May 30, 2022 (MLN): The Attock Refinery Limited (ATRL) is projected to recover from the losses incurred previously during the lockdown period, Pakistan Credit Rating Agency (PACRA) said in its press release issued on Friday.
While maintaining the negative outlook of the company, the rating agency said ATRL’s outlook is expected to improve as the company is projected to recover from the losses incurred previously during the lockdown period on account of sustainability in international oil prices and available demand drivers in the market.
The rating agency has maintained the company’s long-term rating at AA and short-term rating at A+.
As per the rating agency, ratings reflect ATRL's sound risk absorption capacity emanating from its sizable equity base. ARL's core business remains exposed to the vicissitudes in international crude oil and product prices, which in turn, steer the gross refining margins (GRMs) of the Company.
The global recovery has been witnessed in the oil demand leading to higher volumetric sales coupled with a higher pricing of petroleum products, leading to better GRMs and profitability margins for the local refinery sector. Uncertainty still prevails with respect to oil supplies as a result of Russia- Ukraine conflict which could further impact the pricing dynamics.
However, ARL is less susceptible to this risk due to its predominantly local procurement of crude oil. During the period ended March 2022, the company supplied 1,348 thousand Metric Tons of various petroleum products while operating at about 78% (9MFY21: 76%) of the capacity.
The Company earned a profit after tax of PKR 2,840mln from refinery operations with the addition of dividend income after tax of PKR 947mln from associated companies, resulting in a total profit after taxation of PKR 3,787mln. Sales have improved majorly on the back of an increase in the sales price and better volumes. The increase in oil prices resulted in an overall inventory gain to the company. However, this was partially offset by the exchange loss due to decline in Pak Rupee against US Dollar during the period.
The local refinery sector is going through some significant challenges pertaining to the up-gradation of the refining complex. The company along with other refineries has been in continuous discussion with the government to finalize a refinery policy that would address the upgradation concerns along with certain fiscal and tariff concessions to the refining sector. However, no final approval has been granted by the government which is expected to get delayed further amid current political instability in the country.
The ratings remain dependent on ARL's ability to effectively shield its business profile from external vulnerabilities. Revived performance indicators and a prudent financial matrix are imperative to uphold the ratings.
Further outlook of the Company is expected to improve as the company is projected to recover from the losses incurred previously during the lockdown period on account of sustainability in international oil prices and available demand drivers in the market. Further, the approval of the proposed Refining Policy, which will enhance Refineries’ ability to upgrade remains imperative for the ratings.