Sri Lanka Chevron unit expects margin gains, slow volume growth

ECONOMYNEXT - Lanka's Chevron Lubricants unit, the country's largest player with 50 percent market share, is expected to remain flat for the second year running, but margins would grow with longer-lasting products, an official said.

Chief Executive Kishu Gomes said Sri Lanka's 55 million litre lubricant market was estimated to have grown marginally in 2015 and slow growth was expected in 2016 as well.

Chevron was offering higher technology premium products that lasted longer.

Gomes said basic automobile lubricants lasted about 3,500 kilometres, but new offerings allowed vehicles to be driven 5,000 to 8,000 kilometres before an oil change.

With tens of thousands of new vehicles being put on the roads over 2016, volume growth was arrested because of longer-lasting oil becoming more popular, he said.

Thermal power generation, a large consumer of lube, is also being phased out. Coal plants did not use as much lubricants as other thermal plants, he added.

Once a state monopoly that robbed the free choice of the man on the street like some colonial Mercantilist firm, Chevron now competes with 12 other players after people's freedom was given back with market liberalization.

It market share has dropped to 50 percent, but it is no longer maintained with a coercive state backing unlike before privatization.

Gomes said the firm had deliberately moved out of some segments like two-stroke oil, which was mixed with kerosene and not considered an environmentally friendly product by the major shareholder.

Lanka IOC, a unit of the Indian company, has become a key player in the lube market after a state monopoly in petroleum distribution held by Ceylon Petroleum Corporation was also broken, giving more freedom of choice to car owners.

CPC also moved back to lubricant sales.

Gomes said falling base oil prices were helping the firm, and it also discounted some of the products.

A hike in value-added tax from 11 to 14 percent would, however, be invoiced to customers, he said.

In the three months to December 2016, Chevron Lubricants' profits rose 28 percent to Rs713 million, while revenues grew 8 percent to Rs2.95 billion. March 2016 quarter results are due.

The firm also announced a share split. In the year to December 2016, the firm reported earnings of Rs25.73 per share. The stock closed at Rs338.