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BR Research

BYCO surfacing through choppy waters

The refining sector has had a rough FY19 and continues to face turbulence due to declining furnace oil offtake by th
Published February 21, 2020

The refining sector has had a rough FY19 and continues to face turbulence due to declining furnace oil offtake by the power sector. Fall in furnace oil demand resulted in increasing FO stock with refineries, which they could not control as the refining process at local refineries produces furnace oil invariably. And this has resulted refineries running into losses.

Amid the challenges, Byco Petroleum Pakistan Limited (PSX: BYCO) has been able to turn to profits.  The refinery announced more than 100 percent increase in earnings for 1HFY20. Despite the decline in revenues by around 5 percent year-on-year, Byco’s gross profit was seen increasing significantly with margins also improving due to its cost cutting measure including the isomerization plant that helped the company convert nearly all Naphtha volumes into motor gasoline.

The support to company’s bottomline also came from controlled operating cost and other expenses including finance cost in 1HFY20, which despite the hike in interest rates increased moderately by around 10 percent year-on-year.

While 1HFY20 performance is being taken as a turnaround, the growth came primarily from 1QFY20 where earning more than doubled, while 2QFY20 posted a loss after tax of Rs657 million.  2QFY20 has been considerably slower in terms of petroleum consumption in a slowing economy, and falling furnace oil prices in general despite slight recovery.

However, coming months are expected to post a recovery again as Byco Petroleum is the first refinery to start the export of furnace oil, which will address the issue of lower furnace oil upliftment at least for Byco.

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