After a weak FY09, the profitability of National Refinery Limited has improved consecutively till FY11. But, it seems that FY12 will weigh heavy on the refinery after the Company posted its semiannual results just recently. At Rs.81.7 billion, the Companys revenues were 21 percent higher during 1HFY12. However, cost of sales, which represents 96 percent of revenues, increased by 25 percent during the first half of FY12 eating away the margins of the company. FY12 did not mark a good start for National Refinery and profit margins for the company took a downward flight by 39 percent during the first quarter alone. Besides, a growth in net revenue during 1HFY12 could not do wonders for the earnings situation of the Company. As such the earnings per share stood at Rs.19.8 during 1HFY12, emanating a decline of almost 50 percent relative to the same period in the previous year. The Company earns its revenues from its two business segments: fuel segment and the high margin lube segment. The base oil sales and exports have witnessed growth over the years and the segments margins were up by 45 percent during FY11 versus FY10. However, depressed margins on lubes internationally took their toll on the refinerys performance and exports of lube oils fell for the period reflected in the declining profitability of the Company. Besides, the fuel segment went from temporary bloom to gloom again. Exchange losses have put a lid on the net earnings as finance cost has inflated by more than four times due to depreciating rupee versus the greenback. The quarterly results depict an even grim picture as margins take a dive by more than 57 percent. According to the estimates of Topline Securities, the situation is likely to remain gloomy for NRL as they have forecasted the fuel segment to post a loss per share and a cut of 36 percent in earnings per share of the lube segment. The Company is reflecting capacity expansion, evident from the selection of Honeywell UOP technology to maximise diesel and lubricant production in Pakistan. GRM, a critical factor for refineries, continues to follow an irregular pattern. The recent decline in the middle distillate prices is likely to trim the refining margins further. Moreover, an upward revision in the deemed duty on HSD due to international prices could have a significant impact on the profitability of the refinery. Amid dwindling refinery margins, higher expectations are attached to the lubes segment. However, it all depends on the pricing mechanism revisions and further deregulation of petroleum products to ensure smooth refining margins.

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National Refinery Limited
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(Rs mn)             1HFY12   1HFY11   chg   2QFY12   2QFY11    chg
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Net sales           81,666   67,728    21%  44,058   34,338    28%
Gross profit         2,934    4,619   -36%   1,419    2,306   -38%
Operating profit     3,170    4,794   -34%   1,649    2,563   -36%
Profit after tax     1,585    3,136   -49%     756    1,787   -58%
EPS (Rs)             19.82    39.22   -49%    9.46    22.34   -58%
Gross margin          3.59%    6.82%          3.22%    6.71%
Operating margin      3.88%    7.08%          3.74%    7.46%
Net profit margin     1.94%    4.63%          1.72%    5.20%
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Source: KSE notice

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