Pakistan State Oil (PSX: PSO) has been seen regaining its market share in recent months in not only its retail volumes but also furnace oil volumes largely due to increased demand in the summer months. The increase is estimated at 9-10 percent in volumetric sales during the three months. This is one reason for a 17 percent year-on-year growth in PSO’s sales revenues. Recall that while PSO’s volumes depicted a decline of 38 percent year-on-year in FY19, there was a rebound in volumes in the last quarter of FY19 (4QFY19), which was expected to go beyond July and August 2019.
| Pakistan State Oil | |||
| Rs(mn) | 1QFY20 | 1QFY19 | YoY |
| Net sales | 329,783 | 280,719 | 17% |
| Cost of products sold | 319,076 | 269,812 | 18% |
| Gross profit | 10,706 | 10,906 | -2% |
| Other Income | 1,584 | 970 | 63% |
| Distribution & marketing | 2,565 | 2,068 | 24% |
| Administrative expense | 725 | 721 | 1% |
| Other expense | 289 | 792 | -63% |
| Profit from operations | 8,712 | 8,296 | 5% |
| Finance Cost | 2,640 | 1,826 | 45% |
| Share of Profit/(loss) of associates- | 145 | 120 | 21% |
| Profit after tax | 3,528 | 4,181 | -16% |
| Earnings per share (Rs) | 9.02 | 10.69 | -16% |
| Gross margin | 3.25% | 3.89% | |
| Operating margin | 2.64% | 2.96% | |
| Net margin | 1.07% | 1.49% | |
| Source: PSX | |||
Despite the growth in the OMC’s topline, the gross profits were flattish due to lower inventory gains. PSO’s earnings dropped by 16 percent year-on-year which came despite the 63 percent year-on-year growth in other income constituting mostly of penal income on late payment; and 63 percent lower other expenses amid exchange gains in 1QFY20 versus exchange losses in the previous quarters.
Distribution expenses and finance cost both weighed heavy on the OMC giant’s earnings. The growth in finance cost was surprising as it increased despite the fact that PSO received overdue payments from the power sector and the LNG sector.
Going forward, while the macroeconomic headwinds are expected to remain in place, PSO’s fortunes could take a leap with no hefty exchange losses in the offing, optimistic chances of the second tranche of circular debt clearance that would ease liquidity; and some OMC margin revision on the cards.
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