PSO - winning at all fronts

The OMC sector has been witnessing record volumetric sales of petroleum products. During the first quarter of FY22, oil sales were above 5.8 million tons growing by 24 percent year-on-year and led by double-digit growth in furnace oil (38% YoY), HSD (36% YoY), and MS (14% YoY). Pakistan State Oil (PSX: PSO) was the clear winner among all OMCs with volumetric growth of 34 percent year-on-year - surpassing the industry growth and regaining market share.

Higher volumetric growth was a major factor for PSO’s topline growth in 1QFY22. The growth in volumes for PSO was led by furnace oil that rose by 66 percent year on year, followed by HSD and MS growing by 26 and 21 percent year-on-year respectively. PSO’s topline was up by a massive 64 percent year-on-year and besides the volumetric incline, the jump in the OMC’s sales was also due to the surge in petroleum prices.

After reporting record earnings for FY21, PSO reported all-time high profits for a quarter in 1QFY22 where apart from the topline growth, inventory gains and jump in gross profits were also the factors driving earnings growth. The OMC is expected to have recorded hefty inventory gains during the quarter due to the jump in retail product prices amid rising global crude oil prices.

Despite the rise in other expenses and distribution and marketing expenses, PSO’s operating profits more than doubled with support from other income as well as the topline and gross profit growth. Further support to the bottomline came from lower finance costs on account of lower short term borrowings.

PSO’s earnings surged by more than 2.3 times in 1QFY22 where much of the volumetric growth came from reviving consumption and demand of petroleum products, price increase as well as the company’s increased retail footprint and upgradation in fuel quality. And the same will continue to be the growth drivers for the coming quarters. However, where rising oil prices are benefiting the OMC in terms of inventory gains, a long term increase in oil prices also have the tendency to impact the liquidity position of the company via circular debt accumulation and high working capital requirement.