Pakistan State Oil

Pakistan State Oil (PSX: PSO) stands as the largest oil marketing company (OMC) in Pakistan, holding the highest market share in the industry. It plays a central role in the marketing and distribution of a wide range of petroleum products, including motor gasoline (Mogas), high-speed diesel (HSD), furnace oil (FO), jet fuel (JP-1), kerosene, compressed natural gas (CNG), liquefied petroleum gas (LPG), petrochemicals, and lubricants. Backed by the country’s most extensive distribution network, PSO also imports critical fuels—Mogas, HSD, JP-1, and FO—to ensure consistent market supply.

In response to the evolving energy landscape, PSO has adopted a proactive and diversified investment strategy.

The company is actively investing in infrastructure, renewable energy, exploration and production, and technology-driven initiatives. This strategic pivot not only strengthens its leadership in the conventional energy market but also positions PSO at the forefront of Pakistan’s transition to sustainable and innovative energy solutions.

Historical financial performance

The downstream oil and gas sector has experienced significant fluctuations in demand in recent years, driven largely by the impact of COVID-19 and a shift in the energy mix—particularly the transition from furnace oil to coal and RLNG. As the industry leader, Pakistan State Oil (PSO) has consistently been at the forefront of shaping sectoral trends. In FY17, PSO posted 8 percent growth compared to a range of -9 to 4 percent over the previous six years. This performance was supported by higher product volumes and prices, as well as its RLNG business, resulting in a 30 percent increase in sales revenue and a 77 percent rise in profits.

Volumetric growth continued in FY18, especially in motor spirit and high-speed diesel (HSD), though furnace oil volumes declined by 29.6 percent due to the energy transition. Despite a 20 percent increase in revenue, net profit fell by 15.2 percent, attributed to a one-time deferred tax reversal, reduced other income, and elevated exchange losses.

FY19 proved challenging for oil marketing companies (OMCs), with an economic slowdown, increased competition, shrinking margins, and declining sector volumes—particularly for furnace oil and diesel. High interest rates, exchange losses, mounting circular debt, and growing receivables further strained the industry.

While PSO’s overall sales volumes fell by 38 percent, revenues rose slightly in the final quarter due to a recovery in volumes. However, profit declined by 32 percent, weighed down by inventory losses, lower volumes, and higher finance costs. A key milestone in FY19 was PSO’s acquisition of a 52.67 percent stake in Pakistan Refinery Limited (PRL), which contributed to consolidated earnings.

In FY20, furnace oil volumes continued to shrink due to RLNG's increasing role in the energy mix. Although industry-wide demand was contracting, PSO managed to grow its petrol volumes. Diesel volumes, however, were hit by reduced industrial and construction activity and limited transportation. Gross profit declined due to inventory losses stemming from falling international oil prices, while higher finance costs further dented profitability. These losses were partially offset by lower exchange losses and higher interest income from recoveries in the power sector.

FY21 marked a strong turnaround, with PSO posting record earnings. Revenue grew by 9 percent, backed by volumetric growth and improved pricing. Furnace oil re-entered the energy mix, resulting in a 24 percent increase in total volumes. Motor spirit, HSD, and furnace oil grew by 21 percent, 21 percent, and 37 percent, respectively. The introduction of Euro-5 compliant fuels boosted sales. Additionally, increased other income from late payment surcharges and lower finance costs due to declining interest rates supported profitability.

In FY22, PSO delivered exceptional performance, driven by strong topline growth and significant inventory gains from rising oil prices. Product volumes for motor spirit, HSD, and furnace oil rose by 15 percent, 26 percent, and 62 percent, respectively, helping PSO grow its market share. Gross profit growth was notable, supported by a 32 percent increase in delayed payment interest. Operating profit surged by 183 percent, and net profit nearly tripled, fuelled by higher volumes, inventory gains, elevated prices, and an expanded retail footprint—solidifying PSO’s market dominance.

In FY23, PSO’s revenue rose by 38 percent year-on-year, but the increase was driven solely by higher petroleum prices. Volumetric sales of key products declined sharply—motor spirit by 17 percent, diesel by 25 percent, and furnace oil by 64 percent. Petroleum product sales, which had been robust in FY22, reached their lowest level in five years due to the economic downturn, political instability, and flash floods.

