Pakistan State Oil

Things might not be working for the largest public sector OMC at the moment. At least the financial results say so. Pakistan State Oils performance for the first half of the much-awaited FY12 remained weak compared to the same period of last fiscal year.With a market share of over 60 percent, PSOs top line grew by more than 35 percent on YoY basis on account of higher product prices and some respite in the margins of late. Compared to the growth in sales of a meager 3 percent during 1HFY11, the expansion in the revenues of the company during 1HFY12 is much cherished. Despite a rise in gross profit by 18 percent in 1HFY12 primarily due to growth in the margins of Furnace Oil (FO) and High Speed Diesel (HSD); higher purchases pushed gross margins down from 39 percent in 1HFY11 to 33 percent in 1HFY12. High expectations, backed by three times higher earnings in1QFY12 versus comparable period were washed away when the Company reported earnings lower than the market consensus. Tax reversals written off last fiscal year are a major drag to the profitability of the Company. A severe dent to the bottom line has also been the exorbitant rise in the usually contained operating costs, particularly exchange losses. Additionally, the power companies have been giving a hard time to PSO and mark-up incomes from such have fallen sharply, creating another dimple in the operating income. Circular debt has crippled the energy sector and the PSO is amongst the top victims. The Company has witnessed massive finance costs in recent years primarily due to the inter-corporate debt crisis. This makes it exceedingly difficult for the state owned OMC to maintain working capital requirements, and the Company has no option but to arrange for short-term financing to manage working capital needs. Even though the Company has been able to bring these costs down by 34 percent in 1HFY12, Rs.2 billion worth of peril still tags to the Company for the quarter. The fragility of the situation is discernible from the Companys stance on dividend. Going forward, with no interim dividend announced for FY12, the state owned entity might be eyeing an increase in the international oil prices and worsening of the circular debt. On a positive note, the industry deregulation in a phased manner would benefit the margins of the Company. Much will; however, depend upon how the energy sector debt crisis pans out in the future.

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Pakistan State Oil
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(Rs mn)                1HFY12    1HFY11     chg    2QFY12    2QFY11       chg
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Net sales            492,876   359,953      37%  254,140   189,591        34%
Gross profit          16,417    13,944      18%    8,739     7,231        21%
Operating expenses    (7,815)   (4,178)     87%   (4,526)   (2,226)      103%
Other income           1,261     1,796     -30%      365     1,378       -74%
Operating profits     10,443    11,832     -12%    4,948     6,474       -24%
Finance cost          (4,000)   (6,044)    -34%   (2,128)   (3,068)      -31%
Profit before tax      6,696     6,052      11%    2,955     3,535       -16%
taxation              (2,113)    1,079              (859)    2,786
Profit after tax       4,583     7,131     -36%    2,096     6,321       -67%
EPS                    26.72     41.58     -36%    12.22     36.86       -67%
Gross  margin            3.3%      3.9%              3.4%      3.8%
Operating  margin        2.1%      3.3%              1.9%      3.4%
Net margin               0.9%      2.0%              0.8%      3.3%
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Source: KSE notice