Karachi, November 08, 2022 (PPI-OT): NRL: 1QFY23 Analyst Briefing Takeaways
To recall, the company posted loss after tax of PkR4.4bn (EPS: PkR54.9) for 1QFY23, lower by 11.8x compared to the same period last year. NRL’s Net sales for the quarter were PkR68bn, higher by 51%YoY. Inventory (PkR900mn) and exchange (PkR9bn) losses contributed significantly to the falling profitability during the quarter.
Off takes wise, Fuel segment recorder sales volumes of 349k MT (down 24%YoY) with average GRMs standing at US$2.5/bbl., for the quarter. On the Lube front, volumetric sales stood at 114k MT (up 967%YoY), with average gross margins standing at 3.76% for the quarter.
Price differential claims (PDC), Letter of Credit/import issues and exchange losses posted significant challenges for the refinery during the outgoing year. More recently, Middle Eastern suppliers of crude have begun charging increased premiums on every barrel (~US$9-10/bbl.). This is due to the increasing demand of Middle Eastern crude from the western front, crowding out smaller buyers like Pakistan.
NRL’s future project upgradation plans include Bottom of the barrel upgrade, Hydrocracker and a Catalytic Conversion Unit. These upgradation are subject to the economic viability of the projects.
Management did not have an optimistic view on the much talked about ‘Pakistan Refinery Policy’. As per company, the policy’s future hopes are majorly relying on a possible Greenfield investment in the refinery sector (by Saudia/China), and the Govt’ is not paying much heed to the needs of the already present refineries in the domestic space.
On the deregulation front, back when international prices/exchange rates were volatile/unstable, the Govt’ was in a hurry to deregulate the local industry. Now, since the international volatility in prices has died down, so has the government’s attention towards it.
Furnace oil upliftment is expected to fall severely in the coming winter due to halving power generation demand in the country. Although, there may be some respite on the back of shortened RLNG supply. Drastic volatility in FO demand due to seasonal shifts is majorly due to a smaller industrial base in the country, as domestic consumer segment dominates majority of the power requirement.
Regarding flood rehabilitation/construction demand, management commented that company’s bitumen may get uplifted if the Govt’ decides to allocate demand towards local OMCs. Although, bitumen/asphalt demand usually declines in the winter season due to halted construction activity.