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BR Research

Attock’s refineries - earnings still crimson

T hat the refineries have seen their profitability nose dive has been covered various times in this space. And the
24 Jan 2020

That the refineries have seen their profitability nose dive has been covered various times in this space. And the reasons for their abysmal financial performance have been talked at length many times. Attock Group announced the financial performance of its two refineries, and while 1QFY20 seemed like a breather, 2QFY20 has again been a much weaker quarter, resulting in losses for the refineries to continue.

The refining segment is beleaguered; the FO crisis has left the refining segment in shambles. Attock Group has two refineries: National Refinery Limited (PSX: NRL) and Attock Refinery Limited (PSX: ATRL). Losses continue for the two refineries where ATRL posted a loss over Rs800 million, and NRL posted a loss of around Rs3 billion in 1HFY20. The only highlight of the result has been a decline in the losses that primarily came from relatively better 1QFY20.

Weaker gross refining margins and inventory losses resulted in lower capacity utilization in general. NRL saw a decline in not only its fuel segment that includes crude refining into POL products, but also its lube segment which came from lower demand for lube due to overall economic slowdown. ATRL’s earnings were additionally affected by its planned turnaround activity of all refining units, which took the utilization down further. Despite lower finance cost and exchange losses, and sizeable increase in other income, the refineries could not undo the damage to the profitability.

While the outlook for the refining segment has remained bleak for a while, some recent developments need to be highlighted. Facing the threat of shut down due to old technology and no upgradation to address the FO challenge, the refineries have reportedly sought government’s protection for the next five years till 2025 to upgrade. The government is yet to take any decision, but in other news it has resumed FO consumption in the power sector for two months, after which the refineries will have to deal with FO on their own.