APL – inventory gains lift earnings

Coming from a weak FY20 financial performance where earnings plummeted to levels not seen in at least a decade, Attock Petroleum Limited (PSX: APL) posted a good recovery in 1QFY21.

The OMC has been facing squeezing volumes and market share due to restricted demand not only during COVID but even before that due to shifting of power generation mix away from furnace oil as well as slower and weak economic activity translating into weaker car sales, industrial activity, agriculture output, cross-border smuggling. During 1QFY21, APL’s volumes for motor gasoline and high-speed diesel decreased by 19 and 32 percent, respectively. However, growth of over 46 percent in furnace oil’s volumes offset the decline. Overall, the company’s volumes remained flattish on a year-on-year basis. Its market share fell by 1 percent in 1QFY21 to 10 percent. Though APL’s net sales declined during the period due to weaker prices versus 1QFY20, the quarter-on-quarter prices saw an increase.

In its result announced yesterday for 1QFY21, the oil marketing company witnessed inventory gains after inventory losses tainted its earnings in FY20. Weakness in earnings due to inventory losses however, had started appearing back in FY19 due to lower prices of petroleum product in the country versus international prices. Inventory gains came after a significant increase in prices that was witnessed in June 2020. According to a research note by AKD Securities, these inventory gains were around Rs1.5 billion during the first quarter that helped lift the company’s gross margins. According to the brokerage house, the ex-refinery prices of petrol and diesel were revised by around 91 and 61 percent respectively, on the back of oil price rebound.

Growth in gross earnings were affected by increase in finance cost that grew by over 43 percent, year-on-year due to increase in short term borrowings amid high interest rate environment. However, the company was able to post growth of over 21 percent in its earning for 1QFY21, which is being considered upbeat and above the market expectations.