It has been a good year for Shell Pakistan Limited (PSX: SPL) as profits have surged by over seven times in CY16 versus CY15. Not only that, the earnings for CY16 are the higher than the firms annual earnings in at least the last ten years.
Despite high inventory losses that the firms incurred due to lower oil prices, the OMC has been able to keep profits strong, which is partly due to its retail and operations endeavours. It wouldnt be wrong to say that the firm turned things around significantly as it has trotted upwards from a loss of over a billion rupees in CY14 to a positive bottomline of over Rs6.7 billion.
One factor has been increased petroleum product sales, especially that of retail fuels such as petrol and diesel. Petroleum consumption in the country has increased significantly over the last two years due to lower oil prices despite the government not passing on the entire benefit to consumers. Volumetric sales for key petroleum products for 2016 show an increase of 12 percent year-on-year, whereas the growth over 2014 cumulative figure has been over 20 percent.
Shells Chairman Review for CY16 highlights that the firm has posted a profit of Rs6,765 million, which includes recognition of deferred tax asset of Rs2,763. Excluding this, net income is still significantly higher in CY16. The key operating gain was made in gross profits; while Shell Pakistans net revenues have been down primarily due to the oil price scenario, cost of sales were down too for the same reasons, which propelled the gross margins up by almost 300 basis points.
The firms finance costs were down in CY16. However, overdue receivables continue to impact the OMC with financing cost on bank borrowings. Majority of these receivables are from the government, and while the company has been able to collect some of these receivables, they stood at Rs4,733 million in CY16 higher than what they were in CY15 (Rs4,379 million).
Shell Pakistan introduced Shell V Power premium gasoline, and Shell Advance Ultra top tier lubricant for motorcycles as the market for premium gasoline made it way post deregulation. Will the increased pace in petroleum consumption continue in 2017? Market believes that consumption of retail fuels will continue to guide the overall petroleum consumption due to increased industrial activity under CPEC. At the same time, the oil marketing companies have become more competitive than ever with their versions of premium fuels, which is likely to drive growth in fuel consumption in 2017 as well.
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