Pakistan Refinery Limited struggles under heavy losses

Pakistan Refinery Limited (PSX: PRL) entered FY25 on unstable footing. The company struggled with shrinking gross margins and mounting operating expenses. These challenges unfolded despite operational improvements like better product yields and plans for a major Refinery Expansion and Upgradation Project (REUP). Persistent market issues—weak refining margins, competition from smuggled fuels, and policy uncertainty—exacerbated the pressure.

The 9MFY25 financials show the situation has worsened. Net sales rose marginally to Rs235.96 billion versus Rs231.64 billion in 9MFY24—a mere 1.9 percent increase, which fails to offset cost-side issues. Gross profit collapsed to just Rs293 million from Rs13 billion a year earlier, with the gross margin close to zero. For context, gross margins were already under severe stress in 1HFY25 at just 1.26 percent.

PRL posted an operating loss of Rs1.5 billion in 9MFY25, a major reversal from an operating profit of Rs11.25 billion in 9MFY24. After accounting for finance costs and taxes, PRL posted a staggering Rs4.6 billion net loss for the period, compared to a profit of Rs5.27 billion last year. The third quarter alone registered a net loss of Rs2.58 billion. Notably, gross losses and negative operating leverage worsened quarter-on-quarter.

The decline was driven by the cost of sales outpacing revenue growth, reflecting either weaker refining spreads or unfavorable crude procurement costs. Selling expenses surged by 32 percent year-on-year for the quarter, adding further strain, while administrative expenses remained flat but still high. Finance costs stayed heavy at Rs2.82 billion for 9MFY25, like last year, suggesting no meaningful deleveraging. A taxation reversal softened the final hit slightly, but not enough to prevent the large net loss.

PRL’s financial strain must be viewed alongside its REUP ambitions. The transition toward producing EURO-V compliant fuels and minimizing furnace oil output demands heavy upfront investment and operational disruptions. These are exacerbated by the lack of immediate regulatory support, delayed benefits from the capacity expansion still underway, and persistent external headwinds like policy delays and fuel smuggling. PRL’s 9MFY25 shows a company caught in a painful transformation phase. While REUP holds long-term promise, short-term financials are bleeding.