CNERGY’s vows to increase production to 55-60k BPD in FY25

Cnergyico PK Limited (CNERGY) held its analyst briefing on Friday, during which the management discussed the following:

· Cnergyico Pk stands as the largest refinery in the domestic sector space, boasting 156k BPD of annual capacity.

· Company has four major segments: i) Oil Shipping Business (can handle VLCC Tankers of 100k MT), ii) Oil Refining-1 (36k BPD capacity, linked with isomerization unit and has connectivity with port), iii) Oil Refining-2 (120k BPD, linked with larger isomerization unit and has connectivity with port), and iv) Oil Marketing (vertically integrated with refinery, 470+ retail sites).

· Refinery faced significant challenges over the past several years, primarily due to sharp domestic currency depreciation and the government’s non-allowance of hedging of crude prices. This has resulted in company’s throughput levels falling to 22k BPD as of 9MFY24 (vs. 50-55k in FY18-19).

· Management vows to increase production to 55-60k BPD in FY25, contingent upon the continued export of unwanted RFO.

· Company has encouraged its dealers to finance and develop their own retail sites (dealer financed sites: 74%), while company will provide additional technical assistance.

· The company’s lubricant segment offers products for both automotive and industrial applications, including lubes and greases. Avg. stock turnover time is 90 days while company earns 15% margins on gross level.

· The company has committed to and submitted a petition to demerge its operations, which include Oil Refining, Isomerization Units, OMC, SPM, and Chemical Project, into six wholly owned subsidiaries.

· Benefits of the demerger include flexibility for potential investors, enhanced corporate governance of business units, and overall effective management of operations.

· Company’s refinery upgradation project cost is US$1.0bn, will result in production share of 48%/33.3%/9.3% for PMG/HSD/RFO post-upgradation, respectively. All products will be Euro-V compliant.

· Company’s receivables from GoP are PkR55bn, while payables to the authorities are PkR47.5bn. Management expects the matter to settle in coming few weeks.

· The situation regarding the damaged infrastructure and pipelines in Baluchistan near CNERGYICO’s refinery has been partially resolved. An alternate route is now in use, sustaining operations.

· Management stated that the inclusion of incremental deemed duty (7.5% on HSD) will aid in the recovery of the capital cost for the refinery project.

· PUMA’s acquisition has not been finalized yet, however, is approved by the CCP.

· The deadline for signing the Refinery Policy is expected to be extended by the Cabinet Committee on Energy (CCoE), at which point all five refineries may sign the agreement.

· Company’s chemical segment is currently in its nascent stages. Management plans to formally execute this segment after the demerger, at which point they anticipate attracting outside investment into it.

· Enhanced freight economics is a major advantage of the ‘Single Point Mooring’ (SPM), which allows the company to operate vessels at full capacity. This results in savings from reduced delays and demurrage charges.

Courtesy – AKD Research

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