* Lack of pricing mechanism hits results - managing director
* Another loss in Q2 possible
By Ranga Sirilal
COLOMBO, Sept 23 (Reuters) - Indian Oil Corp's Sri Lankan arm Lanka IOC warned on Thursday it could post another quarterly loss as its inability to link retail fuel prices to world crude prices erodes profitability.
"We are having cause of concern on the prices (for) which we have been requesting the government to have some kind of a pricing formula," K. R. Suresh Kumar, managing director of Lanka IOC, told Reuters in an interview.
"This year has been a good year in terms of volumes, but in terms of margins we could not make much. The first-quarter loss was because of the world market prices were high and the government did not revise the prices."
It lost 116.1 million Sri Lankan rupees ($1.02 million) in the quarter versus a loss of 856.7 million rupees a year ago.
"We may end up losing this quarter also. If this trend continues, we will be able to end up with little positive margins for the whole year," he said.
Lanka IOC is the only private oil retailer in Sri Lanka and is 75 percent owned by IOC. It been long incurred losses in its core fuel sales business, which it attributes to a lack of price adjustments in line with world crude oil prices.
Fuel prices in the island nation are politically sensitive. The government slashed petrol prices on Dec. 30 before a presidential poll and has not revised them since despite fluctuations in the world market.
The government lets Lanka IOC, which owns one-third of retail fuel outlets in the country, charge more than state-fixed prices, but this tends to make customers switch to cheaper fuel from state-owned Ceylon Petroleum Corp (CPC) outlets.
The lack of price-adjustment formulas throughout Lanka IOC's existence since 2002 has compelled the firm to diversify from its core business of petrol and diesel sales to bunkering and lubricant, which has helped cover losses in the past.
Investors have not bought Lanka IOC shares in large volumes of late although the stock has been in neutral technical territory since May 14, with the 14-day relative strength index (RSI) well below 70, Thomson Reuters data showed.
"Investors have lost confidence, with the government hammering them every time they start making money," said one analyst on condition of anonymity.
"But one can now argue why Lanka IOC can't make a profit despite the fact that state-owned CPC is moving towards profitability while it is selling diesel at a subsidised price." ($1=112.40 Sri Lankan Rupee) (Writing by Shihar Aneez; Editing by Michael Shields)