PRL in 9MFY24

Pakistan Refinery Limited (PSX: PRL) has seen significant growth in its bottom line for the nine months of FY24. 9MFY24 earnings were more than double despite the company’s 3QFY24 earnings falling into negative territory. The growth in 9MFY24 could still hold on due to the whopping rise in earnings for the first half of the fiscal year - profit after tax was seen rising by 8.5 times to Rs6.5 billion – the highest ever half-yearly profits, in 1HFY24. The refinery, however, suffered a loss of over a billion rupees in 3QFY24. The overall earnings slipped to Rs5.2 billion in 9MFY24 because of the weak 3Q. Barring the recent quarterly performance, PRL returned to profitability in FY24 (so far) after a weak FY23 where the company posted a significant decline in earnings for the year due to the economic downturn that also affected the downstream oil and gas sector.

During 9MFY24, the refinery’s topline growth stood at 22 percent year-on-year, while 3QFY24 revenues dropped by 17 percent. While the growth in the company’s overall revenues was primarily due to record half-yearly production of High-Speed Diesel and Motor Gasoline – and because of higher prices of petroleum products, the decline in PRL’s revenues for 3QFY24 was primarily due to the 38-day-long facility shut down for maintenance and inspection turnaround. The company at the end of Jan-24 announced on the PSX that the refinery would be shut down for a period of 35-38 days for maintenance, which surely affected its sales revenues for the 3QFY24 (Jan-Mar 2024).

The decline in revenues during the latest quarter resulted in a gross loss for the company, which was further exacerbated due to higher expenses despite the growth in other income. Overall, the company benefitted from higher other income and lower finance costs during 9MFY24.

Knowing that the decline in revenues was due to a maintenance shutdown, the coming quarter could bring earnings back on track. PRL has been working on a Refinery Expansion and Upgrade Project (REUP)to manufacture gasoline and diesel complying with Euro-V standards, quadruple the capacity of processing crude, and upgrade the refinery from hydro skimming to deep conversion. The project has faced many roadblocks and recently the PRL has reportedly highlighted the need for an upgrade to address the structural weakness of the refinery, reducing the HSD price-differential that has been increasing over the last three years, and the need to be Euro V fuel compliant. The company has inked an agreement with the United Energy Group of China for refinery expansion and upgrade projects.