LIOC to acquire 25% of local fuel market

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 Lanka IOC PLC’s (LIOC) intention to set up 50 new filling stations in the country and take over a certain number of petrol sheds currently owned  by  Ceylon Petroleum Corporation (CPC) and Cooperative Societies  may provide nearly 25% upside in the topline where the total fuel market share of LIOC is also expected to increase by another 5%-6% by the end of next year (2023), (Market share in 2021- c.20%) , the research arm of the First Capital group  stated in a latest equity research report.

 The decline in energy prices seen since mid-Jun-22 is expected to continue in the face of weak global economic growth.

 Oil prices have witnessed significant volatility since the Covid-19 outbreak while Russia’s invasion of Ukraine has added further uncertainty to markets in 2022.

 Given the prevailing high fuel prices coupled with inflation and economic downturn, U.S. Energy Information Administration (EIA)  expects fuel demand to decline in the upcoming months which may ease global oil prices.

 During the month, global Brent oil has crashed to USD 99.0 per barrel from its recent high of USD 124.0 per barrel.

 However, with the low oil inventory level, first capital research expects global prices to hover at current levels up until the end of 2022.

 “However, reduced exports of refined petroleum products from Russia due to less global refining capacity and extended Covid-19 restrictions in China have dampened the available supply of refined petroleum products and have led to higher retail prices for gasoline and diesel fuel”, the report stated.

 According to First Capital observations, historically, LIOC’s margins have been impacted by the volatility in global crude oil prices; losses incurred pre implementation of the fuel price revision formula and Sri Lankan rupee depreciation.

 “Thus, developments in the global crude oil and domestic petroleum industry are crucial elements in determining LIOC’s prospects. We expect LIOC margins to be stable in the forthcoming quarters as we expect global refined oil prices to remain at the 1Q2022 level until the end of 2023,” the report said.

  Moreover, the upward price revision has been positively reflected in LIOC›s latest quarter (4QFY22) bottom line where the company has recorded an abnormal profit as inventory purchased at a lower cost has been sold at a higher price. Considering the healthy relationship with suppliers, strong order book and augmented inflow from other segments we believe LIOC to continue to expand its revenue while maintaining profit margins in FY23E”, the report concluded. (IG)