PRL: Slippery start to FY25

FY25 started on a heavy note for Pakistan Refinery Limited (PSX: PRL) as the company experienced a challenging 1QFY25. PRL’s net sales declined by 12 percent year-on-year during the quarter. The reduction in revenue was due to lower petroleum product prices and record low production of diesel and motor gasoline. Although the cost of sales fell slightly by 2.8 percent year-on-year, it was insufficient to counterbalance the revenue shortfall, resulting in a dramatic 99.4% collapse in gross profit. 1QFY25 witnessed depressed global refining margins with a sharp decline in the prices of crude oil and petroleum products. The countrywide demand for refined petroleum products, mainly diesel and furnace oil, also showed a volumetric decline during the period as compared to the corresponding quarter.

Operating profit also turned negative largely due to a 41 percent year-on-year increase in administrative expenses and a doubling of other operating expenses. Profit after tax (PAT) swung to a loss of Rs2.3 billion, reversing a profit of Rs. 4.5 billion in 1QFY24. Margins suffered significantly, with gross margin shrinking, operating margin turning negative, and net margin declining.

The weak performance comes after PRL delivered a strong performance in FY24, where the company achieved 17 percent year-over-year growth in revenue. This growth was driven by higher volumetric sales and strategic operational efficiencies. Gross profit more than doubled, supported by improved product pricing strategies and cost optimization. Net profit also saw a remarkable increase, climbing to Rs. 4.1 billion from Rs. 1.8 billion in FY23. In terms of production achievements, diesel production achieved the third-highest annual production in the company’s history. MS-92grade of petrol production hit a record high, while Euro-V compliant MS-95 production also witnessed growth. Tahecompanyalso completed a planned 38-day turnaround and optimized its crude procurement strategy, which boosted its refinery margins.

Going forward, PRL has embarked on a significant Refinery Expansion and Upgrade Project (REUP) to double its refining capacity from 50,000 barrels per day (bpd) to 100,000 bpd. The project aims to produce Euro-V-compliant fuels and reduce furnace oil production, aligning with evolving industry and environmental standards. The Front-End Engineering Design (FEED) study for REUP is expected to conclude by 2QFY25, with project commissioning planned for 4QFY28. However, challenges such as policy delays, low refinery throughput, and the smuggling of diesel remain key risks for the refining sector.