PRL—plunging back into red

While FY13 performance was much rejoiced, the bitter start to FY14 seems to have tarnished the victory; the share price of Pakistan Refinery Limited (PRL) that was beating the market during most of FY13 slithered against KSE100 index in 1Q FY14.
Though the oil sector’s susceptibility to liquidity concerns have mollified to some extent after the government’s injection in June 2013, exceptionally high volatility of rupee-dollar parity and the adverse impact of turnover tax regime existed as the chief reasons for the grisly performance of PRL during 1Q FY14.
Though the top line of the refinery grew by more than eight percent year on year in 1Q FY14 due to increasing rupee-dollar parity, the gross margin slipped into negative as the cost of sales also increased in tandem primarily due to the same reason. Note that historically, oil and condensate consumption by PRL corresponds to 95-99 percent of cost of sales.
Where the rupee depreciation may have hit gross margins, the bottom line of PRL also contracted owing to high exchange losses during the quarter; the finance cost seems to have taken the upward route once again, escalating by 35 percent year on year in 1Q FY14. The firm’s earnings fell into the loss-zone where the net margins contracted from 2.42 percent in 1Q FY13 to (0.80) percent in 1Q FY14.
Though it might be too early to benchmark the Company’s performance during the ongoing fiscal year to 1Q FY14 outcome, a cause of concern for investors would be the losses worth Rs2.49 billion that the Company has accumulated as at June 30, 2013, resulting in negative equity. Also, what raise liquidity concern is the Company’s current liabilities exceeding its current assets by Rs3.74 billion as at June 30, 2013.
On the brighter side, the complete installation of isomerisation plant will help the firm double its monthly petrol production from 12,000 tons to 24,000 tons. The plant will convert light naphtha into a better margin product, petrol. The $50 million project is partly financed by the two TFCs issued in August 2013.

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PAKISTAN REFINERY LIMITED

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Rs (mn)                   1QFY14   1QFY13      YoY

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Net sales                 34,322   31,656       8%

Gross profit                 (42)   1,204

Distribution cost             49       41      21%

Administrative exp            43       50     -13%

Operating profit             (48)   1,080

Finance cost                 186      137      36%

(Loss) / Profit after tax   (275)     767

EPS (Rs/Share)             (7.85)   21.92

Gross margin               -0.12%    3.80%

Operating margin           -0.14%    3.41%

Net margin                 -0.80%    2.42%

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Source: KSE Notice

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