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After wreaking havoc in FY20, the ongoing fiscal year (FY21) has been better for the oil marketing companies as volumes of petroleum products sold recovered along with increase in global oil prices (versus the price crash in 2020). As a result, profitability of the OMCs was also impacted adversely in FY20 due to inventory losses. Attock Petroleum Limited (PSX: APL) saw its earnings plummet in FY20 to levels not seen in at least a decade due to inventory losses. However, FY21 has been better - pushing earnings on an upward trajectory. APL announced its 9MFY21 financial performance recently with over 4 times increase in its bottomline. All three quarters have witnessed improved earnings with 3QFY21 showcasing a turnaround from a period of losses (3QFY20) to a quarter with profits after tax.

The growth in profits for APL came in despite the continued decline in topline. During 9MFY21, net revenue decreased by over 18 percent due to 14 percent year-on-year drop in average selling prices as well as a 5 percent decline in the company’s sales volume. The OMC has been facing a continued decline in market share. The company’s market share for 9MFY21 stood at 9 percent versus 11 percent in 9MFY20.

So, the driver behind the company’s improved profitability was the growth in gross profits which came from inventory gains particularly in second and third quarter of FY21. This has been due to increase in oil prices as well as due to change in the petroleum pricing format to fortnightly basis that reduced the volatility from the lag. Growth in earnings also came from meager increase in operating expenses, and growth in other income; while decline in finance cost was offset by decline in finance income.

Even though inventory gain resulted in hefty growth in earnings, falling market share has been concerning for APL. Volumes sold by the OMC sector had falling during due to power generation mix shifting away from furnace oil as well as slower and weak economic activity until recently where the revival in car sales, industrial activity, agriculture output, along with continued restrictions on cross-border smuggling have helped oil marketing companies gain volumes. APL too has seen improved volumes of FO as well as retail fuels recently. Plus, its has pivoted its strategy towards expansion into storage and retail network, which will unlock growth potential in the coming years and help it regain lost market share.