Upside for lubricant sales projected amid SL’s ageing vehicle fleet

• Rising thermal power generation to add further tailwind for volumes in FY2023 

Although the prolonged suspension on vehicle imports and the slump in purchasing power would continue to weigh on the demand for lubricants, the ageing vehicle fleet in the country could buttress the sales volume and thereby the earnings of Chevron Lubricants Lanka PLC as these vehicles might consume more lubricants to run their engines at optimal levels.

The interesting yet probable volume outlook for the country’s largest lube maker and distributor was issued by CT CLSA Securities, a Colombo-based stockbroker, as they looked into the company’s next twelve months’ earnings potential in an equities report. 

However, as economic hardships for the public and SMEs get severe given the red-hot inflation, it remains uncertain if this prognosis would turn entirely true as making ends meet often takes precedence over looking after one’s vehicle to its pristine condition. This is true specially in a context where lubricants and other motor spare parts prices have risen by more than three times compared to the pre-pandemic level in 2020.  “As the usage of the vehicle increases, the frequency of maintenance or service increases,” CT CLSA Securities said. 
“The consumption of lubricant per vehicle is expected to increase with ageing and usage of the vehicle due to the increased frequency of maintenance and services over the years.” they concluded.

Chevron’s share ended Rs.1.70 or 1.81 percent higher at Rs.95.40, yesterday.   
Sri Lanka’s current vehicle stock stands at 8.3 million by May 2022 compared to 8.0 million in 2019.
Recent relaxation of the fuel quota for three wheelers could also be a factor for higher lube demand as they can now take more hires requiring frequent maintenance and servicing.   

In addition, lube sales also could get a tailwind from the need for higher thermal power generation providing further upside for Chevron Lubricants in the next 12 months.  
Typically, thermal power generation in the whole energy mix expands usually in the dry season which falls between December and April every year and thus could provide an additional tailwind in the medium term for the company, “as demand for lubricant would increase along with more thermal power generation,” CT CLSA said. 

In the most recent quarter ended on September 30, Chevron Lubricants reported earnings of Rs.6.07 a share or Rs. 1.46 billion, up 43 percent from the same period last year on a 16 percent top line expansion, which came from the upward price revision of the company’s products. 

In addition to the potential upside from the volumes that the company could receive, CT CLSA Securities also foresees a reduction in translation losses for Chevron Lubricants as the exchange rate is largely expected to remain stable in 2023.