LIOC finally gets state subsidy

The “Settlement Agreement” between LIOC and the government was finally signed on Friday with the Indian company received the long awaited subsidy payments due to them, Bartleet Mallory Stockbrokers (BMS) said.

Out of the Rs.7.6 billion owed, the company has agreed to waive Rs.2.4 billion and thus Rs.700 million was received in the form of cash and Rs.4.46 billion worth of 2 year bonds carrying an interest rate of 11%. The interest receivable from the bonds wil in turn be used to settle interest payments on the company’s outstanding loans, BMS said.

With world oil prices climbing to little more than $60 per barrel, both CPC and LIOC have increased their retail prices of petroleum by Rs.5 to Rs.97 but this still fails to provide a satisfactory Gross Profit Margin. Although a free pricing policy is in place, LIOC is unfortunately dependent on CPC in increasing prices as the market is extremely price sensitive and should LIOC not match CPC’s prices it will risk losing around 50% of sales volumes. CPC in turn will be pressured not to raise prices too much as this will have a knock-on effect on various aspects of the economy. BMS said.

For the 6 months ended September 2006, LIOC posted a loss of Rs.1.18 billion and while it is unlikely that they will be able to register a positive bottom-line for the FY2006/07, future profitability will depend on the company’s ability to pass on the true cost of petrol to the consumer, the brokers said.