Shell Pakistan – a crimson quarter

Where Shell Pakistan Limited (PSX: SHEL) announced massive growth in earnings for 1HCY22, the oil marketing company’s earnings in its recent announcement at the stock exchange were seen growing moderately by 17 percent year-on-year. This was primarily due to the weak latest quarter. Even though 3QCY21 was a slow quarter last year, Shell Pakistan’s earnings for 3QCY22 dipped into the negative massively to post a net loss after tax of Rs4 billion.

Recently in 2021, the oil marketing multinational company saw its earnings improve, which continued during the first half of 2022 with higher volumetric sales of petroleum products. In 9MCY22 as well, SHEL’s revenues grew by 79 percent year-on-year, with 3QCY22 sales going up by 74 percent.

The growth in the OMC’s sales during 3QCY22 has likely come from higher prices because SHEL’s volumetric sales during the quarter slipped by around 24 percent year-on-year. The decline was significant in high-speed diesel volumes (around 33 percent year-on-year); however, motor gasoline (petrol) sales volumes also came down by around 16 percent year-on-year.

Despite the growth in sales for the quarter, Shell Pakistan’s gross profit was seen falling by 19 percent in 3QCY22 due to a more than proportionate increase in the cost of sales. On the operating profit side, a massive hike in distribution expenses, as well as a double-digit rise in administrative expenses and other expenses ( due to higher exchange losses) as well as a negative other income, resulting in negative operating profits. This trickled down to the bottom line along with significantly higher finance expenses in 3QCY22 resulting in negative profit after tax.