Corporate results: Pakistan State Oil profits trump expectations

Despite increase in income, the company decides against dividend.


Our Correspondent October 28, 2013
PSO reported after-tax profit of Rs7.79 billion, up 83% compared to previous year’s profit of Rs4.26 billion. PHOTO: FILE

KARACHI:


Pakistan State Oil announced its results for the first quarter of the current fiscal year, showing after-tax profit of Rs7.79 billion, up 83% compared to previous year’s profit of Rs4.26 billion. Earnings per share were reported at Rs31.57 compared to Rs17.28 last year.


The unexpectedly massive increase in profits seems to have come for its ‘other income’ head, which increased almost eight-fold from Rs1.17 billion last year to Rs10.14 billion in the current quarter. According to analysts, a huge chunk of this income comes from the payment from Pakistan Investment Bonds (PIB) paid by the government as part of an effort to clear up circular debt, and penal fees from Independent power producers that have not cleared their circular debt yet. According to Global Securities Pakistan, PSO received around Rs1.25 billion from PIBs, while Topline Securites claims that around 70-80% of the increase in other income comes from the aforementioned penal fees.



According to Topline Securities if we discount these penal fees, earnings per share for PSO would drop to Rs10.

Net sales increased by 12% to Rs364 billion, compared with Rs324 billion in the previous year, bringing gross profits for the quarter up to Rs11.86 billion, compared with Rs11.35 billion in the previous year.

However operating expenses also increased by 130% to Rs6.36 billion, compared with Rs 2.76 billion in the previous year. According to analysts, this was caused by rising exchange losses due to a depreciating rupee. Global Securities put exchange losses at Rs3.8 billion for the quarter. The Pakistani rupee depreciated 6.3% quarter on quarter, according to Global Securities.

Finance cost for the quarter increased 9% year on year to Rs3.14 billion, compared with Rs2.87 billion.

On paper the results are a welcome sight for the company, however PSO is still strained by a cash flow problem. With more than Rs100 billion in circular debt barely months after a massive payout by the government, the company can expect to see its finance costs increase in the future.

Published in The Express Tribune, October 29th, 2013.

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