PACRA downgrades NRL’s ratings with negative outlook

May 30, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has updated the entry ratings of National Refinery Limited (PSX: NRL) to "AA+" for long term and "Al+" for short term with a negative outlook forecast, based on latest press release issued by PACRA.

The negative outlook is attributed to decreasing demand, rising fuel prices, PKR depreciation, letter of credit (LC) issues, limited credit facilities and high policy rates.

NRL is engaged in the manufacturing, production, and sale of a large range of petroleum products.

The ratings reflect National Refinery Limited's (NRL) association with Attock Group (AG).

The depreciation of PKR against USD resulted in unpredictable exchange losses to the refineries based on imported crude oil.

Therefore, NRL's core business remains exposed to the vicissitudes in international crude and petroleum products (POL) prices, which in turn, steer the gross refining margins (GRMs) of the company.

The operations of the refinery declined to 57% as compared to 61% in the corresponding period.

However, the lube segment showed sustained performance recorded at 85% as compared to 86% during the last period.

The statement highlighted that due to stable crude oil prices in the last quarter, NRL reported a gross profit of Rs7,848m for 3rd quarter FY23 (3rd quarter FY22: 3,804m) providing support to the financial performance for the period ended nine months FY23.

The cumulative Gross Profit for the 9MFY23 reported Rs7,950m (9MFY22: 8,850m).

However, the profit before tax of the company was wiped off due to the impact of currency devaluation along with soaring interest rates.

The company incurred an exchange loss of Rs6,159m during the current quarter, Further reported by a loss from fuel segment of Rs9,577m which was partially offset by profit from lube segment of PKR 3,553m.

As a result of falling demand and interest rate rise, the company’s reliance on working capital financing has increased significantly but is expected to remain within limits by the end of the fiscal year.

The statement further stated that the government has approved the Pakistan Oil Refining policy for New/Greenfield refineries while negotiations on policy for Current/Brownfield refineries are ongoing.

The Rating Watch reflects various challenges, including decreased demand, high fuel prices, Letter of Credit (LC) opening issues, limited credit facilities, and high policy rates that have significantly impacted oil refiners.

Consequently, some are considering temporary shutdowns or significant reductions in production.

In order to mitigate the challenges, NRL is jointly working with other industry members and authorities, however, nothing material has been seen in this respect.

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