PSO beats expectations, posts 68% higher profits in first quarter of fiscal 2013

KARACHI:

Pakistan State Oil (PSO) has announced its earnings results for the first quarter of fiscal 2013 (1QFY13). The company has reported a net profit of Rs4.1 billion in 1QFY13, against a net profit of Rs2.4 billion in the same period of the preceding year. This translates into stellar 68% growth in the company’s profits, and earnings per share (EPS) of Rs20.35, against EPS of Rs12.08 in 1QFY12.

The announcement beat street and analyst expectations by a wide margin; however, the company’s stock price is unlikely to appreciate much due to its decision to not declare a dividend along with the announcement, likely due to growing circular debt pressure on its cash flows.

Topline Securities analyst Nauman Khan said the company’s increased profitability “is on account of higher gross level profitability and restricted ‘other operating expenses’.”

“A decline in ‘other operating expenses’ by 12% to Rs2.9 billion due to the absence of foreign exchange rate related losses, as against ‘other operating expenses’ of Rs3.3 billion last year, contributed to growth in the company’s bottom-line,” he added.

The company’s gross margin was higher by 90 basis points at 4.1% in 1QFY13, as against 3.2% in the same quarter last year, due to higher product margins on furnace oil, motor spirit and high speed diesel, and greater inventory gains. Furthermore, during the period, international petroleum product prices rose by an average of 23%.

Thanks to higher margins and volumetric growth in sales, particularly in petrol and furnace oil, the company’s gross profit rose by 48% to Rs11.3 billion, as against Rs7.7 billion last year, added Khan.

“The deviation [in profits] from our estimates is likely due to above-forecasted inventory gains for the period, on higher utilisation,” said AKD Secruities’ Research and Business Development Director Naveed Vakil. “We forecasted inventory gains of Rs966 million with a 50% storage utilisation rate. With a gross profit of Rs11.35 billion, PSO storage utilisation is likely to have exceeded 75%.”

Published in The Express Tribune, October 26^th, 2012.