Demand for modern cars to boost high margins for Chevron Lubricants
View(s):The influx of modern vehicles would allow Chevron Lubricants Lanka to sell high end lubricants which will generate higher margins, analysts say.
“Last year the company introduced its first new generation product in Sri Lanka for diesel engine vehicles named “Delo Sports Synthetic Blend SAE 10W-30” specifically designed to meet the requirements of sport utility, sport activity, pick up and 4×4 type vehicles which are in demand now. Selling lubricants to such types of automobiles will see the company widening its margins,” Danushka Samarasinghe, Director TKS Securities told the Business Times.
He said that the fisheries industry which has been a key beneficiary from peace lies as a high growth area for marine lubricants. “Further with the growing tourism sector, we expect growth in Chevron Lubricants Lanka’s industrial lubricants segment,” he said.
He noted that despite the export sales only accounting for 5 per cent of the total turnover, volume growths recorded in Maldives and Bangladesh last year are significant. “The company is expected to see increasing exports of lubricants to the thermal power generation sector in Bangladesh,” Mr. Samarasinghe said.
Operating earnings for the first quarter this year in the company recorded an increase of 9.7 per cent compared to last year despite a drop in revenue. Mr. Samarasinghe said that lubricants consumption has remained sluggish during the said quarter due to reduced demand from thermal power plants, floods hit agricultural sector and market contraction with extended oil drain intervals as a result of consumers moving from products with lower tier to higher tier technology.
As against the last comparative quarter which saw a 36 per cent year on year rise in the company topline, in the first quarter of this year, the revenue witnessed a marginal decline of 5 per cent year on year to reach Rs 3,168.3 million.
The previous comarative quarter saw an above average growth in volumes driven by retailers and distributors accruing high levels of inventory due to speculation on increasing prices, Mr. Samarasinghe said.
Further the drop in new vehicle registrations and dip in demand from the industrial sector, mainly consisting of power plants also impacted the drop in volumes contributed to the revenue decline. Benefiting from declined cost of sales, enhanced finance income and slower growth in corporate taxes (8.4 per cent year on year), the net profit grew 16.5 per cent year on year to Rs 769.9 million in the first quarter of this year.
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