KARACHI – Refineries have posted strong results in the first half of the Financial Year 2011. Improved Gross Rent Multipliers (GRM) pushed performance upwards in the first quarter of Financial Year 2011, while better lube earnings for National Refinery Limited (NRL) and dividend income for Attock Refinery Limited (ATRL) helped earnings in the 2QFY11.
However, a relatively weak quarter is expected ahead as a result of feeble GRM’s in the 3QFY11. In addition, removal of deem duty on HSD has again resurfaced the regulatory risk, suggesting a cautious stance on the sector. Though, ATRL posted a robust 58 percent quarterly growth, the company’s gross profits squeezed to Rs 69.8 million compared to Rs 876.7 million reported in the previous quarter.
This is primarily because GRM’s have fallen to $1.4 per barrel in the second quarter from $3.5 per barrel in the first quarter. However, strong non-refinery income of Rs 765.8 million spurred by dividend income from group companies offsets the decline in profits from core operations. NRL also exhibited a 32 percent quarterly growth due to better gross margins on lube business, compensating for weaker GRMs in the fuel segment.
It is estimated that average 3QFY11 GRMs would hover below $1.5 per barrel for both ATRL and NRL, ($1.0 per barrel lower than average GRMs recorded in 1HFY11). This depicts a weak performance from refinery operations in the current quarter, said Umer Ayaz at JS. The government is reportedly considering a gradual removal of the 7.5 percent deem duty on HSD in order to curb the impact of rising oil prices on local consumers.
The move would effectively reduce ATRL’s and NRL’s GRMs by $2.3 to $2.8 per barrel, causing a significant slash in profits from fuel refining operations. However, NRL’s lube earnings and ATRL’s dividend income from its group companies would keep the profits going. Consequently, a potential 45 percent to 50 percent downward revision in earnings of the two companies following complete removal of deem duty is expected.
Refineries exhibit strong results in 1HFY11
