· As per provisional numbers, petroleum volumes dipped by 15%yoy to 1.3mn tons during Aug’19. However, excluding Furance Oil (FO), volumes declined by a less sharper 6%yoy as Mogas sales are holding up.

· During Aug’19, 18%yoy/25%mom decline in HSD volumes to 0.41mn tons is concerning, While slow economic growth and smuggled HSD are major factors behind slump in HSD sales (volumes declined by 20% yoy in FY19), we suspect a strong rainy season and religious holidays may have also contributed. We highlight that that this is the second lowest monthly number for HSD sales since we have this data from Jul’04. Mogas sales are up by 2%yoy to 0.63mn tons during Aug’19 as prices of its alternative, CNG, are also on the rise due to gas price hikes. Effective from Jul’19, OGRA increased gas prices by 31% for various customers, including CNG sector. FO declined by 38%mom as its demand for power generation slows down after peak summer months.

· Recent numbers depict that PSO has made a sustainable recovery in its market share, where it has been able to capture more than 40% of retail fuel market in the last six months (vs 38% in FY19). APL and SHEL are also able to defend their market share at FY19 average, as HASCOL’s performance has deteriorated (market share down to 4.6% in 2MFY20 vs 10.3% in FY19).

· We are concerned with the delay in increasing OMC margins which were scheduled to increase by 7.2% (or PKR0.19/litre) from Jul’19. At current levels, we only like APL (TP: PKR432/sh), as it has presence in other high margin products while it is also debt-free. We will be bullish on PSO also, if there are developments on circular debt settlement (particularly second Sukuk issue). (Courtesy –  Intermarket Securities Limited)