In the June quarter sales rose 1.4 percent to 2.56 billion rupees but cost of sales fell 3.6 percent allowing gross margins to grow 12.5 percent.
Chief executive Kishu Gomes told shareholders that an economic slowdown was beginning to hit the firm towards the end of the quarter and if conditions persist "the full impact of it will be felt going forward."
Sri Lanka ran into a balance of payments crisis in the second half of 2011 as state energy enterprises borrowed heavily from banks to manipulate prices and the Central Bank kept rates down by printing money.
Though corrective steps were taken in February 2012, it resulted in the rupee falling from 110 to over 130 during the period and interest rates also went up.
Meanwhile in a knee-jerk Mercantilist reaction, authorities also raised taxes on vehicle imports, hurting state revenues and hitting the transport sector.
"The current volatile economic environment and the consequent poor market sentiments can have an adverse impact on the industry growth compounded by industry specific challenges such as high fuel cost, increased duty on vehicle importation and the European market volatility..." Gomes said."Recent severe drought experienced in the north western and eastern regions of the country may have an impact on our volume in the short term."
He said volatility in the European market was hurting industrial lubricant exports.
"Bangladesh market too is faced with severe economic issues affecting our growth plans while the Maldives market has fared well in terms of volume and margin," Gomes said.
