Numbers can often be misleading and Pakistan State Oils 9MFY11 financial results strengthen that notion. The oil marketing giant earned 23 percent more than what it did during the same period last year - yet the performance is far from satisfactory for a variety of reasons.
The top line growth is minimal, as PSO has been steadily losing market share of late, which curtailed the impact of an over 20 percent rise in crude oil prices. The market share has gone down from 68 percent during 9MFY10 to nearly 63 percent for the period, with both furnace oil and diesel categories showing decline in double digits.
Floods were one reason for the lower off-take, while the mounting circular debt is another. The refineries have time and again delayed or stopped fuel supply to PSO on account of non-payment as the payables have mounted to extraordinary levels.
The bottom line would have been much thinner had it not been for the onetime impact of turnover tax reversal recorded in the previous quarter. On a recurring basis, therefore, earnings are actually down 12 percent.
The nine-month finance cost expectedly spoiled the party as it soared to (almost) as much as the companys net earnings for the entire period. The gravity of the issue can be gauged form the fact that the company had to pay an average Rs34 million in financial charges on a daily basis. It is indeed commendable that the company still manages to stay afloat, as two years back, the then MD, Irfan Qureshi, feared the company could collapse if daily financial charges crossed Rs20 million.
There was a time, not so long ago, when PSO considered Rs100 billion receivable a dangerous level that could halt the companys operations. It seems newer benchmarks are being laid down as the inter-corporate circular debt now haunts PSO to the tune of Rs186 billion. And it won be long before the receivables surpass the Rs200 billion barrier. But there appears to be no arrier - so it might as well just cross that.
On the unexpected side of things - there was the interim dividend announcement which took everyone by surprise as no one expected PSO to dole out dividends while engulfed in heavy circular debt clouds. But what made more difference was the unexpected decline in the other income, especially during the third quarter.
It was the other income in the form of penal income received from debtors on account of over dues that had somewhat mitigated the impact of high financial charges up until the recent past. What has caused such a sharp decline indeed requires explanation for which the detailed accounts may be worth the wait.
Looking at the numbers, it appears that PSO has exhausted the option of cutting down more on operating costs - a strategy which they had adopted for the past few quarters. The finite nature of such measures has eventually shown up. All that PSO can do, it seems, is to hope and pray for the circular debt to end. And the sooner this menace can be put to rest the better, because the inventory gains won be there every time to be the lone saviour.
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PSO P&L
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(Rs mn) 9MFY11 9MFY10 chg 3QFY11 3QFY10 chg
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Sales 558,377 531,157 5% 198,423 180,946 10%
Cost of sales 536,678 511,354 5% 190,669 174,663 9%
Gross profit 21,698 19,803 10% 7,754 6,284 23%
Gross margins 3.9% 3.7% 4% 3.9% 3.5% 13%
Other income 2,536 4,630 -45% 740 2,340 -68%
Finance cost 9,099 7,618 19% 3,055 3,741 -18%
Operating expenses 6,102 5,952 3% 1,925 1,480 30%
PAT 9,258 7,534 23% 2,127 2,450 -13%
EPS (Rs) 53.98 43.93 12.40 14.29 -13%
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Source: KSE notice
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