Shell profit may fall 5 to 8 percent

The after-tax profit of Shell Pakistan Ltd for the year ended June 30, 2004, might witness a decline of 5 percent to 8 percent compared with the preceding year because of decline in furnace oil sales.
Even though Shell Pakistan has not yet announced its board meeting date for full year FY04 results, traders expect it soon, as PSO has already announced its financial results for last fiscal year.
Looking at first nine months, the sales of high speed diesel and motor gasoline rose 4 percent and 15 percent, respectively, which should have been positive for Shell, as these constitute around 69 percent (in unit terms based on FY03 data) of Shell sales. On the other hand, a massive 54 percent furnace oil sales decline should have rung alarm bells for PSO as 48 percent of its sales volume was generated from furnace oil.
However, the reality is to the contrary. PSO has recently started gaining its lost market share in white oil products by launching innovative marketing schemes.
Due to these, PSO white oil sales have increased compared to Shell whose white oil sales have declined by 1 percent, during the first 9 months of FY04. Shell market share in Mogas and HSD declined from 40 percent and 28 percent in July-March FY03, respectively, to 35 percent and 26 percent, respectively in Jul-Mar FY04.
Investcapital expects Shell Pakistan to announce after-tax profit of Rs 1,155 million to Rs 1,190 million (EPS Rs 33.0-34.0) for FY04. This means a decline of 5 to 8 percent compared to FY03 PAT of Rs 1,255 million (EPS Rs35.8).
Shell Pakistan has already announced after-tax profit of Rs 813 million (EPS Rs 23.2) during first nine months of FY04.
The brokerage house expects final dividend of Rs 24.5 to 25.5 per share. The company has already announced an interim dividend of Rs 6.5 per share. Thus, this would take full-year dividend to Rs 31-32 per share. Higher dividend is in line with company policy to maintain higher payout ratio unless any attractive investment opportunity comes along.
Recently, Shell increased its lubes sales prices by 3 percent to 13 percent, effective July 12. This was due to the increase in base oil prices. The brokerage house expects this will support Shell profitability, going forward. However, declining lubes sales, even with double-digit growth in auto sales, indicates increase in market share of other players.