Pakistan State Oil loses market share


Pakistan State Oil (PSO) market share has shrunk to 66.3 percent during the first half of Financial Year 2011 (FY11) against its share of 71 percent during the corresponding period last year. Total volumes declined by 10 percent in annual terms whilst industry witnesses growth of 1.3 percent annually for the second quarter of FY11.
Moreover, the management’s lack of confidence in an immediate resolution on circular debt has hurt investor sentiment, particularly given hopes for better payouts. Receivables owed to PSO have ballooned to Rs 154 billion against overdue payables of Rs 88 billion. The ensuing liquidity squeeze of Rs 66 billion has severely hampered the company’s ability to ensure steady supply besides entailing a significant opportunity cost.
Adding fuel to the ongoing crisis, untouched petroleum product prices, besides rising Price Different Claims (PDCs) on imported Motor Spirit (MS), have also limited the government’s ability to liquidity in the face of a burgeoning crisis.
This overview was based on a presentation on performance presented by the management during a meeting with the market analysts. “We believe circular debt will remain a menace for the entire energy supply chain, hampering payout and diluting growth prospects”, said Salman Vidhani, an investment analyst at HMFS.
A dip in black oil category sales by 13 percent outstrips that exhibited in the industry, which contracted by three percent at the same time. Furnace Oil (FO) volumes were disappointing as AES Lalpir remained closed due to major overhauling after damage the floods and curtailed supplies to KAPCO while High Speed Diesel sales were stagnant owing to economic woes.
However, a jump in FO prices boosting the absolute margin to an average Rs 1,362 per tonne while supplemented inventory gains of Rs 981 million sustained gross profit in 1HFY11. PSO also garnered interest income amounting to Rs 1.13 billion for 2QFY11, translating into a 1HFY11 cumulative of Rs 1.44 billion on overdue receivables owed by Independent Power Producers (IPP).
On the flip side, PSO booked late payment charges amounting to Rs 4.3 billion for 1HFY11 on overdue payable against refineries, depicting annual growth of 65 percent. Additionally, the management also disclosed that unrealised interest income to the tune of Rs 16-17 billion on outstanding receivables against outstanding interest expense of roughly Rs 7 billion on payables towards refineries.
Since interest income is booked on cash basis, while interest expenses are recorded on accruals and is yet to be paid to refineries, the possibility of reversal of interest expenses in future can’t be ruled out, Salman said, adding that in case of no reversal, materialization of outstanding interest income outstripping late payment charges could bolster the bottomline going forward.
It is to be noted that PSO announced Profit After Tax (PAT) of Rs 6.3 billion with Earnings Per Share (EPS) of Rs 36.86 for the quarter against the corresponding period PAT of Rs 3.2 billion with EPS of Rs 18.53. Earnings for the quarter translate into 1HFY11 PAT of Rs 7.13 billion and EPS of Rs 41.58. This indicated growth of 40 percent in annual terms. Despite all the woes linked liquidity, PSO also announced interim dividend of Rs 5.0/share for the 1HFY11. Reversals on account of reduction in turnover tax from one percent to 0.5 percent amounting to Rs 2.6 billion and inventory gains amounting to Rs 981 million implying an impact of Rs 5.72 per share bolstered the earnings of the company.


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