Shell earnings could increase by 27 per cent

Increase mainly due to the volumetric sales increasing by six per cent

Shell Pakistan earnings could increase by 27 per cent in the second quarter of this year as compared with previous quarter. The company is expected to post earnings per share of Rs7.4, according to JS Global Capital analysts. They, however, point out that possible tax-related issues could be a key downside risk to their estimates.

FO sales drive second  quarter volumes

The increase is mainly due to the company’s volumetric sales increasing by six per cent to 606,000 tons on a quarterly basis, driven by surging furnace oil (FO) sales, which had increased by a massive 534 per cent on a quarterly basis. The increase was also helped by a five per cent quarterly rise in margins of regulated products.

Shell is Nishat Chunian Power’s sole fuel supplier and recently started supplying the company with fuel, which is probably why their volumes have increased, say analysts. motor gasoline sales increased as well during the period, though by a mere four per cent on a quarterly basis to 120,000 tons.

Sales of high speed diesel, kerosene oil and aviation fuel declined by five per cent, one per cent and 12 per cent, respectively. The raise in minimum tax rate to one per cent from 0.5 per cent in the budget for the fiscal year of 2011 is a major concern for the company’s earnings. And earnings estimates could decrease by 56 to 59 per cent on account of this increase in the minimum tax rate. Though, industry experts insist that the tax structure is likely to revert back to its previous level of 0.5 per cent.

Published in The Express Tribune, July 23^rd, 2010.