Financial Times

Calex to increase exports as margins get squeezed
Caltex Lubricants Lanka Ltd., a unit of ChevronTexaco Corporation, has retained its 90 percent share of the lubricant market and plans to increase exports as sky high oil prices erode profit margins, Bartleet Mallory Stockbrokers (BMS) said in a research report.

The stock has also consistently rewarded its shareholders with satisfactory dividends with a “prosperous” dividend for the financial year 2004 of 330 percent or Rs 33 and forecast dividend for 2005 likely to be around Rs.9 with the firm retaining much of its profits for financial commitments in the following year for expansion purposes.

Caltex, being zero geared, has greatly reduced its risk and has easy access to an untapped source of cheaper funding. “Caltex exports its products on a small scale to a few Asia-Pacific countries and is looking to add more markets as this will result in economies of scale at its Kolonnawa plant,” BMS said.

“Caltex is currently cementing final plans to commence exporting to an additional country that has high potential to grow to almost the same market size as that of Sri Lanka.”

The company’s gross profit margins have been declining and stood at 37.91 percent in 2000 and is forecast to be 26.49 percent for 2005. BMS said the main reason for this is the soaring oil prices resulting in increased costs of raw materials needed in the blending process.

“Since the company was unable to pass on the entirety of the cost increase onto the customer, it was forced to absorb most of it.” The company has performed better in the nine months ending September 30, .2005 as opposed to the nine months ending September 30, 2004, with an increase in turnover of around Rs.815 million and a jump in net profit by almost 10 percent.

Caltex remains the “undisputed leader” in the lubricant market in Sri Lanka, enjoying a 90 percent market share, BMS said. Its core activities are the manufacture and trading of lubricants, greases, brake fluid and speciality products.

The industrial and commercial market accounts for 40 percent of total revenue while the retail market accounts for the balance 60 percent. Over the past five years, the firm’s turnover has been consistently growing with an overall growth rate of almost 45 percent from the year 2000 to the year ended December 31, 2004.

“This sales growth has been possible through their expansion by opening more retail outlets and express lube centres and in addition exporting their products to a few countries,” BMS said.

The firm was formed in Sri Lanka with Caltex acquiring a 51 percent stake in Lanka Lubricants. It is a part of the ChevronTexaco Corporation and the combination of these three brands has enabled a global market to be reached with Chevron mainly catering to the North American region, Texaco concentrating on Europe, Latin America and West Africa, and Caltex operating in Eastern Africa, the Middle East, Australia and New Zealand, and Asia including Sri Lanka.

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