Lanka IOC second quarter profit soars on strong revenues supported by price hike

Lanka IOC PLC delivered robust financial performance in the three months to September as mobility and other economic activities picked up pace generating demand for fuel and other products offered by the company while the June price hike helped it to fend off pressure on top and 
bottom lines. 

The downstream operator of petroleum products and the sole private sector distributor of auto fuel reported revenues of Rs.20.6 billion in the company’s fiscal second quarter from July through September, up nearly 10 percent from the same period last year and 21.9 percent higher from the previous quarter ended in June when a month-long lockdown had a bearing on mobility and most other economic activities. 

The company’s share ended 30 cents or 1.14 percent lower on Friday to close at Rs.26.00. 

The company’s robust top line performance in the September quarter is a reflection of the fast rebound in travelling which continued mostly during the three months though some deceleration in the final six weeks was due to soft lockdowns effective since August 20. 

The largely unhindered road development projects and other industrial activities appeared to have kept the demand for the company’s various other petroleum products such as lubricants and bitumen, strong. 

Lanka IOC is Sri Lanka’s second largest blender and distributor of lubricants after Chevron Lubricants Lanka PLC with around 15 percent market share. 

The company is also into bunkering operations. 
Further diversifying its portfolio in the petroleum products field, the company recently said it was planning to commission the country’s first grease manufacturing plant in Trincomalee as part of its strategy to further reduce reliance on fuel business so that it could blunt the losses which could at some periods come from the latter.  

In the absence of a fuel pricing formula, which adjusts retail prices in accordance with price changes in the global oil markets, the company becomes financially hamstrung as it is unable to fully pass the cost on to the consumer. 

However, despite all, the biggest positive impact on revenues and profits came from the fuel price increase effected in June as the government revised prices to reflect the surge in crude and refined oil prices in the international markets in response to recovery in travel and other industrial activities in major parts of the world.
From July through September, crude prices in the Brent futures exchange rose from US$ 75.84 a barrel to US$ 78.31 a barrel. Last Friday a barrel traded slightly under US$ 80 at Brent. Meanwhile, the company’s cost of sales during the quarter under review rose by 7.5 percent to Rs.19.5 billion. 

The company had stocks worth nearly Rs.18 billion as at end September, nearly doubled the Rs.9.6 billion a year ago while the payables rose to Rs.11.7 billion from Rs.5.8 billion. 

The company reported operating profit of Rs.268.3 million for the three months, turning from a loss of Rs.146.2 million in the year earlier period.  The company reported earnings of 53 cents a share or Rs.281.6 million in the July-September quarter compared to earnings of 3 cents a share or Rs.17.2 million in the corresponding period in 2020. 

For the six months ended in September, the company reported earnings of Rs.1.04 a share or Rs.554.6 million compared to negative earnings of Rs.778.2 million in the same period last year on revenues of Rs.37.5 billion, up 27.3 percent. 

As of September 30, Indian Oil Corporation Limited held 75.12 percent stake in Lanka IOC.