PSO: Finally some inventory gains in 4QFY15

A major portion of FY15 has been a challenging one for the oil marketing segment in the country; the second and the third quarters of FY15 were bruised by heavy inventory losses in the sliding oil price scenario. During these two quarters, oil prices nosedived by more than 40 percent compared to similar period of FY14. However, the fourth quarter came to the industry's rescue where the firm's in the segment incurred inventory gains due to a respite in the oil price drop. Nonetheless, the damage on the financial performance done in these two disastrous quarters overtook the improvement seen in 4QFY15

And for the country's largest OMC, Pakistan State Oil (KSE: PSO), 4QFY15 could not appease the earlier damage as well; PSO announced a 68 percent year-on-year decline in its earnings for FY15 primarily driven by the inventory losses in the earlier quarters. However, the 4QFY15 witnessed inventory gains, and that along with rising petroleum sales by the OMC soothed the firms earnings decline.

Overall, the firms revenues dropped by 23 percent year-on-year in FY15, but volumes continued to grow steadily on the back of demand for petroleum products amid declining POL prices. PSOs market share during the last quarter inched up from 55 percent in 3QFY15 to 58 percent in 4QFY15. On the whole where petrol volumes were the key growth drivers, the revenue side was marred by decreased furnace oil prices and volumes and stagnant diesels sales.

The firms operating profit for FY15 was lower by 46 percent year-on-year due to 28 percent year-on-year decline in other income, which generally offers backing to the bottom line. However, FY15 saw a drop in the same due to lower penal income amid stressed liquidity position in energy chain.

PSOs bottom line was also affected by the growth in the finance cost. 15 percent increase in finance cost on increased borrowings also dented the PSOs profits for FY15. While the overall picture is bogged down by inventory losses, the fourth quarter recovery will prove to be catalytic for PSO. The companys Board of Directors also announced a final cash dividend of Rs4 per share in addition to an interim cash dividend of Rs6 per share already paid for FY15.