- To recall, Government of Pakistan under the IMF program has sizably increased the gas prices by ~75% in Nov-2023 and ~20% in Feb-2024 to contain the annual pile up of the gas sector circular debt which mounted to around Rs3trn by Jan-2024.
- Oil and Gas exploration companies were amongst the top affected companies of this menace. However, post adjustment/increase in gas prices, there has been some improvement in the cashflows of the companies.
- To quantify the impact, we have assessed Mar 2024 quarter accounts of the OGDC and PPL. As per which the change in receivables to net sales ratio in 3QFY24/9MFY24 has fallen to 21%/20% of the net sales for both companies cumulatively compared to last six years (FY18-23) average of 29%, signaling partial improvement in recoveries of the E&P companies.
- OGDC: In last 6 years, from FY18-23, OGDC’s change in receivables to sales ratio averaged 27% with range of 21%-30%. This ratio suggests roughly on average 27% of the sales remained uncollected based on our crude estimates.
- However, during 3QFY24/9MFY24 this has come down to 20%/14%. We believe, under the new IMF program, gas tariffs will increase uniformly that will further improve the recoveries of Sui companies, thus benefiting the E&P companies recoveries and helping them to announce regular/historic dividends.
- We have BUY stance on OGDC with FY25F PE of 2.6x.
- PPL collection ratio has improved to 74%, as per 3QFY24 report
- In case of PPL, during last 6 years, we have analyzed PPL’s receivables from Sui Companies as we believe that is the true depiction of gas sector circular debt. We were unable to perform this same for OGDC due to data limitation as OGDC presents only overdue amount (not total) client wise.
- PPL’s change in receivables from Sui Companies to net sales ratio averaged at 35% with range of 8%-52% (in FY23: 52%) in last six years from FY18-23. This suggest approximately 35% of the net sales remained uncollected in last 6 year. While if we do similar analysis on total receivables then this ratio still averages at 35% in last six years.
- However, during 3QFY24/9MFY24, this ratio (sui receivables) has come down to 22%/30%, showing marked improvement from FY23 ratio of 52%.
- To note, PPL in its 3QFY24 report has also mentioned about this improvement by stating that, collection ratio from customers have improved to 74% vs. 49% in corresponding period.
- We have BUY stance on PPL with FY25F PE of 2.6x.
- Courtesy – Topline Pakistan Research
