Pakistan Refinery Limited (PSX: PRL) was incorporated as a public limited company in 1960. Located on the coastal belt of Karachi, the refinery is operating at two locations; the main processing unit is located at Korangi Creek with supporting crude berthing and storage facility at Keamari. The initial design capacity of the refinery was to process 1 million tons of crude oil annually, which was subsequently expanded to 2.1 million tons per annum. Its current capacity stands at 47,000 barrels per day of crude oil into petroleum products like furnace oil, high speed diesel, kerosene oil, jet fuel and motor gasoline, among others.
Majority of PRL's shares are held primarily by oil marketing companies. Shell Pakistan, PSO and Hascol together hold over 70 percent of the shares at PRL. The table shows their respective shares. General public that includes foreign and local shareholders hold over 20 percent of PRL's share; the breakdown of the two is not given in the published accounts.
Past performance Refining sector's profitability has been on a roller coaster ride. PRL's profitability has too been up and down in the recent past. A look at the last five years show that PRL's earnings and margins dipped in the negative zone in FY14 as the refining margins for hydro-skimming refineries remained low due to sharp increase in crude oil prices and weak demand for products worldwide.
Though profit margins improved for PRL in FY15, the fiscal year continued to drag the continued to affect the refining segment due to high cost and weak demand, which along with steep decline in crude oil and product prices resulted in heavy inventory losses. PRL saw a 36 percent year-on-year decrease in its top line along with increased finance cost that resulted in after tax losses. This aggravated the negative equity situation of the firm, which had been an issue for the firm since 2010.
FY15 was a year of up-gradation and capex where the board of directors announced a right issue to meet the capex and financial requirements of its projects. It was in FY15 that PRL finally inaugurated its much awaited isomerisation plant that converts low-value naphtha into gasoline (petrol), a premium product, doubling its petrol production. The up-gradation boded well on PRL's profitability and the company's earnings turned positive despite a decline in the revenues in FY16. Earnings became positive due to healthy gross refinery margins (GRMs) and the doubling of production of motor gasoline as the new isomerisation plant operated for full year.
Following the right-issue and the firm's commissioning of the isomerisation plant, the liquidity position of the company improved as the bank borrowings reduced. In FY17, PRL saw its net profits improve by more than three times, which also brought some reduction to the negative equity. However, during the year, the refinery faced the deactivation of the catalyst of the isomerisation plant, which reduced the firm's petrol production from 20,000 metric tons to 15,000 metric tons.
As mentioned earlier that the refinery has seen ups and downs in profitability in the last five years, the recovery that was seen after FY16was busted in FY18 as PRL's profit after tax halved despite a healthy growth of 32 percent in the company's revenues. Refining margins remained weak and put pressure on gross profitability. Also, the catalyst of isomerisation plant that was impaired FY17 could not be operated at full capacity from July to November 2017, which resulted in lower production of petrol by 22,000 metric tons. On the other hand, the company overcame the negative equity situation that it had been facing for long.
FY18 was marred by increased exchange losses due to currency depreciation and pressure on refinery operation due to decline in furnace oil demand amid its curtailment, which resulted in buildup of stock pile for the refinery
Outlook FY19 has been a tough year for the refineries in terms of demand of petroleum products amid changing energy mix and hence fuel preference, and also increasing pressure to upgrade facilities during times of building furnace oil inventory. Refineries have been urged to speed up their expansion and up-gradation projects as furnace oil curtailment continues and higher fuel standards await to be adopted along with high prospects for international competition. During this time, PRL has come forward as the first local player to announced plans to invest $1 billion in converting its refining facility into a deep conversion refinery that convert furnace oil into petrol and high-speed diesel, thus addressing the issue of excess furnace oil. The up-gradation project also includes installation of Diesel Hydro-desulphurisation Unit (DHDS) to produce EURO II compliant diesel.
