NDB Securities (Pvt) Ltd,

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Tel: +94 11 2314170
Fax: +9411 2314180

Research Team Waruna Singappuli, Suvimal De Costa, Akila Devendra, Vaishalie Shakespeare
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Main Shareholders As At 31.03.14 No. of Shares %
Indian Oil Corporation Limited, India 400,000,005 75.12
Bank of Ceylon A/c Ceybank Unit Trust 17,524,839 3.29
Employee Provident Fund 15,911,915 2.99
National Savings Bank 12,980,951 2.44
JB Cocoshell (pvt) Ltd 8,308,083 1.56
LKR Mn FY10/11(A) FY11/12(A) FY12/13(A) FY13/14(A) FY14/15(E) FY15/16(E)
Turnover 51,743 60,436 75,111 81,793 83,053 90,757
Net profits 877 907 2,909 4,813 2,996 3,042
EPS (LKR) 1.65 1.70 5.46 9.04 5.63 5.71
Forward P/E*(X) 10.69 11.39 3.73 4.26 7.20 7.09
DPS (LKR) 0.00 0.00 1.00 2.00 2.00 2.00
Dividend Yield (%) 0.00 0.00 4.90 5.19 4.94 4.94
BV (LKR) 17.30 19.00 24.46 32.01 35.63 39.35
PBV* (X) 1.02 1.02 0.83 1.20 1.14 1.03
ROE (%) 9.99 9.39 25.14 32.01 16.64 15.24
Total debt/Equity (X) 0.66 0.50 0.42 0.34 0.36 0.26
*P/E and PBV from FY10/11-FY12/13 have been calculated using the year-end share price,whilst current share price has been used for FY13/14-FY15/16.
Market Price As at 26.06.2014
52 Week Range
Shares in Issue
Average Daily Volume (52 Weeks)
Estimated Free Float (%) 24.88
Share Data
LKR 38.00
LKR 24.20 - 44.50
532,529,905
310,612
0
1
1
2
2
3
3
4
4
10
15
20
25
30
35
40
45
Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14
Volume, Mn LKR,
Volume Adjusted ASPI Price




























Lanka IOC PLC (LIOC)
Earnings update
Margins for auto fuel segment threatened The latest
estimated increase of 4.0% in Brent crude oil price for 2014
to USD 110.26 per bbl (Source: Bloomberg) will bring
down profit margins for FY14/15. This anticipated increase
is as a result of the current unrest in Iraq, which happens to
be OPECs second largest oil producer. To account for
these margin pressures, we revise our previous revenue
estimation downwards to LKR 59,297 Mn from LKR
60,094 Mn from total fuel distribution for FY14/15.
Overall reduction in revenue from Bunkering Sri
Lanka saw a contraction in the bunkering industry due to
lacklustre industry conditions and increasing regional
competition. In addition, during the year the entry of new
players to the local industry may have led to intense
competition and loss of market share for LIOC. LIOC has
experienced over 25% decline in revenue from bunkering in
FY13/14. However, considering this significant fall for last
year, we anticipate the volumes to remain stagnant for
FY14/15.
Sturdy cash balance to retain - According to our
estimates, LIOC has the ability to retain a robust cash
balance of above LKR 6,500 Mn even after paying out
dividends and incurring capital expenditure for the next 3
years from FY14/15 to FY16/17.
Change in recommendation - Since our previous
recommendation to BUY in April, the share has edged
down by 4.8% compared to a rise in ASPI of 5.2%.
Considering the likely reduction in earnings for FY14/15H1
compared to FY13/14H1 we have reduced the forward PER
from 8.0X to 7.0X and therefore, the intrinsic value has
declined.
(Please refer annexure for a description of the company)




Price Performance
Target Price LKR 42.10

Recommendation HOLD

Analysts Akila Devendra

Date 27.06.2014

NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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Bitumen and Lubricants showing positivity
The bitumen and lubricant industries have been growing with the expansion in the
motor sector and growth in the economy. GDP growth of Sri Lanka for 2014 is
expected to be 7.2% according to World Bank projections. Lubricants for FY13/14
saw an increase of 34% which is the highest for LIOC since FY08/09. We have
estimated the lubricants to continue to witness gains with a CAGR of 13% for
FY14/15-FY16/17 while bitumen is estimated to witness gains of 7.0% for FY14/15.


NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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Income Statement
LKR Mn FY10/11(A) FY11/12(A) FY12/13(A) FY13/14(A) FY14/15(E) FY15/16(E)
Revenue 51,743 60,436 75,111 81,793 83,053 90,757
Cost of Sales (50,217) (56,080) (69,721) (73,481) (76,927) (84,134)
Gross Profit 1,526 4,357 5,389 8,312 6,126 6,623
Other Operating Income 109 36 38 31 34 38
Selling and distribution costs (24) (1,425) (1,676) (1,748) (1,973) (2,209)
Administrative expenses (840) (1,011) (889) (875) (844) (990)
Operating profit 770 1,956 2,862 5,719 3,343 3,462
Net finance (expense)/income 124 (1,026) 128 43 242 173
Profit before tax 893 931 2,991 5,762 3,585 3,635
Tax (17) (24) (82) (948) (589) (593)
Net profit after tax 877 907 2,909 4,813 2,996 3,042
Balance Sheet
LKR Mn FY10/11(A) FY11/12(A) FY12/13(A) FY13/14(A) FY14/15(E) FY15/16(E)
Non current assets
Property,plant & equipment 3,313 3,276 3,265 3,341 5,708 5,865
Long term investment 4,394 4,394 4,394 4,394 4,394 4,394
Intangible assets 681 679 678 677 675 674
8,388 8,348 8,337 8,412 10,777 10,933
Current assets
Inventories 6,710 8,813 10,240 7,929 8,400 9,385
Current tax receivable 186 282 365 0 0 0
Trade & other receivables 3,012 2,980 2,570 1,886 1,933 2,217
Cash & cash equivalents 693 1,698 3,187 8,758 7,031 7,736
10,601 13,774 16,363 18,573 17,364 19,338
Total assets 18,989 22,122 24,700 26,985 28,141 30,271
Equity
Stated capital 7,577 7,577 7,577 7,577 7,577 7,577
Retained earnings 1,635 2,541 5,452 9,466 11,398 13,374
Total equity 9,211 10,117 13,028 17,043 18,974 20,951
Non current liabilities
Retirement benefit obligations 41 39 41 47 52 57
Deferred tax lability 0 0 5 30 30 30
41 39 47 77 82 87
Current liabilities
Trade & other payables 5,115 7,705 7,258 3,213 3,583 4,356
Borrowings 4,622 4,260 4,367 6,123 4,974 4,348
Total current liabilities and provisions 9,737 11,966 11,625 9,864 9,085 9,233
Total liabilities 9,778 12,005 11,672 9,942 9,167 9,320
Total equity & liabilities 18,989 22,122 24,700 26,985 28,141 30,271
Segmental breakdown
FY10/11(A) FY11/12(A) FY12/13(A) FY13/14(A) FY14/15(E) FY15/16(E)
Revenue
Fuel distribution 41,112 38,642 47,969 59,548 59,297 66,413
Bunkering 7,305 14,587 17,336 12,905 13,531 13,650
Lubricants 1,434 1,601 1,742 2,253 2,646 2,964
Bitumen 1,891 5,606 7,262 7,086 7,579 7,730
Other 0 0 801 0 0 0
51,743 60,436 75,111 81,793 83,053 90,757
Financials


NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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Cash Flow Statement
LKR Mn FY13/14(A) FY14/15(E) FY15/16(E)
Profit Before Tax 5,762 3,585 3,635
Depreciation 221 233 343
Amortization 2 1 1
Interest Income (301) (395) (369)
Interest Expense 258 153 196
Change in Recievables 684 (47) (285)
Change in Inventories 2,312 (471) (985)
Change in Payables (4,045) 370 773
Change in retirement benefit obligations 6 5 5
Cash generated from operations 4,898 3,435 3,315
Interest paid (115) (120) (105)
Interest received 301 395 369
Economic service charge and income tax paid (558) (589) (593)
Net cash generated from operating activities 4,526 3,120 2,986
CF from investing activities
Purchase of property plant and equipment (304) (2,600) (500)
(313) (2,600) (500)
CF from financing activities
Net proceeds from borrowings 1,612 (1,182) (717)
Dividend paid (533) (1,065) (1,065)
1,079 (2,246) (1,782)
Net increase/(decrease) in cash and cash equivalents 5,292 (1,726) 704
Movement in cash & cash equivalents
At start of year 3,187 8,758 7,031
(Decrease)/ increase 5,292 (1,726) 704
At end of year 8,479 7,031 7,736
Key Ratios FY10/11(A) FY11/12(A) FY12/13(A) FY13/14(A) FY14/15(E) FY15/16(E)
Growth Ratios
Turnover Growth (%) 3.04 16.80 24.28 8.90 1.54 9.28
Gross Profit Growth (%) 510.82 185.52 23.71 54.22 -26.30 8.11
Net Profit Growth (%) 307.36 3.51 220.62 65.47 -37.75 1.52
Profitability Ratios
Gross Profit Margin (%) 2.95 7.21 7.18 10.16 7.38 7.30
Net Profit Margin (%) 1.69 1.50 3.87 5.88 3.61 3.35
ROE (%) 9.99 9.39 25.14 32.01 16.64 15.24
Share Ratios
EPS (LKR) 1.65 1.70 5.46 9.04 5.63 5.71
DPS (LKR) 0.00 0.00 1.00 2.00 2.00 2.00
Dividend Yield (%) 0.00 0.00 4.90 5.19 4.94 4.94
BV (LKR) 17.30 19.00 24.46 32.01 35.63 39.35
Gearing
Total Debt/Equity (%) 50.18 42.11 33.52 35.92 26.21 20.75


NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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Appendix
Company Description
Lanka IOC (LIOC) is a subsidiary of Indian Oil Corporation, a fortune 500
Company, which was established in Sri Lanka in 2002. LIOC was listed in
the Colombo Stock Exchange in 2004. LIOC is currently one of the largest
players in import and distribution of petroleum products in Sri Lanka.
LIOC has interest in following segments
Fuel distribution
Bunkering
Bitumen
Lubricants
LIOC also holds a 33% stake in Ceylon Petroleum Storage Terminals Ltd,
which is the Common User Facility in Colombo for storage and distribution
of petroleum products in Sri Lanka. Further the company has heavily
invested in tank storage development, China Bay tank farm, in Trincomalee.
Fuel distribution
LIOC sources its fuel from Singapore and Dubai through competitive bidding
and distributes following fuels through 157 fuel outlets (105 owned, 52
franchise).
Petrol (Octane 92)
Petrol (Octane 95)
Diesel
Super Diesel
Xtra Mile
Xtra Premium
LIOC is the second largest importer and distributor of fuel in Sri Lanka with
about 12% market share. The fuel distribution takes place from the Common
User Facility in Colombo and the China Bay tank farm.
Fuel distribution contributed to roughly 40.4% of the turnover in FY13/14
making it the largest business segment for LIOC in terms of revenue while it
accounted for approximately 59% of gross profits.





NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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Bunker operations
Since the start of its operations in 2009, LIOC has become one of the largest
bunkering companies at the Port of Colombo. The bunker operations cater to
vessels calling on the harbour for trade activities (approximately 60% of the
sales volumes) as well as shipping vessels passing through on the east west
sea trade route, one of the worlds busiest shipping lanes.
Following types of fuel are available at Colombo Port.
Fuel Oil 380 cst
Fuel Oil 180 cst
Marine Gas Oil (MGO)
Fuel Oils are generally used to power ship engines and the two variants
combined constitute to about 75% of the sales at the port of Colombo. MGO
is used to power ship generators, which is used to power other on board
equipment. Therefore in normal practice, ships when bunkering, purchase
both Fuel Oil and MGO.
The SLPA operates a common storage facility with a capacity of 40,000 MT
which is shared by the all the bunkering players. The bunker fuel is brought
to the harbour by bunkering operators in their own vessels or chartered
vessels and pumped into the common storage facility. The SLPA charges for
the usage of storage facilities depending on the quantity and number of days
at storage.
The bunkering at Port of Colombo is dominated by three main players.
LIOC
Lanka Marine Services
Lanka Maritime Services

Source : NDBS research
Lanka Marine Services
LIOC
Lanka Maritime Services
Other
Colombo port bunkering market share
NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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June 2014 7
Bunkering contributed to roughly 15.8% of the turnover in FY13/14 while it
accounted for approximately 12% of gross profits.

