PRL struggles in 1HFY25 amid refinery upgrade plans

Pakistan Refinery Limited (PSX: PRL) reported net sales of Rs168.88 billion for 1HFY25, marking a year-on-year decline of 7.3 percent. The cost of sales decreased marginally by 1.1 percent, resulting in a steep decline in gross profit by 84.3 percent year-on-year to Rs2.12 billion, with the gross margin reducing from 7.41 percent to just 1.26 percent.

Operating expenses, particularly administrative expenses, surged 21.8 percent year-on-year. Despite cost-control measures, PRL posted an operating loss of Rs428 million, a significant decline from that in 1HFY24.

The bottom line swung to a net loss of Rs2 billion for 1HFY25 compared to a profit of Rs6.51 billion in 1HFY24. The sharp decline in profitability is attributable to lower gross margins, reduced operating income, and increased taxation.

Though PRL started on a slippery slope in FY25, PRL achieved volumetric growth in FY24, with significant improvements in High-Speed Diesel (HSD) and MS-92 production. The company is optimizing its crude intake to align with its refinery configuration, prioritizing crude types that enhance yields. Key upgrades include the Refinery Expansion and Upgradation Project (REUP), which targets the production of EURO-V compliant fuels (HSD and MS); installation of advanced deep conversion refinery technology to minimize furnace oil production; and doubling refinery capacity from 50,000 bpd to 100,000 bpd.

Overall, the refining sector continues to face margin pressures due to weak demand and competition from imported and smuggled fuels. Delays in policy implementation and the challenges posed by the smuggling of diesel remain critical threats to operational stability.

PRL’s long-term strategy hinges on its REUP initiative, which promises enhanced capacity, efficiency, and environmental compliance. The refinery’s commitment to reducing furnace oil output aligns with the national power mix shift. However, near-term performance will remain subdued unless margins improve, and policy delays are resolved.