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The first quarter of FY20 gave a breathing space to  (PSX: PRL). The improvement in the refinery’s profitability was touted by some as a hope for a reversal in bad fortunes. After all the four quarters of FY19 witnessing staggering losses, PRL’s earnings turned positive in 1QFY20.

However, 2QFY20 was the company returning to losses once again. Despite a decline, the 2QFY20 has posted a loss for PRL – a reminder that the refinery segment is not out of the woods as yet. Factors like the decline in furnace oil demand that led to the build-up of inventory that had to be sold at lower prices resulting in lower margins, and steep devaluation of the currency against the greenback have pulled down profitability of the sector recently, while the long term factor has been the inability of the refining sector to upgrade the refining process, whether it has been the delay in the installation of isomerisation plants or Diesel Hydrodesulphurisation (DHDS) units.

Pakistan Refinery Limited
Rs (mn) 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY
Net sales 58,318 54,625 7% 22,597 29,116 -22%
Cost of sales 58,461 56,515 3% 23,742 31,050 -24%
Gross loss (142) (1,890) -92% (1,145) (1,934) -41%
Distribution cost 127 117 8% 60 61 -1%
Administrative exp 216 213 2% 126 126 0%
Other operating exp 28 1 2144% 27 1 4900%
Other income 138 80 73% 75 38 99%
Operating loss (375) (2,141) -82% (1,284) (2,084) -38%
Finance cost 868 607 43% 414 379 9%
Share of income of associate 2 (2) -182% 2 0 449%
Profit after taxation (1,683) (3,010) -44% (1,864) (2,590) -28%
Earnings per share (Rs) (5.47) (9.87) -45% (6.06) (8.42) -28%
Gross margin -0.24% -3.46% -5.07% -6.64%
Operating margin -0.64% -3.92% -5.68% -7.16%
Net margin -2.89% -5.51% -8.25% -8.90%
Source: PSX

PRL announced its 1HFY20 performance with only a 7 percent rise in revenues. 2QFY20 revenues slipped by 22 percent, year-on-year, which resulted in gross loss for the company. The damage was done at the top, and restricted growth in expenses did not mean anything. PRL earned loss after tax of Rs1.68 billion in 1HFY20, which was lower by 44 percent year-on-year.

During FY19, Pakistan State Oil Company Limited (PSO) acquired 84 million shares from Shell Petroleum Company Limited, UK, which increased its shareholding in the Company to 52.68 percent, making PSO the parent company of PRL.

However, the only way the refineries can get out of trouble is by expediting their upgradation plans and project. The government has planned to upgrade Pakistan Refinery Limited (PRL) with an estimated cost of $1 billion. Unlike other refineries, PRL stands a chance to benefit as it has the government backing.