Karachi, November 02, 2022 (PPI-OT): POL sales clocked in at 1.66mn tons for Oct’22
POL product sales clocked in at 1.66mn tons for Oct’22, changing by –16%/+9.0% on YoY/
MoM basis.
On the retail front, MS volumes shrunk noticeably as well, by 19%YoY during 4MFY23, as increased fuel prices and restricted mobility (floods/rain destruction) dampened the over- all demand.
Company wise, major players in the sector, PSO/APL/SHEL/GOPL, delivered throughput levels of 851k/138k/129k/99k, taking total market share to stand at 51%/8.3%/7.7%/6% for Oct’22.
Overall, increasing fuel prices continue to haunt the sustainability of the sector as the fifth month of risen prices have kept off takes under pressure between June and October.
APL (TP: PkR370/sh) is our top pick from the sector, with the company being a perfect mix of capital upside and dividend yield.
Industry sales down 16%YoY:
POL product sales clocked in at 1.66mn tons for Oct’22, changing by –16%/+9% on YoY/MoM basis, compared to 1.93mn/1.52mn tons during Oct’21/Sep’22. The said fall may be majorly attributable to the organic demand destruction, as declining sales volumes are correlated with an overall economic slowdown, as depicted by falling LSM index (July’22: ↓16.4%MoM), auto-sales (↓53%QoQ), power generation (↓1%QoQ) and the ever rising inflation (Avg. 1QFY23 CPI: 25.1%YoY).
Furthermore, the volumetric downturn is also due to the floods in the affected regions (majorly Sindh/ Balochistan/KPK), as agri destruction and muted thermal generation may have had a say in industry’s falling off takes for HSD/RFO, which were down 26%/25percentage during 4MFY23.
On the retail front, MS volumes shrunk noticeably as well, by 19% YoY during 4MFY23, as increased fuel prices and restricted mobility (floods/rain destruction) dampened the overall demand. To note, price for MS and HSD currently stands at PkR225/235, up 51%/62percentage since May’22, in line with the incumbent Govt’s plan to pass on the full costs of sup- ply plus levies to consumers.
Decline across the board:
Company wise, major players in the sector, PSO/APL/SHEL/GOPL, delivered throughput levels of 851k/138k/129k/99k, taking total market share to stand at 51%/8.3%/7.7%/6% for Oct’22, respectively. More specifically, PSO’s off takes registered significant declines of –18% YoY, majorly due to falling FO volumes, which were down 43%/47% YoY/ MoM vs industry’s decline of just 37%/33% YoY/MoM.
Overall, HASCOL stood the most resilient amidst the industry decline as total volumes for the month stood at 34k tons, up by 46%/25percentage YoY/MoM. This comes on the back of HASCOL’s approach to remobilize most of its retail depots by CY22 end, as most closed up due to company’s fallout during 2019/20. On the retail front, PSO and APL ended the 4MFY23 period with market share standing at 52.1%/9.3% vs 51.7%/9.0% during SPLY. Share of smaller players (bottom 25) stood at 8.5% vs 9.5% last month.
Future outlook:
Overall, increasing fuel prices continue to haunt the sustainability of the sector as the fifth month of risen prices have kept off takes under pressure between June and October. Furthermore, reduced auto sales in the coming quarters alongside a depressed GDP outlook during the current period compels us to assume negative volumetric growth for the industry, by approximately 7-8% for FY23.
Although, recent positives such as downward turnover tax revision and alleged deregulation/increase of OMC margins may be a breath of fresh air for the players. APL (TP: PkR370/sh) is our top pick from the sector, with the company being a perfect mix of capital upside and dividend yield.
Our liking for the company stems for the reasons including i) Aggressive capacity and retail network expansion to enhance market share, ~4x in last 3 years, ii) Near-to- none leverage on books, protecting it against any hike in interest rates, iii) high payout ratio of the company, placing it in the defensive category, iv) Retail centric revenue keeping it shielded from circular debt.