Source : Shipping density data adapted from National Center for Ecological Analysis and
Synthesis, United States
Bitumen operation
LIOC started import and distribution of Bitumen in FY09/10 with the
increasing public investments in infrastructure development. Bitumen, also
known commonly as asphalt, is used as a binder mixed with aggregate to
create asphalt cement in road works and other construction projects.
CPC is the largest distributor of bitumen in Sri Lanka, with bitumen produced
as a by-product of refining crude oil. LIOC has however gained significant
market share accounting for approximately 43.0% of imported bitumen in
FY12/13.
Bitumen contributed to roughly 8.66% of the turnover in FY13/14 while it
accounted for approximately 13% of gross profits.
Lubricants operation
LIOC started marketing lubricant under the Servo brand and in 2007 started
operating a blending plant in Trincomalee. It is currently the second largest
distributor of lubricants in Sri Lanka with majority of the products marketed
in Sri Lanka blended in Trincomalee.
Lubricants contributed to roughly 2.8% of the turnover in FY13/14 while it
accounted for approximately 3% of gross profits.

NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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June 2014 8
Board of Directors
Mr. Makrand Nene Chairman
Mr. Subodh Dakwale Managing Director
Mr. Lakshman Ravendra Watawala
Mr. Rajiv Khanna
Mr. B. Ashok
Mr. Amitha Gooneratne

NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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June 2014 9
Mrs. Prasansini Mendis Chief Executive Officer prasansini@ndbs.lk 011 2131005
Sales Branches
Head Office CSE
Mr. Gihan R. Cooray gihan@ndbs.lk 011 2131010 Mr. Sujeewa Athuorala sujeewa@ndbs.lk 011 3135495
Mr. !ayantha Sa"arasin#he jayantha@ndbs.lk 011 2131011 Mrs. Shiro"i $e Silva shiromi@ndbs.lk 011 2335054
Mr. Channaa Munasin#he channaka@ndbs.lk 011 2131014 Kiribathgoda
Mr. Aroos %aleel aroosaleel@ndbs.lk 011 2131012 Mr. Gayan Pathirana gayan@ndbs.lk 011 290!515
Mr. Au&urn Senn auburn@ndbs.lk 011 2131013 Matara
Mr. 'ditha Silva uditha@ndbs.lk 011 213101" Mr. (ithsiri )ishantha kithsiri@ndbs.lk 041 223"!5!
Mr. *aa"ara $e Silva taamara@ndbs.lk 011 213101# Mr. Sri"al Gunawardana srimal@ndbs.lk 041 223"!5!
Mr. +"ran Reyal imran@ndbs.lk 012 2131021 Galle
Mr. Ra"esh Anthony ramesh@ndbs.lk 011 2131023 Mr. * A A Aravinda ara$inda@ndbs.lk 091 222544!
Mr. )i"al (u"ara kumara@ndbs.lk 011 2131022 Gampaha
Mr. Sanjaya Pra&ath sanjaya@ndbs.lk 011 2131024 Mr. Cha"esh ,ettiarachchi chamesh@ndbs.lk 033 223111!
Mr. Ara" *hadani akram@ndbs.lk 011 2131025 Mr. 'ddee-a Peiris uddeepa@ndbs.lk 033 223111!
Mr. +shana %ernando ishanka@ndbs.lk 011 2131054 Mr. Priyashantha Senevirathne priyashantha@ndbs.lk 033 223111!
Mr. ,arsha Sritharan harsha@ndbs.lk 011 213101! Kaluthara
Mr. Sajed Sallay sajed@ndbs.lk 011 2131019 Ran#anath .ijethun#e ranganath@ndbs.lk 034 22215#9
Mr. Stefan $e Alwis stean@ndbs.lk 011 2131015 Mr. A A !eewantha jeewantha@ndbs.lk 035 22215#9
O-erations Jaffna
Mr. C Pad"anathan chandru@ndbs.lk 021 5"!1155
Contacts 's mail@ndbs.lk 011 2131000 Ms. Sanjia Ranjithu"ar sanjika@ndbs.lk 021 5"!1155
Rathnapura
)$B Securities /Pvt0 1td Mr. +ndrajith 1ouhetti#e indrajith@ndbs.lk 045 2230#00
5th %loor& '() )uilding& Ampara
40& 'awam *awatha& +olombo 02 Mr. Ravi $e Mel ra$i@ndbs.lk 0"3 2224245
)$B Securities /Pvt0 1td

NDB Securities (Pvt) Ltd Lanka IOC PLC 27
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June 2014 10
Disclaimer
This document is based on information obtained from sources believed to be reliable, but NDB Securities
(Pvt) Ltd., (NDBS) accepts no responsibility or makes no warranties or representations, express or
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