Pakistan Refinery Ltd (PRL) held its FY23 analyst briefing earlier today to update investors on the company’s financial performance and future outlook:
- The company posted earnings of PkR1.82bn (EPS: PkR2.90) during FY23 (down 85% YoY), while net revenues increased by 37% YoY.
- Commissioned in 1952, the refinery’s throughput capacity stands at 50k bpd, and its major products are MS, HSD, HSFO, Jet Fuel, Kerosene, and LPG. The parent company, PSO, controls 63.56% of the refinery’s stake.
- Major challenges faced during FY23 were PkR depreciation (FX loss: PkR7.2bn), higher L/C conversion charges (cost: PkR2.0bn) and HSFO export (resulting loss: PkR2.9bn), respectively. However, with the country’s economic situation stabilizing, L/C conversion charges have normalized.
- The company is concluding the FEED study for the refinery upgrade project, which is expected to conclude by 2QFY25. The cost of the RUEP FEED study is PkR2.2bn.
- The objectives of the refinery upgrade project include producing Euro-V-compliant fuel, installing deep conversion technology, and expanding the refinery’s capacity to 100k bpd.
- Management anticipates achieving financial close and awarding the EPC contract by 2QFY26. Upgraded refinery project is expected to be commissioned by 2QFY29.
- Post-upgrade product mix of MS and HSD will improve to 34%/45% from 9%/28% presently.
- Implementing the sales tax exemption on HSD, introduced in the Federal Budget FY25, posed challenges for the sector participants. Management has raised the issue with the ministry and remains hopeful that the burden of unrecovered input sales tax paid at the import stage will be addressed.
- PRL is the only refinery that has signed the upgrade agreement and is actively depositing the deemed duty incentives into the escrow account. Of the 10% import duty levied on HSD, 7.5% is retained by the refinery, while 2.5% is deposited in the escrow account to be used in the upgrade process as per the new policy.
- Given that the company’s upgrade project is classified as greenfield, it is eligible to utilize 27.5% of escrow account funds.
- The refinery has shifted towards lighter crude to improve its product mix, focusing more on MS and HSD, hence increasing reliance on crude sourced from Aramco and ADNOC. Management highlighted that the refinery was originally designed for heavy crude processing, leading to a production mix skewed towards HSFO, which has negative margins.
- Management observed that the influx of smuggled diesel has reduced domestic demand to 16k TPD, whereas they anticipate normal demand levels to range between 20k and 22k TPD.
- Management indicated that the project’s cost will be finalized after the FEED study concludes. Financing will involve a mix of debt and equity, with a significant portion likely sourced from foreign borrowings.
Courtesy – AKD Research
