Attock Petroleum Limited (PSX: APL) saw its earnings plummet in FY20 to levels not seen in at least a decade due to inventory losses. However, FY21 has been better in that sense, helping earnings go back on an upward trajectory. The OMC announced its 1HFY21 financial performance earlier this week with a 36 percent year-on-year growth in bottom line. And after a 21 percent year-on-year growth in 1QFY21, the earnings in 2QFY21 jumped by 86 percent year-on-year.

Revenues of the company however continue to decline; in 1HFY21, APL’s revenues dropped by 23 percent year-on-year, while in 2QFY21, they were lower by 21 percent year-on-year. The decline in revenue comes from decline in volumetric sales as well as weak prices. From Oct-Dec 2020 (2QFY21), volumetric sales were down by around three percent where the decline in key retail fuels such as petrol and diesel stood down by around 11 and 20 percent, respectively. Volumes sold by the OMC sector have been falling during both pre-Covid and post-Covid times highlighted by power generation mix shifting away from furnace oil as well as slower and weak economic activity translating into weaker car sales, industrial activity, agriculture output, and cross-border smuggling.

The profitability of the company largely came from hefty inventory gains in 1QFY21 versus 1QFY20 from furnace oil; and relatively lower inventory losses in 2QFY21 versus 2QFY20 due to change in the petroleum pricing format to fortnightly basis that reduced the benefit from the lag.

Growth in operating expenses due to increased depreciation charge was offset by declining finance cost and share of losses from associates. APL announced a dividend of Rs2.5 per share, which the AKD Securities highlights to be lower than the company's long-term trend of high payout, which it says points towards company's focus on infrastructure improvement.