LIOC, CPC to develop 61 tanks in Trinco investing USD 71 Mn

On Jan 28, 2025

Lanka Indian Oil Company (LIOC), in collaboration with the Ceylon Petroleum Corporation (CPC), is set to develop 61 tanks at the Trincomalee upper oil tank farm with a total investment of USD 71 million, funded through foreign debt of which LIOC will contribute 49%.

According to CAL Research estimates, once operational, these tanks will primarily serve regional and local bunkering operators while also offering storage for other fluids like crude palm oil. This project is expected to be a strategic medium-to-long-term revenue driver for LIOC. The report also says that the proposed Indo-Lanka petroleum pipeline is in the high-level planning phase, aiming to ensure affordable and uninterrupted fuel supply.

The tap-off point in Vavuniya is strategic for transporting fuel to Trincomalee, aligning with Sri Lanka’s plan to develop it as an energy hub. The pipeline will run from Nagapattinam, India, via a 70 km subsea route. Managed by IOC, it promises cost-effectiveness and supply security. Meanwhile, CAL projects that national auto fuel consumption is also expected to grow at a CAGR of 7% between FY24 and FY27E, driven by economic recovery and rising GDP per capita. Countries with similar economic profiles show a clear link between higher GDP per capita and increased fuel consumption.

For instance, during 2009-2017, when GDP per capita in Sri Lanka grew at a CAGR of 117%, fuel consumption per capita rose by 53%. Reflecting this trend, LIOC’s auto fuel volumes are expected to grow from 340 million liters in FY24 to 424 million liters by FY27E, supported by the continued expansion of its outlet network.

LIOC’s market share has grown steadily in recent years, supported by strategic outlet expansion. In contrast, Sinopec and potential entrants, United Petroleum and RM Parks, are primarily expected to erode CPC’s market share as its outlets are relinquished. National lubricant consumption is projected to rise with the normalization of economic activity and increased vehicle imports after the ban is lifted.

LIOC, holding a 20% market share, is poised to benefit from this growth. With the capacity addition of the West Container Terminal (WCT) of 3.2 million TEU’s in 2025E, bunkering volumes are expected to rise, driving the EBIT of the bunkering segment to LKR 640mn in FY26E vs. LKR 542 mn in FY24 Since the introduction of the fuel price formula, CPC has maintained margins of 2-4% for essential fuels, ensuring similar margins for LIOC. This cost-reflective pricing formula has helped avoid unexpected losses in the auto fuel segment and provided bottom-line stability.

CAL also predicts that based on a free cash flow valuation, LIOC’s fair value is estimated at LKR 228 per share, with 40% attributed to existing cash flows and 60% derived from projected future cash flows. (SS)

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