Pakistan State Oil posts record half-yearly profit

Reduction in turnover tax does the trick for the oil marketing company.

KARACHI: Pakistan State Oil, the largest distributor of oil products in the country, posted a record net profit in the first half of fiscal 2011, primarily boosted by a tax refund.

The company received a one-time tax reversal during the period under review as the government reduced the turnover tax from one per cent announced in fiscal 2011 budget to 0.5 per cent in October, said IGI Securities analyst Umair Siddique.

From the earnings per share of Rs41.58 during July to December, Rs21 per share was contributed by the turnover tax reversal, added Siddique

The net profit surged 40 per cent to Rs7.13 billion in the first half of fiscal 2011 compared with Rs5.08 billion posted in the same period last year, according to a notice sent to the Karachi Stock Exchange on Wednesday.

The company also announced an interim dividend of Rs5 per ordinary Rs10 share.

The bottom line is higher than market expectation as most analysts expected it to be around Rs6 billion, more than Rs1 billion short of the actual net profit.

The country’s overall fuel consumption during the period under review declined by 2.7 per cent compared with the corresponding period last year on account of the massive devastation as well as the temporary closure of a few power generation companies caused by the recent floods, the company quoted in a press release.

However, PSO maintained its position as the market leader with an overall market share of 66.3 per cent, the release further said. Net sales increased marginally by 3.4 per cent to Rs427 billion compared with Rs414 billion posted in the same period last year.

The revenue stayed in the same range as the increase in oil prices was balanced by the fall in furnace oil sales, added Siddique.

OMCs to gain from gas shortage

On a broader level, oil marketing companies (OMCs) are expected to benefit from the prevailing gas crisis in the form of increased sales to the power and transport sector as their reliance on oil has increased, said BMA Capital analyst Muhammad Ali Taufiq.

Increased demand of motor fuel and furnace oil will directly benefit all listed OMCs of which the prime beneficiary is PSO, added Taufiq.

Circular debt issue to remain a concern

However, board members raised concerns on the ever-rising circular debt which stood at Rs127 billion on December 31, 2010 but has swelled to Rs150.84 billion which severely compromises the company’s liquidity and renders it cash-strapped.

The PSO management asked the federal government earlier this week to clear Rs46 billion dues before February 10 which will help the company avoid default on letters of credit issued to Kuwait Petroleum Corporation and other fuel suppliers.

Moreover, the financial costs associated with servicing this debt coupled with consistent non-payment from the power sector continue to hurt overall profitability of the company.

Finance cost of the company rose 55 per cent to Rs6.04 billion compared with last year’s Rs3.88 billion.

Published in The Express Tribune, February 10^th, 2011.