Analyst Briefing: PSO continues to move towards digitization and automation

May 12, 2021 (MLN): Pakistan State Oil Company Limited (PSO) held its Corporate Briefing Session (CBS) on May 7, 2021, to discuss the company’s financial performance for the period ended March 31, 2021, and the future outlook.

To recall, the company posted a profit after tax of 18.28 billion (EPS: Rs38.92) during 9MFY21 compared to a loss after tax of Rs4.41bn (LPS: Rs2.19) in the corresponding period last year.

Shedding light on the company’s financial performance, the management apprised that the rebound in the bottom line was primarily attributable to an increase in gross profit on account of volumetric increase supplemented by favorable price regime, reduction in finance cost and lower discount rate prevalent during the period.

The management also highlighted that company booked Rs4-5bn of inventory gains during 9MFY21 and Rs1bn of exchange gains. Here, it is pertinent to note that major gains were booked during 3QFY21.

During 9MFY21, the company registered an astounding volumetric growth of 21.6% over the same period last year while increasing market share by 260 basis points (bps) closing at 46.3%. As per the management, the company witnessed improvement in its market share across all major petroleum products as the launch of Hi-Octane 97 Euro 5, Premier Euro 5 and Hi-Cetane Diesel Euro 5 proved to be game-changers in the industry, bolstering customer’s confidence in PSO’s products. With a volumetric gain of 19.9% in MOGAS and 28.2% in HSD, market shares of both products increased to 310 and 370 bps respectively. Cumulatively, PSO’s white oil market share increased by 190 bps over the same period last year to close at 44.9% and black oil closed at 52.6% i.e., an increase of a staggering 480 bps.

The improvement in PSO’s market share is accredited to its investment in storages and logistics, newly signed contracts with Frontier Works Organisation (FWO) and less competition from and discounting by smaller OMCs (amid an ongoing crackdown on smuggling and government investigation of industry malpractices), key takeaways covered by Intermarket Securities said.

To highlight, the investment in Storages comprises of investment in new storage, rehabilitation of existing storage for capacity enhancement and conversion of storages of furnace oil to store white oil (Mogas and HSD).

According to the report, the management said that PSO has added 60,000 tons of Mogas and 50,000 tons of HSD (16-20% of existing) during FY21 so far. As a result, PSO is presently capable of maintaining 17-22 days of Mogas inventory and over 30 days of HSD inventory.

Commenting on circular debt, the management of the state-owned oil company underlined that PSO has about Rs23bn and Rs71bn of outstanding receivables from Hubco and Wapda/Gencos (none from Kapco) – which exclude Rs104bn of late payment charges (Rs28bn from Hubco, Rs12bn from Kapco, and Rs64bn from Wapda/Gencos; all not yet booked), the report cited.

Moreover, SNGPL owes the largest amount of Rs94bn for the Re-liquefied Natural Gas (RLNG) supplied by the PSO during 9MFY21, up by Rs24bn YoY. While receivables from the Power sector dropped by Rs5bn to Rs93.6bn. By end March 2021, total receivables of PSO stood at Rs210.3bn.

Talking about latest developments, the management said they have increased their focus on automation, digitization, and business process re-engineering to meet consumers need and in this regards PSO has recently transformed its procurement process through SAP Ariba which will significantly enhance the Company’s strategic and operational capabilities, increase efficiency, and reduce turnaround time.

Furthermore, in order to leverage the benefits of effective product sourcing on the business value chain, PSO entered into a long-term sale and purchase agreement with Qatar Petroleum for the procurement of RLNG with significantly lower price than before.

Besides, other automation and digitization projects are also in pipeline, the management said.

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Posted on: 2021-05-12T15:19:00+05:00