National Refinery Limited (PSX: NRL) was incorporated on August 19, 1963 as a public limited company. In June 2003, the government decided to include NRL in its privatisation programme. The company was privatised in the year 2005, whereby 50 percent shares of the company are held by Attock Group
NRL is engaged in the manufacturing, production and sale of a variety of petroleum products. It has three refineries, consisting of two lube refineries and one fuel refinery. The first lube refinery was commissioned in 1966 with designed capacity of 3,970,500 barrels per annum of crude processing and 533,400 barrels per annum of lube base oils. The second lube refinery was commissioned in 1985 with designed capacity of 700,000 tons per annum of lube base oils, which came to 805,000 barrels per annum after re-vamp in June 2008.
The fuel refinery was commissioned in 1977 with designed capacity of 11,385,000 barrels per annum of crude processing with subsequent revamping increasing the capacity to 17,490,000 barrels per annum of crude processing till 2017. NRL enjoys a competitive edge, as it is the only refinery producing LBO in Pakistan.
The BTX unit was commissioned in 1985 with design capacity of 180,000 barrels per annum of BTX.
Its latest addition has been that of the commissioning of UOP licensed Diesel Hydrotreater Unit with a capacity to produce 29,765 BPSD of EURO II specifications HSD in 2017. In the same year, NRL also commissioned its Isomerisation Unit with a capacity to process 6,793 BPSD of light Naphtha into petrol.
Production capacity & products
NRL's gross storage capacity, both at the refinery site in Korangi and at Keamari harbour, comprises about 167,000 tons (20 days) for crude and 118,000 tons for Petroleum products. Its key fuel products include motor gasoline, kerosene, JP-1, JP-8, Euro II grade HSD, LPG, furnace oil. Its other products include Naphtha that is exported, Sulphur, Base oils, Asphalt and specialty products.
Historical performance
National Refinery Limited's revenues increased at an impressive rate from FY10-FY14. However, beyond FY14, sales revenues eroded due to falling prices of fuel products amid the supply glut as well as geo-political situation. FY14 was also a challenging year for oil refining industry as a whole with volatile oil production in the Middle East and Africa due to internal conflicts, and refining operations were negatively affected by expensive oil.
However, margins seem to have taken a flight post FY14. The profitability margins were highest in FY15 as compared to the previous three years, which likely came from improvement in margins of refined fuel products versus crude oil. Lower prices of crude oil in FY15 enabled the company to invest unutilised funds to increase its interest income while stable exchange rates during the latter part of the year also helped improve the firm's profitability.
Of its two segments, NRL's lube segment has historically been more reliable in profit contribution since it is the only lube player in the country. However, after four difficult years, fuel segment showed profit after tax in FY16 versus loss in previous years. Profitability of lube segment also significantly increased. The key reasons for improved profitability were favourable margins between product prices and cost of crude and improved sales of HSD and Bitumen.
In recent years, NRL has also completed its project of Self-Power Generation. The Self-Power Generation plant now consist of two 7.2MW steam turbo-generator, a 4.0 MW Diesel-Fuel Oil Engine Power Generator, and an 8.2 MW Diesel Fuel Oil Engine Power generator.
FY17 Financial performance
FY17 marked the commissioning of Diesel Hydro De-Sulphurization Project in June 2017, within the assigned timeline of the government to produce low sulphur (EURO II Standard) High Speed Diesel (HSD). The benefits of this plant are likely to come in form of increased revenues by the elimination of price difference on HSD.
During the year, NRL saw its revenues climb once again. However, the margins remained slightly lower than the previous year. The fuel segment of NRL continued its positive streak and the improvement in profitability came from improved margins in the international market as well as higher sales volumes by the firm. The net profit of the fuel segment for FY17 also included investment tax credit against investments in DHDS project. Profitability of the lube segment however, declined in FY17 mainly on account of higher feed cost and irregular increase in product prices. And the lube segment seems to continue giving trouble to NRL due to higher feed cost and lower margins as the firm closed its 1HFY18.
Outlook
In October 2017, NRL started the Isomerization Project to convert Naphtha into MOGAS. One challenge that the company faces is from its recently commissioned DHDS plant. It revolved around the delay in increase of deemed duty from 7.5 percent to 9 percent by relevant authorities, which will render depreciation and other operating expenses higher than the plant's incremental revenue.
