PSO: FY20 scarred by inventory losses

Out of the total expected inventory losses of close to Rs20 billion that Pakistan State Oil Limited incurred in FY20, 75 percent of (Rs15 billion) inventory losses in 4QFY20 shoved the OMC into loss – while the rest came largley from 3QFY20. Majority of these inventory losses were sustained as a result of lower local ex-refinery prices than the international prices in the last month of the fiscal year. PSO announced its financial performance for FY20 yesterday, reporting hefty losses after tax for the year. The company’s loss after tax stood at Rs6.5 billion in FY20 against PAT of Rs10.6 billion in FY19.

Apart from staggeringly high inventory losses in FY20 versus inventory gain in FY19, PSO’s decline in earnings was also facilitated by the decline in the company’s topline. Revenues for PSO slipped by 4 percent year-on-year during the year due to fall in volumes sold as well as the price crash. The company’s overall volumes fell by around 10 percent, and the decline was led by furnace oil sales that plunged by around 50 percent year-on-year. In addition to the petrol crisis that took place during the year, coronavirus outbreak and the resulting lockdown hit the consumption of petroleum products hard. The decline in volumes for the oil marketing companies that were already facing falling sales due to economic slowdown, mutiplied.

Also, higher finance cost by almost 50 percent ate away the margins. Growth in finance cost is a constant battle for PSO due to mounting circular debt and resulting increase in short term borrowing, and higher interest rates added to the cost.

Demand destruction from COVID-19 aggravated PSO’s liquidity crunch. However, volumetric recovery in FY21 offers hope on the sales side. The company recenlty launced Euro-V standard Hi-Octane 97 in the country and is expected to introduce the same standard petrol and high-speed diesel this month and January 2021, respectively.