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Sui Northern Gas Pipelines Limited (PSX: SNGP) recently announced its financial performance for the 1QFY20 where the decline in earnings continued; SNGP announced a 36 percent slip in bottom-line for FY19 due to weaker 4QFY19, and the 1QFY20 again saw earnings taking a slide.

The gas marketing company’s revenues have continued to climb on the back of growth in gas sales that stood over 35 percent year-on-year in 1QFY20. Overall, total revenue of the company stood over 40 percent including differential margin. Gas sales growth is attributed to rising share of RLNG imports, which is expensive than domestic gas; higher gas tariff as well as impact of higher oil prices and currency depreciation on RLNG prices.

And despite a 41 percent increase in the cost of sales, SNGP’s gross profit jumped by 45 percent year-on-year. With no significant increase in expenses, lower UFG, and 47 percent increase in other operating income led to 65 percent growth in operating profits.

The damage to the bottomline came from the finance cost that grew by 140 percent year-on-year, which according to a research note by Arif Habib Limited led the growth in differential margin from Rs2 billion in 1QFY19 to Rs12 billion in 1QFY20. This affected the liquidity position of the company and SNGP had to revert to short term borrowing for working capital. Differential margin are receivables created by the disparity between prescribed gas prices and consumer tariff, recoverability of which have always been a challenge for the gas marketing company. Also, rising late payment surcharge resulted in higher finance cost. As a result, SNGP’s earnings took a dip by 28 percent year-on-year and net margins halved in 1QFY20.

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