PACRA Maintains Entity Ratings of Attock Refinery Limited

Lahore, December 07, 2018 (PPI-OT): The ratings reflect ARL’s very strong risk absorption capacity emanating from sizable equity base. ARL’s core business remains exposed to the vicissitudes in international crude oil, which in turn, may lead to declining gross refining margins (GRMs). In the recent period, ARL’s refining margins have suffered deterioration due to unfavourable prices of Petroleum Products and Crude Oil coupled with Exchange loss.

This has resulted in negative gross profit margins. Nevertheless, there is a significant contribution from value-added products in ARL’s revenue. Post completion of expansion project along with DHDS and isomerization plant came online in FY17, the company has started accruing benefits in sales volume as well as price, except FO which came into limelight due to Government unannounced closure of FO based power plants. Incremental benefits could not be reaped in terms of profitability, emanating from squeezed margins and steep rupee devaluation.

Free Cashflows from operations has declined, in turn, coverages, but in the longer horizon, it will remain in the comfortable zone. ARL’s strategic investments and sizable bank placements, continue to provide support in the form of dividend and interest income, which is ~ 3% of the top-line, to the risk profile of the company and remains a stable source of recurring non-core Income. The Company’s association with the country’s only integrated oil group – Attock Group (AG), moderately leveraged – remains a source of comfort for the ratings.

The ratings remain dependent on ARL’s ability to effectively shield its business profile from volatility in international oil prices. ARL’s financial profile, in turn, its ratings, could be negatively impacted by the persistent downturn in refining margins, or an unexpected drop in dividend stream. The continuity of deemed duty on Diesel is crucial.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com