However, PRL's financial performance in 9MFY19 (FY19 result yet to be announced) remained bogged down by negative refining margins and devaluation of PKR against USD that have adversely impacted the refining industry as a whole. Refining margins remained depressed for the refining sector due to exceptional decline in the petrol price which traded in international market at a price lower than crude oil; and also significant inventory losses due to furnace oil curtailment going on in the downstream oil and gas sector. At the same time, the pricing mechanism of high speed diesel also affected the refinery's profitability.
Apart from exchange losses due to currency depreciation, the finance cost increase came from increased interest expense as the firm obtained term finance facilities under mark-up arrangements from Askari Bank Limited and Bank Alfalah Limited amounting to Rs 1 billion and Rs 2.5 billion respectively, at a mark-up of 3 month KIBOR + 0.5 percent per annum for a tenor of 3 years.
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Pattern of Shareholding-PRL (As at June 30, 2018)
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Shareholder's Category Percentage
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Directors, Chief Executive Officer, and 0.03%
their spouse and minor children
Associated companies, 71.85%
undertakings and related parties
Chevron Global Energy Inc. 0.9%
Hascol Petroleum Limited 14.7%
Pakistan State Oil Company Limited 24.1%
Shell Petroleum Company Limited 32.1%
Others
NIT and ICP 2.06%
Banks, Development Financial Institutions, 0.28%
Non-Banking Financial Institutions
Insurance Companies 2.28%
Modarabas and Mutual Funds 0.25%
General Public :
(a)Foreign 20.14%
(b)Local
Others 3.11%
Total 100%
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Pakistan Refinery Limited (PRL): Financial Ratios
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FY12 FY13 FY14 FY15 FY16 FY17 FY18
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Gross margin % 0.02 1.48 -0.50 -0.74 3.07 3.68 1.13
Net margin % (1.27) 0.38 (0.61) (1.30) 0.44 1.51 0.55
EBITDA margin % (0.24) 1.34 (0.05) (0.67) 3.43 4.13 2.42
CFO to sales % 1.41 -5.21 2.42 -0.06 -1.66 6.22 -0.49
Debtor turnover Times 8.29 8.38 14.66 12.31 11.32 14.46 15.72
Creditor turnover Times 4.82 5.21 7.79 5.07 5.33 7.98 9.70
Inventory turnover Times 15.06 13.84 13.83 12.09 11.83 11.3 12.73
Total assets turnover ratio Times 3.72 4.82 4.93 2.96 2.61 2.7 3.02
Fixed assets turnover ratio Times 28.00 25.85 19.19 7.52 5.35 5.71 6.86
(Loss)/Earning per share Rs (7.40) 2.27 (3.96) 0.93 3.45 1.64
Cash dividend per share Rs 0 2.85 0 0 0.31 0 0.00
Interest cover ratio Times (1.24) 4.87 (0.47) (1.27) 1.56 3.57 2.52
Current ratio Ratio 0.89:1 0.86:1 0.76:1 0.67:1 0.60:1 0.65:1 0.79:1
Quick ratio/acid test ratio Ratio 0.63:1 0.42:1 0.39:1 0.34:1 0.30:1 0.30:1 0.40:1
Cash to current liabilities Ratio -0.004:1 -0.297:1 0.081:1 0.105:1 0.029:1 0.034:1 0.027:1
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Pakistan Refinery Limited
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Rs (mn) 9MFY19 9MFY18 YoY
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Net sales 81,433 64,615 26%
Cost of sales 83,279 63,625 31%
Gross loss -1,846 990
Distribution cost 180 152 18%
Administrative exp 313 266 18%
Other operating exp 12 144 -91%
Other operating income 141 1,063 -87%
Operating loss -2,209 1,491
Finance cost 913 387 136%
Share of income of associate -2 0
Profit after taxation -3,484 695
Earnings per share (Rs) -11 2
Gross margin -2.3% 1.5%
Operating margin -2.7% 2.3%
Net margin -4.3% 1.1%
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