ECONOMYNEXT – Chevron Lubricants Lanka has said profit margins were getting squeezed with intensifying competition and rising costs and the industry struggling with excess blending capacity.
Net profit at Chevron’s Sri Lanka unit fell 26% to Rs. 2.6 billion in 2017 from a year ago.
“The decline in net earnings was mainly due to margin erosion as a result of increased input costs and decline in volumes due to intense competition,” Rochna Kaul, Chevron Lankan chairperson told shareholders in the firm’s annual report.
Managing Director Kishu Gomes said Chevron Lubricants Lanka’s volumes and revenues dropped by 10% and 9%, respectively in 2017.
“The decline in volumes was primarily a result of the decline in sales in the domestic retail market, while we recorded healthy growth stemming from exports to Bangladesh,” he said.
Sri Lanka’s lubricant industry is mature and competitive with thirteen players and three blending plants operating with excess capacity, Gomes said.
“The government may issue additional licenses during the year, which will further change the competitive landscape.”
The steep rise in base oil cost, compounded by the depreciation of the rupee against the US dollar and the gradual increase in commodity prices, caused significant inflationary pressure on costs during the year, Gomes said.
To counter the mounting cost pressure, the company increased prices.
However, this strategy was not effective in the retail market, as consumer disposable income was compressed by the rise in inflation, Gomes said.
Prolonged droughts and floods affecting several districts disrupted the regular momentum of economic activities during the year, which also curtailed lubricant consumption, he added.
“The rise in consumer inflation and disruption of economic activities due to inclement weather may have also resulted in longer oil drain intervals than usual amongst a segment of consumers.”
(COLOMBO, April 10, 2018)