Though ex-refinery prices of energy products have increased by an average of 22 percent in the third quarter of FY11, a reduction in Petroleum Levy (PL) is likely to impact adversely on inventory gains of Pakistan State Oil (PSO) which stood at Rs 733 million during the quarter.
The PSO Board of Management will meet on April 28, 2011 to announce its third quarter results in which the company is expected to post an EPS of Rs 13.40, down six percent in annual terms, taking earnings during the period to Rs 55 per share. Although core gross profit is expected to trim by two percent annually, inventory gains amounting to Rs 4.3 per share, as opposed to an inventory loss of Rs 2.04/share in the same time last year, will raise gross profit by 15 percent annually.
Motor Gasoline (Mogas) volumes are up 12 percent since last year in the third quarter while FO and HSD sales witnessed a decline of 12 percent and seven percent in annual terms, respectively. However, the higher volume was offset by a lower OMC margin on the product. On the other hand, adverse impact of the dip in Furnace Oil (FO) sales was marginalised by 21 percent in annual increase in FO margin to Rs 1,800 per tonne.
It is also expected that inventory gains will stand at Rs 733 million in the period under review as opposed to inventory losses of Rs 350 million during the same period last year. Ex-refinery prices on average surged by 22 percent during the quarter said Asir Zaffar at Inviser adding that reductions in the petroleum levy to shield consumers from the hike in oil prices is likely to restrict inventory gains.
Mogas volumes have increased by 12 percent in annual terms while High Speed Diesel (HSD) sales have fallen by seven percent during the same period. Apart from notable growth in automobile sales, a reduction in the spread between Mogas and HSD prices has also improved Mogas offtake. However capped OMC margin on Mogas (17 percent annually) will reduce the benefit of improved offtake. Compared to the previous quarter, Mogas sales dropped by 4.6 percent, but volumes are expected to pick up in the fourth quarter. A slowdown in HSD offtake is likely to reduce its contribution to core gross profit by seven percent since last year to Rs 1.47 billion in the third quarter.
Although FO volumes improved by 2.2 percent in FY11 to 1.645 million tonnes, an annual comparison presents a bleak outlook. PSO’s FO sales have declined by 12 percent since the same time last year in the third quarter of FY11 reducing overall PSO’s market share to 75 percent as compared to 88 percent. At the same time, FO margins have increased by 21 percent to Rs 1,800 per tonne on the back of a jump in prices. An increase in FO margin has more than offset the adverse impact of dismal volumes as it is expected that the commodity’s core gross profit will increase by seven percent annually in the third quarter to Rs 3.0 billion, he added.
Mounting circular debt fueled by inflating FO price is restricting company’s ability to supply the product on credit and is likely to hurt volumes in the fourth quarter. Nevertheless, FO ex-refinery price has been ramped up by 14 percent quarter on quarter so far in the fourth quarter of FY11 allowing the margin on the product to cross Rs 2,000 per tonne mark. Therefore, it is anticipated that FO will continue to be the primary income source in the fourth quarter.
