Karachi, January 23, 2024 – The second quarter of the fiscal year 2023-24 may witness a dip in profitability for Oil Marketing Companies (OMCs) in Pakistan, primarily due to anticipated inventory losses.
Analysts at Insight Securities Limited have shared their projections, expecting a challenging quarter for major players in the sector, including Pakistan State Oil (PSO) and Attock Petroleum Limited (APL).
Insight Securities Limited analysts foresee a 12% Year on Year (YoY) increase in revenue for the OMC universe, encompassing PSO and APL. However, despite this growth, they anticipate that profitability will take a hit, entering the negative zone due to substantial inventory losses.
The decline in volumetric sales, a 15% YoY drop to approximately 3.9 million tons in 2QFY24, is attributed to several factors: higher petroleum product prices, a slowdown in economic activity, and reduced demand for Furnace Oil (FO) for power generation. PSO and APL concluded the quarter with market shares of 50.1% and 9.6%, respectively, according to data from the Oil Companies Advisory Committee (OCAC).
Analysts anticipate OMCs to face inventory losses in 2QFY24 as ex-refinery prices of Motor Spirit (MS) and High-Speed Diesel (HSD) decreased by 25% and 26% to PKR 188/liter and PKR 198/liter, respectively, on a quarter-end basis. Despite retail prices of MS and HSD reaching record highs of PKR 331/liter and PKR 329/liter in the second fortnight of September 2023, the subsequent decrease in ex-refinery prices is expected to result in significant inventory losses.
However, a silver lining exists in the form of an average increase in OMC margins for MS and HSD by approximately 26% Quarter on Quarter (QoQ), which is expected to partially offset the impact of inventory losses. The projection suggests that PSO may post a Loss Per Share (LPS) of PKR 23.5, while APL is expected to post Earnings Per Share (EPS) of PKR 8.9 in 2QFY24. Alongside the results, APL is anticipated to announce a Dividend Per Share (DPS) of approximately PKR 20.
For PSO, a consolidated Loss After Tax (LAT) of approximately PKR 11.0 billion (LPS: PKR 23.5) is expected, compared to a LAT of PKR 4.6 billion (LPS: PKR 9.7) in the corresponding period last year. The decline in volumetric sales, coupled with inventory losses of around PKR 18.7 billion, is projected to impact PSO’s financials. Finance costs are expected to rise by 28% YoY to PKR 9.8 billion due to higher borrowing and elevated interest rates.
As for APL, analysts project a Profit After Tax (PAT) of around PKR 1.1 billion (EPS: PKR 8.9), representing an 11% decline YoY and a 79% decline QoQ, primarily attributed to inventory losses of approximately PKR 2.2 billion. APL’s topline is expected to increase by 19% YoY due to elevated petroleum product prices, but the impact of inventory losses is expected to affect overall profitability.
Investors and stakeholders are advised to closely monitor these developments in the oil and gas sector as the financial results unfold, providing insights into the challenges and opportunities facing OMCs in the current economic landscape.
