COLOMBO, Dec 05, 2014 (EconomyNext) – Chevron Lubricants Lanka is focusing on more profitable higher tier lubricant products demand for which is growing with the import of cars with more sophisticated engines, chief executive Kishu Gomes said.
The recent fall in crude oil prices could also benefit customers if it leads to reduced prices of base oil, their main raw material, he said.
"Our thrust is to basically build high technology products," Gomes told EconomyNext in an interview soon after the commissioning of the firm’s new semi-automated blending plant and warehouse facility Thursday.
About half the lubricant market is for lower tier products that uses very average technology, but more vehicles were now being imported with hi-tech engines.
"We have our product strategy and our brand strategy and we sell hi-tech products," Gomes said.
The firm has been protecting margins in recent years and has not been so concerned about protecting market share in the lower end of the business.
"Those hi-tech engines need hi-tech lubricants. So there is a move from lower tier to higher tier," Gomes said.
"Although we do supply some of the lower tier customers we don’t do anything to grow our volume in the lower tier because that’s not our future. That’s why you see volumes not improving to the extent of profitability improvement."
Chevron Lubricants Lanka’s net profit rose 12 percent to 2.5 billion rupees in 2013 despite a five percent fall in sales to 11.2 billion rupees.
Gomes said the new blending plant which cost almost two billion rupees has greater technological capabilities yielding greater efficiency and enhanced product quality.
"This plant has greater automation compared with the previous one which helps us to reduce product cost which would at the end benefit customers and also the enhanced capacity will enable us to better compete in export markets which is one of our primary goals," he said.
"We’re committed to doing exactly that and this investment is for the next 20-30 years. We as a publicly listed company with 49 percent public shareholdings we want to keep on creating greater value for the country and this investment will help us in doing so.
With one shift a day the new plant can make 40 million litres a year and 80 million litres in two shifts.
"The country’s requirement is only 55 million litres – that’s the industry size," Gomes said.
"So we have the capacity to serve the entire requirement of the country but with the product and brand strategy we have, we will be choosing our segments to play in which is what we’ve done in the past and with that strategy we’ve been able to improve our profitability."
Asked about the impact of lower crude oil and feedstock prices, he said:
"Crude oil prices have already come down but for that downward trend to be reflected in the core raw materials we are using which is base oil, there will be a time lag. So from now till the next three months, I do not think the base oil prices will come down sharply.
"But," Gomes added, "if and when they come down, we’ll be able to pass on some benefit to the customer, if it’s something that is substantial, which we’re able to share with our customers."
Chevron Lubricants Lanka was also looking at more exports. It is already expoting lubricans to Bangladesh and the Maldives and considering other countries in the region like India.
"As a global company, we’re present in every country. So some countries export to others if Chevron is not directly present in those countries. We do have certain countries in mind but until such time we have successful negotiations it may not be prudent to talk about them.
"In Pakistan we have our own Chevron operation, so it will not be a market to be supplied from Sri Lanka but India may be a possibility and it’s a huge market. We’ll see how things go."