New levies to impact on Caltex, LIOC profits

Budget increases in the cess on lubricants base oils and the Port and Air Port Development Levy (PAL) will not only impact on Caltex Lubricants Lanka but also on LIOC, a research agency said.

C T Smith Stockbrokers (Pvt) Ltd was referring to a report by Caltex which said the two levies would impact on the company’s profits to the extent of Rs.300 million before tax and Rs.195 million after tax.

“Since the impact is on lubricant base stocks it will at present impact only LLUB, being the only lube manufacturer in the country. However LIOC will also face the impact of the cess and PAL once the lube plant in Trincomalee commences operations (expected to be completed in June 2007),” the report said.

It said the expected reduction in profits is based on the assumption that cost increases from the cess and increased PAL cannot be passed down to customers.

“However in the past Caltex has successfully passed down significant portions of raw material price increases to customers due to the inelastic nature of the industry. However a complete pass down of the cumulative impact of high raw material prices and higher taxes may not be possible.

According to our estimates, excluding the impact of additional taxes, Caltex was expected to post a net profit of Rs.886 million.
Following a meeting with management to assess the likely impact of taxes and the ability to pass down the incremental expenses to customers, we expect to downgrade our earnings estimate,” it said.