PSO’s gross profit declined in FY23 due to inventory losses and weaker sales, with gross margins dropping to 2.21 percent—down more than 400 basis points year-on-year. While provisions on financial assets were reversed and other expenses were reduced, weak gross profits led to a fall in operating margins. Other income dropped by 46 percent, reflecting lower interest on delayed payments. Finance costs surged eightfold and PSO reported a share of loss from associates—resulting in a 93 percent drop in unconsolidated profit to Rs12 billion, compared to Rs184 billion in FY22.

PSO in FY24

PSO delivered remarkable financial and operational performance in FY24, with earnings surging by 180 percent year-on-year—despite challenges faced in the preceding quarter.

Revenue grew by 5 percent year-on-year, reaching Rs3.6 trillion, primarily driven by higher average selling prices of petroleum products, including Motor Spirit (MS) and High-Speed Diesel (HSD). This topline growth was achieved despite a 9 percent decline in overall sales volumes, with HSD and MS volumes falling by 8 percent and 1 percent, respectively, and furnace oil (FO) sales plummeting by 76 percent year-on-year. As a result, the company’s market share dipped slightly from 50 percent in FY23 to 49.3 percent in FY24.

Gross profit increased by 30 percent year-on-year, although gross margins remained modest at 2.72 percent, reflecting the impact of inventory losses due to fuel price volatility. A significant uplift in profitability came from other income, which rose by 74 percent year-on-year—driven largely by interest on delayed payments. Notably, in 4QFY24, other income increased fivefold. However, finance costs also rose by 30 percent year-on-year, owing to higher short-term borrowings.

PSO in FY25 and beyond

During 9MFY25, the company’s earnings increased by 14 percent year-on-year increase, despite industry-wide volume declines due to cost management, a drop in finance costs, and improved liquidity. PSO’s net sales dropped 13 percent year-on-year in 9MFY25 primarily driven by lower offtakes of motor spirit (MS), high-speed diesel (HSD), and furnace oil (FO)—down 8 percent, 7 percent, and 47 percent year-on-year respectively. In 3QFY25 alone, revenue fell 16 percent year-on-year affected by a 14 percent dip in total offtakes and softer fuel prices. The pressure on volumes was partly attributed to higher petroleum prices, the end of the Rabi season, and rising competition.

Despite revenue compression, gross margins stayed stable at around 3 percent. The third quarter witnessed a gross margin of 3.2 percent. However, the decline in gross profit was due to inventory losses.

The company achieved a significant reduction in finance costs—down 34 percent year-on-year in 9MFY25, thanks to lower short-term borrowings and easing interest rates. PSO’s liquidity profile further strengthened, with trade receivables decreasing by 14 percent year-on-year, improving cash flows and enabling better financial stability.

On the operational front, PSO retained a dominant 46 percent market share in white oil, including a 46.5 percent share in HSD and a near-monopoly in jet fuel at 99 percent. The company expanded its retail footprint by adding 67 new outlets, bringing the total to 3,641 stations nationwide. It also launched a mobile jet refueling facility at the New Gwadar International Airport, a notable step in aviation services.

Despite posting lower quarterly earnings in 3QFY25 (down 28% YoY), PSO’s performance over 9MFY25 reflects stability and long-term strategic foresight. Challenges such as reduced sales volumes, inventory losses, and elevated taxation were counterbalanced by strong cost control, receivables management, and higher other income from financial investments.

In 9MFY25, PSO faced significant market headwinds but continued to demonstrate operational stability and maintained its leadership position in the energy sector. Despite sluggish overall demand in the petroleum industry, PSO retained its dominant market share, especially in white oil segments such as motor gasoline (PMG) and high-speed diesel (HSD). The company also undertook strategic initiatives to optimize its supply chain and enhance its retail footprint through the addition of new outlets and rehabilitation of storage facilities. On the sustainability front, PSO continued its efforts in clean energy with investments in solar infrastructure and EV charging stations.

Financially, PSO experienced margin pressure amid volatile international prices and a weak exchange rate environment. While exact figures from the report are not displayed here, typical challenges during this period included higher finance costs and fluctuating inventory valuations, which may have weighed on profitability. Nonetheless, the company maintained a prudent cost management approach and diversified revenue streams, including from lubricants, aviation, and non-fuel retail services.

Looking ahead, PSO is focusing on digitization, energy diversification (including renewable and LNG), and expanding its fintech and NBFC ventures to future-proof its operations and deliver long-term shareholder value.