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Pakistan State Oil believes liquidity condition getting improved

Pakistan State Oil (PSO) conducted its Corporate Briefing Session today, during which management discussed the company’s financial performance and future outlook.

Liquid Oil Consumption in Pakistan dropped from 13,005K tons in 9MFY23 to 11,485K tons in 9MFY24, an 11.7% fall. HSD volumes saw a decline of 249K tons, and PMG volumes fell by 302K tons. HSD demand is being reduced by 3-4K tons daily, mainly due to lower demand from industries and smuggling.

Furnace Oil (FO) also saw a fall of 982K tons as its usage in electricity generation has been reduced significantly.

Management expects a small YoY increase in oil consumption in the upcoming year, i.e. FY25.

To recall, in 9MFY24, PSO saw a 6% YoY rise in sales to Rs2.67trn and a 30% YoY rise in profit to Rs13.4bn. In 3QFY24, EPS clocked in at Rs12.03/share, taking 9MFY24 EPS at Rs28.54/share. PSO was leading the white oil market and witnessed an increase of 1.3ppts in its market share (from 51.1% to 52.4% in 9MFY24). Product-wise, market share was 54.5% in HSD and 46.2% in PMG.

Inventory losses, as per management, are a ‘zero-sum game’ in which stock of a minimum of 20 days is to be kept, leading to inventory gains/losses.

Through the FE-25 borrowing mechanism, the company borrows dollars from the bank and pays interest. The exchange gain/loss is to be borne by the Government of Pakistan (GoP), not the company. Currently, 60% of the company’s total borrowing is of FE-25.

Management highlighted that PSO’s liquidity condition will likely improve due to the timely payment of LNG receivables despite a sharp increase in consumer gas prices.

Party-wise, SNGPL’s receivables are Rs500bn, Rs150bn from GENCO and Rs27bn from HUBCO and PIA. Total receivables are Rs810bn. The PSO management suggested equity swaps. As per management, the government doesn’t have cash, so the only solution to settle a circular debt balance is to swap PSOs’ receivables with the GoP assets. Management considers this to be the only viable option.

The company has added 37 new outlets.

PSO’s Future Outlook: Management is working on various options, including setting up Electric charging stations, diversifying into fintech, NBFC, and renewable energy sectors, Rehabilitating and developing new storage, exploring investment in a white oil pipeline project in northern Pakistan, and automating and digitizing locations and retail outlets.

Courtesy: Topline Pakistan Research

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