Pakistan Refinery Limited’s (PSX: PRL) announced its seriously bruised financial performance for the first six months of FY19 recently. The refinery turned from profit back in 1HFY18 to exacerbated losses in 1HFY19; and it all started at the top where despite a healthy increase in the top line, the company incurred a gross loss in 2QFY19 as well as 1HFY19. This was due to more than proportionate increase in the company’s cost of sales.
The staggering decline in gross refinery margins was due to the decline in petrol prices, a key product for PRL, as well as significant inventory losses due to furnace oil curtailment going on in the downstream oil and gas sector. Furthermore, the firm’s profitability was adversely affected by currency depreciation, which resulted in exchange losses for the refinery. This can be seen from a sizeable increase in the finance cost for 1HFY19 and 2QFY19.
PRL is in the loss making zone once again after it came out of the negative earnings phase in FY16. At that time, the right issue in FY15 and the commissioning of the firm’s isomerisation plant played instrumental role in reducing the firm’s reliance on bank borrowing and increasing operational liquidity.
The refining segment is in for some tough times. PRL along with other refineries will have to speed up their expansion and up-gradation projects as furnace oil curtailment continues and higher fuel standards wait to be adopted. At the same time, the local players will have to buckle up if UAE and the Saudi Arabia start setting up the promised state-of-the-art refineries.
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