Elixir Securities Limited – Elixir Insight
Karachi, January 04, 2018 (PPI-OT): Pakistan OMC Sector – Retail Fuel Sales Fail to Compensate for FO Declines
Overall industry sales volumes fell 11/2% YoY/MoM in Dec-17 led by rout in FO offtakes which declined 44% YoY but increased 7% MoM owing to lower hydel generation in winters.
Retail fuels continued their growth trajectory with HSD and MOGAS volumes rising 9/-11% and 12/6% YoY/MoM respectively in Dec-17. Resultantly volumetric growth for HSD/MOGAS clocked in at 11/14% over 1HFY18.
HASCOL outperformed the industry with overall sales growth of 12/45% YoY in Dec-17/1HFY18 buoyed by strength in HSD and MOGAS sales which increased 20% and 44% YoY respectively in the outgoing month.
Looking ahead we expect FO volumes to decline at a CAGR of 38% over FY17-20, as more coal and LNG based power plants come online; however some of these declines will be negated by sharp growth in HSD and MOGAS.
Within the space we highlight APL as our top pick due to its i) limited exposure to FO sales and circular debt, ii) synergies emanating from group companies and iii) muted exchange losses due to high local procurement.
Retail Volumes Growth Continues to Support Dwindling OMC Sales: As per the latest sales data released by the Oil Companies Advisory Committee (OCAC) retail fuels continued their growth trajectory with HSD and MOGAS volumes rising 9/-11% and 12/6% YoY/MoM respectively in the outgoing month. Resultantly volumetric growth for HSD/MOGAS clocked in at 11/14% over 1HFY18.
However this growth could not entirely compensate for the decline in Furnace Oil (FO) sales which resulted in Dec-17 overall sales to fall 11/2% YoY/MoM. During the outgoing month, FO volumes fell 44% YoY but increased 7% MoM primarily due to fall in hydel power generation owing to winters.
(Refer to enclosed table for company / product wise detailed offtake numbers.)
HASCOL Continues to Outperform the Industry: In line with recent performance, Hascol Petroleum’s (HASCOL) volumetric offtakes continued to outperform the sector rising 12/2% YoY/MoM during Dec-17 and 45% in 1HFY18 primarily due to strong growth in retail fuels.
Within the retail fuel segment, the company has continued to gallop ahead its competition with robust sales growth of 20% and 44% YoY in HSD and MOGAS respectively. This has taken its overall HSD and MOGAS volumes growth to 67% and 69% YoY respectively in 1HFY18.
FO Decline to Continue While Retail Growth Offers Some Respite: With additional Coal and LNG based power capacities coming online, FO volumes will continue its downward trajectory where we estimate industry FO volumes to decline at a CAGR of 38% over FY17-20.
However we foresee some of this decline to be compensated by higher retail fuel sales driven by i) strong volumetric growth in sales of heavy vehicles ii) ongoing infrastructural development on CPEC projects and iii) subsequent transit activity which will continue to drive HSD sales. Similarly we foresee MOGAS demand to remain robust due to i) lower price differential with CNG and ii) strong growth in passenger cars segment.
Outlook: Owing to the ongoing themes of declining FO volumes, possible buildup of circular debt in election year and exchange losses emanating from PKR depreciation we remain cautious on PSO despite the recent decline in the stock price. In the OMC space we remain positive on Attock Petroleum Limited (APL) where we identify the company’s relatively less exposure to FO sales and Circular debt, synergies emanating from Attock Gen and Attock Refinery (ATRL) and muted exchange losses due to high local procurement as key reasons.