Corporate results: Pakistan Refinery flips to profit in fiscal 2011

Company will have a hard time to stay in the black: analyst.

KARACHI: Pakistan Refinery switched to a profit of Rs223 million in financial year 2011 compared with a loss of Rs2.97 billion in the same period last year.

Inventory gains are likely to be the key reason for better performance followed by better refining margins, said Elixir Securities analyst Ali Ahmad Tiwana.

The company’s board of directors in a meeting held at stakeholder Pakistan State Oil’s (PSO) head office on Friday recommended a final cash dividend of Rs1.5 per ordinary share, according to a notice sent to the Karachi Stock Exchange on Friday. The country’s largest oil marketing company PSO has an 18% share in the refinery while PRL currently supplies between 30% and 40% of PSO’s total fuel supplies.

The company’s liquidity position seems to be very weak, as its current liabilities exceed its current assets by Rs1.85 billion, and may cast significant doubt on the company’s ability to continue as a going concern.

PSO after analysing the deal for a year decided not to acquire another 30% share of Pakistan Refinery in August while citing prevailing dynamics not favourable in the energy sector, however, analyst reckon the refinery is a loss-making entity and it will take some hefty measures to shift it around.

The company is planning to upgrade its product lines of high speed diesel and petrol, the more profitable products in the refining mix.

Currently, the refineries product mix includes more than 35% share of furnace oil, which is the lowest priced among refinery products. Its needs to get rid of furnace oil if there is any chance the company can replicate the result and post a profit in the next financial year as well, added Tiwana.

The company has written off Rs1.39 billion relating to refinery upgradation project which was included as capital-work-in-progress in 2010 as no material progress was made on the financial arrangements.

Recent changes in the pricing mechanism made by the government are expected to have a favourable impact on the company’s profitability and liquidity, says notes in the company’s financial statements. Therefore, the company expects to get rid of its liabilities in the normal course of business.

The company’s stock price rose Rs2.55 to close at Rs67.74 during trade at the Karachi Stock Exchange on Friday.

Published in The Express Tribune, September 17^th,  2011.