Pakistan Refinery Results Review

Company Overview

Pakistan Refinery was incorporated as public limited company in May 1960. The company is a primarily involved in production and sale of petroleum products. It is a subsidiary of Pakistan State Oil commonly known as PSO.

According to first quarter report for financial year 2021, a significant development during this quarter was the production of IMO-2020 grade low sulphur Marine Residual Fuel and Euro II compliant High Speed Diesel. According to the report this was achieved without incurring any additional capital expenditure but only through changes in operational philosophy.

Latest Financial Highlights

On comparing figures of first quarter for financial year 2021 with those of corresponding quarter for previous financial year, it can be seen that company’s fixed assets in category of property plant and equipment increased only by 10% indicating maintenance level capital expenditure. Inventories stores however, saw an increase of 32%. Trade receivables were down by 42%. This can be either due to more efficient recovery or a decrease in revenue, which fell by 51% in this quarter on YOY basis. However, Gross Profit reduced only by 12% indicating more effective cost control.

Overall Cash Balances were down by 98% this quarter on YOY basis while cash from operations reduced by 126% going into negative. Correspondingly, running finance increased by more than 20 folds as compared to one year ago in all probability indicating company’s efforts to meet cash shortfalls through increased running finance arrangements.

Accumulated Loss has also increased by 72% as compared to corresponding quarter of previous financial year. However, share capital has increased by 114% while long term borrowing increased only by 5%, which is a sign of company’s decision to use share capital for long term financing.

Both distribution and finance costs fell by 20% and 32% respectively while administrative costs increased by 11%. Profit after taxation increased by 55%. However, EPS fell by 17% despite an increase in profit after taxation due to increase in share capital.

Historical Review

It should be noted that in company’s Auditor’s report for FY2020, auditors have indicated possibility of material uncertainty on account of company’s accumulated loss of Rs. 18.36 billion as of June 2020 and its current liabilities exceeding its current assets by Rs. 16.84 billion.

Historical information since 2016 indicates that despite accumulated losses company has been able to generate revenue more or less steadily. However, its gross profit margin has not shown this consistency and became negative in 2019 and 2020 bringing net profits and EPS into red as well. Increased financial charges in 2019 and 2020 contributed to further decrease in net profits in both 2019 and 2020.

Historical data from 2016 shows that company has higher percentage of short term loans than long term loans in its debt structure and while long term loans have remained constant more or less since 2018, amount of short term loans almost doubled in 2019. They fell slightly in 2020 afterwards.