SHEL – positive streak returning

Shell Pakistan Limited’s (PSX: SHEL) volumetric sales have seen a significant recovery – rising continuously since January 2021 month-on-month - barring the slight dip witnessed in July 2021. Moreover, in fiscal year ending June 2021, the oil marketing company’s sales volumes of petroleum products increased by 19 percent year-on-year. This is the primary reason for the recovery seen in the OMC’s profitability in 2021 so far.

SHEL announced its financial performance for 1HCY21 yesterday on the stock exchange with a 50 percent surge in net revenues. The growth in revenues for SHEL was a combination of both the higher volumetric sales and international oil price premium as well as currency appreciation in the earlier part of the year. From gross loss in 1HCY20 to gross profits in 1HCY21, gross margins jumped to 8.24 percent from negative1.75 percent. No substantial increase in distribution, marketing and administrative expenses, a sharp decline in other expenses, increase in other income, and a decline in finance cost, all contributed to SHEL’s earnings for 1HCY21. The OMC posted Rs2.2 billion in profits versus Rs7.8 billion in losses in 1HCY20.

The return to profits comes after a tougher year 2020 when the company posted three times increase in losses as compared to 2019. 2020 was characterized by weak economic activity and demand due to COVID related restrictions as well as significant oil prices volatility along with currency depreciation – all of which impacted Shell Pakistan’s financial performance. However, 2021 has seen an uptick in demand in petroleum products as consumption rises and economic activity resumed. Besides the growth seen in retail products such as High-Speed Diesel and HOBC, the lubricant segment. is a key contributor to the company’s overall business, and the segment has been driving growth year-on-year and quarter-on-quarter.