ATRL's margins suffer due to unfavorable petroleum prices and exchange loss: PACRA

December 10, 2018 (MLN): Pakistan Credit Rating Agency (PACRA) has maintained entity rating of Attock Refinery Limited at ‘AA’ for Long-term and ‘A1+’ for Short-term, with a stable outlook forecast.

According to the press release issued by PACRA, the ratings reflect ARL's very strong risk absorption capacity emanating from sizable equity base. ARL's core business remains exposed to the vicissitudes in international crude oil, which in turn, may lead to declining gross refining margins (GRMs).

In the recent period, ARL's refining margins have suffered deterioration due to unfavorable prices of Petroleum Products and Crude Oil coupled with Exchange loss. This has resulted in negative gross profit margins. Nevertheless, there is a significant contribution from value-added products in ARL’s revenue.

Post completion of expansion project along with DHDS and isomerization plant came online in FY17, the company has started accruing benefits in sales volume as well as price, except FO which came into limelight due to Government unannounced closure of FO based power plants. Incremental benefits could not be reaped in terms of profitability, emanating from squeezed margins and steep rupee devaluation.

The ratings remain dependent on ARL's ability to effectively shield its business profile from volatility in international oil prices. ARL's financial profile, in turn, its ratings, could be negatively impacted by the persistent downturn in refining margins, or an unexpected drop in dividend stream. The continuity of deemed duty on Diesel is crucial.

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