SHEL – three quarters of recovery!

2020 was a bleak year for companies including the ones in the oil marketing segment. It was no different for Shell Pakistan Limited (PSX: SHEL) that posted three times increase in losses. However, the multinational OMC witnessed a recovery in 2HCY20 versus a staggeringly weak 1HCY20 that fell right during the peak of coronavirus pandemic. First half of CY20 was characterized by weak economic activity and demand as well as significant volatility in oil prices along with currency depreciation – all of which impacted Shell Pakistan’s financial performance.

On the other hand, last two quarters of 2020 posted profits. That positive streak in earnings has continued in 1QCY21 whereas Shell Pakistan recently announced Rs1.9 billion in profits versus Rs4.3 billion losses during 1QCY20. The recovery in earnings during the recent quarters has been due to growth in petroleum consumption and the resultant increase in sales volumes as lockdown restrictions came off. Shell Pakistan gained market share for fifth month in a row till February 2021, primarily driven by its share in HSD, HOBC and lubricant segment. Lubricant continues to be a key contributor to the company’s overall business. In the last couple of quarters, lubricants business marked a significant growth year-on-year and quarter-on-quarter.

Revenue growth in 1QCY21 stood 22 percent year-on-year higher for Shell Pakistan and the OMC saw a significant jump in gross profits - over three times. With no increase in distribution, marketing and administrative expenses, a noticeable decline in other expenses and increase in other income, and a decline in finance cost, SHEL’s earnings turned positive in 1QCY21 versus significant losses in 1QCY20. Improvement in earnings was supported by rise in global oil prices coupled with currency appreciation against the US dollar by 5 percent during the quarter. Moreover, the company completed the right issue process that was initiated in 2020 to meet working capital requirements after massive losses in 1HCY20.