. 

It’s unclear if the company is mulling for any major investment. 

As of December 31, 2019, Indian Oil Corporation Limited held 75.12 percent stake in Lanka IOC PLC.