Petroleum sales declined by 6% YoY to 1.35mn MT in Jul’23 with the decline largely attributable to a plunge in FO volumes by 59% YoY due to lower offtake by power sector. MS and HSD sales rose by 10% and 11% YoY, respectively largely attributable to a lower base in the same period last year. On a MoM basis, overall volumes remained stable with a decline in HSD volumes by 9% MoM, which was offset by increase in MS and FO sales by 2% and 45% MoM, respectively.

HSD volumes in Jul’23 clocked in at 0.5mn MT with a MoM decline of 9%, but up 11% YoY. We believe that a decline in HSD volumes was on the back of (i) seasonality impact amid end of Kharif sowing season, and (ii) increase in monthly average price by 1.5%. On a yearly basis however, volumes rose by 11% owing to lower base effect.

MS monthly sales increased slightly by 2% MoM to 0.6mn MT in Jul’23 with the increase likely due to a decline in average monthly price by 1.7% and higher number of working days in July’23 as compared to the previous month owing to absence of Eid holidays. However, on YoY basis, despite a hefty increase in price by 7.5%, volumes rose by 10% likely due to the lower base effect and some stabilization in economic activity, in our view.

FO sales volumes witnessed a MoM increase of 45% to 0.1mn MT. Increase in FO sales was on the back of higher utilization of RFO power plants to meet the rising power demand amid summer season. On a yearly basis, FO sales dropped significantly by 59% owing to lower demand by power sector, attributable to a decline in utilization of RFO based power plant after significant addition of Thar coal and nuclear capacity in the system.

Monthly market share of PSO improved by 1.8ppts to 50% in Jul’23 whereas, APL, SHEL and HASCOL market share declined by 1.4ppts, 0.1ppts and 1.2ppts to 10%, 7% and 3% respectively.

Going forward, we believe the demand may remain subdued in short term owing to recent hike in petroleum prices. However, demand is expected to rebound as FY24 progresses due to expected improvement in economic activity, ease in import restrictions and expected improvement in automobile volumes. That said, continued HSD smuggling may dent demand to some extent. We continue to maintain our Marketweight stance on the sector where we prefer APL with a Target Price of PKR400/sh, due to its strong balance sheet position and lower circular debt exposure. Meaningful steps to resolve circular debt may also spark investor interest in PSO.

Courtesy – Intermarket Securities Limited.