Lanka Lubricants losing market share at a slower pace: Arrenga Capital

Lanka Lubricants (LLUB), which had monopoly status in the lubricant industry at the start of the last decade, has been significantly losing market share, however at a declining pace.

“With the industry now settling down while LLUB still commands a market share of 65% of the market, we expect market share to only erode to 62% by end 2013,” Arrenga Capital said in a research note, while maintaining they expected sales volumes for the company to grow.

LLUB is not competing on price but on brand loyalty, the research firm points out.

Despite the rise in global base oil prices, LLUB’s margins improved gradually from 29.7% in the fourth quarter of the financial year to 33% in the third quarter of FY 2011 as economic conditions in Sri Lanka improved, allowing LLUB to increase retail prices.

Chevron Lubricants Lanka is a 51% subsidiary of the global energy giant Chevron Corporation and is the leader in the lubricants market in Sri Lanka with a market share of approximately 65%. Other competitors include Lanka Indian Oil Corporation which has a market share of 18% and other players who command a 17% stake.

LLUB is one of the two main players with a blending plant in the country and as a result has a 9% tax advantage over the rest of the 12 players who directly import their products while Lanka IOC too blends locally.

A weak global economic outlook suggests stable base oil prices or a decline in prices which have a lagged effect from the reduction in crude oil prices.