PSO – earnings revving

The downstream oil marketing sector has been seen rising volumes post the early pandemic times due to economic revival, which along with continuous rise in petroleum product prices amid rising international crude oil prices has been driving the sector’s earnings in the last three quarters at least. During the 1HFY22, the OMC sector witnessed 14 percent year-on-year growth.

Pakistan State Oil (PSX: PSO) being the industry leader also led the growth in volumes, which was over 20 percent year-on-year in 1HFY22. The company’s market share during the 6- month period increased by 3.4 percentage points, as per the company’s recent announcement. Major contributions for PSO during the period came from 30.4 percent growth in FO volumes followed by 18.3 percent and 15.5 percent growth in HSD and MS respectively.

The rise in volumes was supplemented with higher petroleum product margins, which resulted in the 73 percent year-on-year uptick in net revenues for PSO in 1HFY22. Revenue growth was over 80 percent year-on-year in 2QFY22.

But the growth in topline was not the only factor pushing up gross margins for PSO in 1HFY22. Rather, the OMC reportedly incurred colossal inventory gain especially during 2QFY22, which lifted gross margins from 3.6 percent in 1HFY21 to 5 percent in 1HFY22.

On the expenses side, the distribution and marketing expenses remained lower. PSO’s operating profits grew by more than 4 xs in 1HFY22 with support from other income as well as the topline and gross profit growth. Finance cost however was seen growing during the period due to higher interest rates and increase in short term borrowings, while other income growth was massive due to penal income.

PSO’s bottom-line surged by more than 3.3 times in 1HFY22 where much of the growth came from volumetric growth and inventory gains, reviving consumption and demand of petroleum products, price increase, higher other income as well as the company’s increased retail footprint and up gradation in fuel quality.