Bitumen, bunkers help LIOC sidestep price controls

Lanka Indian Oil Corporation’s focus on market segments such as lubricants, bitumen and bunkers helped drive profits when price controls resulted in losses on retail auto fuel sales, the company has said in its annual report for 2015-16.

LIOC’s bunker volumes grew 20% this year while it became market leader in bitumen, although business contracted because of a slump in road construction activity, according to the report.

“From a portfolio perspective, the focus on non-government controlled areas such as lubricants, bitumen and bunkering have borne fruit, contributing towards a more balanced portfolio and a diverse stream of cash flows,” LIOC Chairman, B. S. Canth said in his review of the past year. “Overall, I am pleased to report that your company generated a revenue of Rs 71 billion and a profit growth of 19% (Rs. 2.2 billion) during the year, despite multiple challenges,” he said. LIOC Managing Director Shyam Bohra said the growth of the bunkering operation was “encouraging” with over 20% volume growth although revenue declined due to lower prices. Bunkering accounted for 13% of revenue. “LIOC became the market leader for bitumen increasing its market share from 36% to 58% despite a contraction in the market stemming from a decline in construction sector activity,” Bohra said, adding that this segment, accounting for 3.4% of revenue, is expected to grow in the near term as activity in road construction is expected to increase in the next few years.

“Our financial results over the year demonstrated the benefit of focusing on non-price controlled segments such as lubricants, bitumen and bunkers,” he said. “We have a strong, refocused and rebalanced portfolio which we believe will enable us to withstand under recoveries on sale of auto fuels.”

The annual report said the bitumen industry contracted by 44% last year as road construction activity was subdued. “Against this backdrop, LIOC performed commendably with volumes falling a mere 10%, significantly lower than the industry’s overall drop.This enabled us to grow our market share from 36% last year to 58% in 2015-16.” LIOC said it is optimistic regarding the growth potential of the bitumen business with demand anticipated to increase with the launch of large scale road development projects. “We are strengthening our procurement and supply chain frameworks to ensure a sustainable supply of high quality material to effectively cater to this demand,” he said.