NRL's future plans include installation of a Topping Unit and a Reformer Unit of larger capacity as the government has changed the specification of petrol from 87 RON to 92 RON.
NRL has also recently announced the revamp plan of its lube refinery, which can be helpful in its lube sector performance. Post revamp, NRL expects to increase Lube-1 refinery's crude oil processing capacity by 5000 barrels per day, which estimates to add 1.65 million barrels a year and Lube Base Oil (LBO) production by 6000 tons a year, adding 44,724 barrels per year.
=============================================================================
NRL FINANCIAL RATIOS-5 YEAR SUMMARY
=============================================================================
FY13 FY14 FY15 FY16 FY17
=============================================================================
Profitability Ratios
-----------------------------------------------------------------------------
Gross profit margin % 2.83 1.48 4.61 11.77 9.12
Net profit margin % 1.59 0.46 2.50 8.2 7.49
Return on Equity % 10.62 3.62 12.31 20.88 18.56
Return on Capital Employed % 10.93 3.60 13.08 22.96 20.07
-----------------------------------------------------------------------------
Liquidity Ratios
-----------------------------------------------------------------------------
Current Ratio Times 1.80 1.84 2.32 1.84 1.36
Quick/Acid test ratio Times 1.01 0.92 1.53 1.15 0.71
Cash to Current Liabilities Times 0.56 0.34 1.01 0.73 0.17
-----------------------------------------------------------------------------
Activity
-----------------------------------------------------------------------------
Inventory turnover Days 49.54 40.89 47.59 54.03 40.89
Debtors turnover Days 24.35 18.39 21.17 24.09 18.98
Creditors turnover Days 53.03 37.60 45.72 47.38 31.82
Total Assets turnover ratio Times 3.22 3.93 3.09 1.75 1.75
Fixed assets turnover ratio Times 41.07 40.98 18.40 3.97 2.79
-----------------------------------------------------------------------------
Market
-----------------------------------------------------------------------------
EPS-basic and diluted Rs 35.59 12.03 46.38 96.14 100.61
Price earning ratio Times 6.76 17.46 5.00 4.94 7.22
Dividend yield ratio Times 6.23 - 4.31 4.21 3.1
Dividend cover ratio Times 2.37 - 4.64 4.81 4.47
=============================================================================
Source: Company Accounts
==================================================================
PATTERN OF SHAREHOLDINGS-NRL (AS ON JUNE 30, 2017)
==================================================================
Categories Percentage
shares held
==================================================================
Directors, CEO, and their spouse (s) and minor children 0.01%
Associated Companies 50%
NIT and ICP 2.94%
Banks, DFIs, NBFIs 1.40%
Insurance Companies 6.48%
Modarabas and Mutual Funds 1.03%
Islamic Development Bank, Jeddah 15%
------------------------------------------------------------------
General Public:
------------------------------------------------------------------
Local 12.10%
Foreign 0.01%
Joint Stock Companies 1.06%
Foreign Investors-other than Individual 6.93%
Others 3.04%
==================================================================
Source: Company accounts
====================================================================================
NATIONAL REFINERY LIMITED
====================================================================================
Rs (mn) 1HFY18 1HFY17 YoY 2QFY18 2QFY17 YoY
====================================================================================
Net sales 61,030 52,340 16.6% 31,102 26,604 16.9%
Cost of sales (58,549) (47,630) 22.9% (30,765) (24,133) 27.5%
Gross profit 2,482 4,710 -47.3% 337 2,470 -86.3%
Distribution cost (374) (359) 4.0% (182) (197) -7.6%
Administrative cost (432) (413) 4.7% (222) (220) 1.0%
Other income 271 425 -36.3% 139 197 -29.7%
Other operating expenses (95) (300) -68.3% 34 (156)
Operating profit 1,851 4,063 -54.4% 106 2,095 -94.9%
Finance cost (483) (63) 670.4% (451) (17) 2588.3%
Profit/(loss) after tax 1,623 3,968 -59.1% (77) 2,063
Earnings per share (Rs) 20.30 49.62 -59.1% (0.96) 25.79
Gross margin 4.07% 9.00% 1.08% 9.29%
Net margin 2.66% 7.58% -0.25% 7.75%
====================================================================================
Source: PSX Notice