Eastern Lubricant profit jumps for low-cost base oil imports

Eastern Lubricant Blenders Ltd – a state-owned lubricant blender and base oil importer – posted 9.6 times higher profits in the 2020-21 fiscal year.

Thanks to its occasional (on-demand) base oil import business which helped the small-cap listed firm earn a good revenue against no base oil import in the previous fiscal year.

Moreover, the firm had procured base oil at a cheaper price from the pandemic-hit international market during the first wave of Covid-19 and sold that to its only three buyers – state-owned companies Padma Oil, Meghna Petroleum, and Jamuna Oil Company – at a regular price over fiscal 2020-21.

Alongside the jump in revenue, the increased profit margin in base oil trading made a big difference for Eastern Lubricant Blenders in fiscal 2020-21, said Company Secretary Ali Absar.

The company earned revenue from its bitumen supply contract with a road construction project but it did not sufficiently help increase profits, while some financial income added to the profit figure, he added.

The lossmaking core business

Since its establishment before independence, Eastern Lubricant had been a busy blender until the early 2000s when the Bangladesh Petroleum Corporation (BPC) was the sole player in the market.

As soon as the government allowed imports of finished lubricant products in 2001, and permitted private sector players to blend imported base oil at their local facilities in 2002, BPC entities Padma, Meghna and Jamuna Oil began to lose ground in the lubricants market.

Lower demand for their products kept reducing Eastern Lubricant's blending, and amid a lack of scale, blending turned into a losing operation for the blender which is not allowed to go beyond the orders from Padma, Meghna and Jamuna.

Eastern Lubricant's annual blending volume dropped to 1,576 tonnes in the 2019-20 fiscal year, from 21,878 tonnes in fiscal 1996-97, while its decades-old plant can blend 24,000 tonnes of lubricant a year.

Blending is the process of turning specific graded base oil into finished lubricant products through mixing certain additives.

However, the board of directors has been trying to diversify the business of Eastern Lubricant Blenders since the mid-2010s as it was allowed to import on-demand base oil for the Padma, Meghna and Jamuna Oil for a trading profit, distributing Yuasa branded automotive batteries, bitumen and grease supplies to the BPC entities.

But, except for the base oil trading, none of the businesses helped the company earn both a good revenue and profit together, while the profitable base oil trading is still its irregular business.

The BPC did increase the company's blending charge per litre to Tk6.5 from Tk3 in the latter part of the last fiscal year, said Ali Absar.

Eastern Lubricant board has recently approved a strategic business agreement with KB Petrochemicals Ltd, a joint venture between Sena Kalyan Sangstha and a Middle-Eastern firm, for contract blending of lubricants. If actuated, the move would add to the company's lubricant blending revenue alongside an annual gross profit of less than Tk64 lakh. 

The company posted earnings per share of Tk52.18 for fiscal 2020-21, which was Tk5.43 amid no revenue in the previous fiscal year.

But amid no base oil trading revenue, its EPS dropped to Tk1.73 for the July-September quarter, which was Tk2.86 over the same period a year ago.

As the base oil price increased a lot in the international market this year, Eastern Lubricant is yet to procure for its new consignment, Ali Absar said.

At the end of September this year, its net asset value per share stood at Tk229.

The company announced 140% cash and 20% stock dividends for the last fiscal year.

Historically, a little profit or loss drastically moves the company's earnings per share as its paid-up capital is less than Tk1 crore.

The Bangladesh Securities and Exchange Commission (BSEC) has recently written to 64 small-cap companies including Eastern Lubricant to submit a plan on how they would increase their respective paid-up capital to Tk30 crore, a minimum benchmark nowadays for the firms to be listed on the main board of the bourses.

Eastern Lubricant is yet to finalise any plan, said its company secretary.

Meanwhile, despite a lack of business, Eastern Lubricant shares skyrocketed to over Tk3,300 each this year, gaining more than 225% in a year.

But the company's disclosure of its annual financials on Sunday proved to be insufficient to retain the price and the stock fell 15% to Tk2,818 each at the DSE.

The company operates on the leased lands of Padma Oil Company, while Padma Oil employees work there on deputation.

However, Eastern Lubricant Blenders has recently published a recruitment circular to employ 15 people in different positions.