National Refinery Limited announced its full year 2009 financial results on Thursday posting a drop of 74 percent in net earnings as growth in lubricant business was offset by falling international oil prices.
NRLs earnings were at five-year low of Rs 19.17/share, 32 percent below the consensus estimates of Rs 28.05/share. Despite the dismal earning performance, NRL did not disappoint its shareholders as the companys fat cash reserves enabled it to announce full year dividend of Rs 12.5/share.
This takes its dividend payout ratio to a six-year high of 65 percent, which has hovered around 20-30 percent in the past. This, however, further asserts the view on refineries reluctance to invest in Euro-II implementation. The companys fuel business suffered throughout last fiscal year - mainly due to huge exchange losses, as local currency depreciated by 23 percent during the period, and high inventory losses owing to 39 percent drop in international oil prices.
However, NRLs lube segment served as the saving grace for its bottom-line, which would have been painted in red otherwise. The company has strong presence in lube segment across the country and enjoys premium pricing in the market that kept its margins strong. However, overall average (GRM) gross refinery margin were 60 percent lower in comparison to last year GRM of $9/bbl.
Going forward, however, there are positive signs for the company as oil price in the international market is expected not to decline sharply and remain in a range of $60-65/bbl. Therefore, on a conservative note if NRL manages to keep its fuel business margins at zero percent, the lube segment would be good enough for NRL to post healthier profits.
The firms lubricant business provides a much needed hedge against any sharp decline in oil price and offsets the impact of inventory losses. This is because falling oil price reduces lube production cost - furnace oil being the base lube material - enabling it to earn higher margins.
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NRL P&L
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RS (MN) FY09 FY08 % CHG
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Sales 109,578 129,386 -15%
Cost of Sales 104,305 118,705 -12%
Gross profit 5,273 10,681 -51%
Gross margins (%) 4.8% 8.3% -42%
Other income 1,365 1,404 -3%
Finance cost 2,394 1,332 80%
PAT 1,533 6,005 -74%
EPS (Rs) 19.17 75.10 -74%
DPS (Rs) 12.50 20.00 -38%
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Source: Company reports
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