Significant headwinds from fuel prices and volume significantly impacted Pakistan State Oil’s (PSX: PSO) financial performance in 1QFY25. Lower sales volumes, declining fuel prices, and squeezed margins marked the 1QFY25, resulting in an 82 percent year-on-year drop in net profit to Rs3.9 billion.

The company’s revenues contracted by 14 percent year-on-year, primarily driven by reduced petroleum prices and a notable drop in sales volumes across key product lines. Total petroleum sales volumes declined by 15 percent year-on-year for PSO, with Motor Spirit (MS) and High-Speed Diesel (HSD) volumes falling by 15 percent and 19 percent, respectively. This reflects a slowdown in domestic demand, partially influenced by the seasonal end of the Kharif sowing period.

PSO’s gross margin for 1QFY25 stood at 3.3 percent, down from 6.4 percent in the same period last year. Inventory losses, which were smaller than the previous quarter but still significant due to volatile fuel prices, are the reason for this drop.

The finance cost for the company remained mostly stable year-on-year at Rs10 billion, though there was a quarter-on-quarter fall in finance cost. Reduced receivables from Sui Northern Gas Pipelines Limited (SNGPL) and some easing of circular debt pressures contributed to PSO’s improved liquidity. High taxation and reduced other income constrained profitability.

PSO’s strategy of diversifying into renewable energy, alternative fuels, and EV infrastructure, along with expanding storage and pipeline capacity, aims to stabilize revenue against fluctuating petroleum volumes. The potential shift in focus to fintech and NBFC sectors reflects a proactive approach to risk management as traditional fuel consumption declines. However, PSO’s ability to execute these strategies effectively will depend on continued management of inventory and finance costs, especially given the volatility in fuel prices and pressures on margins.