Ayesha Mudassar

The net revenue of Cnergyico Pakistan Limited (CNERGY) declined by 0.7% in the first half of the ongoing fiscal year (1HFY24) compared to the corresponding period of last year, reports WealthPK. Higher oil prices in the international market and massive rupee devaluation drastically blew up the company's working capital requirements, resulting in extraordinarily low refinery throughput during the period under review.

On a positive note, the company was able to record a gross profit of Rs4.3 billion in 1HFY24, against a gross loss of Rs7.5 billion during the same period last year as it incurred huge inventory losses in 1HFY23 on account of severe flash flooding in the area surrounding its refinery. Furthermore, CNERGY was able to cut its net loss by 70% to Rs1.6 billion in 1HFY24 with a loss per share of Rs0.29. On the expense side, administrative costs moved up by 27% during the half-year period. Moreover, the finance costs surged by 67% in 1HFY24 on account of high discount rate and increased short-term financing obtained during the period.

Six years at a glance (2018-2023)

Over the period under consideration, the company's net revenue slid twice – in 2020 and 2021.  CNERGY posted net profit in 2021 and 2022 only. The profit margins, which experienced a sharp reduction in 2019, increased in the subsequent years and peaked in 2022. Nevertheless, CNERGY's profit margin fell into the negative territory in 2023. In 2019, the company's revenue grew by 18.9% year-on-year, which was purely the result of an upward revision in oil prices as well as the effect of currency depreciation. During the year, the company witnessed multiple challenges, including the drastic decline in the demand for furnace oil, fluctuations in international oil prices and rupee depreciation. All these factors resulted in a 78.6% and 188.9% YoY slump in the company's gross and net profit.

In 2020, the company's top-line slipped by 12.1 % year-on-year. Reduced prices of oil in the international market coupled with the company's proactive strategies regarding crude cargo resulted in 47.7% improved gross profit. Moreover, the company's net loss jumped by 44.3% to Rs2.43 billion. CNERGY's net sales continued to decline in 2021. However, the installation of the fluid catalytic cracking unit and improved inventory management led to 179.9% higher gross profit in the year. Moreover, CNERGY was able to record a net profit of Rs3.59 billion in 2021.

Following a two-year decline in net revenue, CNERGY's top-line recorded a 19.6% rebound in 2022. During the year, its net profit expanded by 33.1% to Rs4.78 billion. The refinery industry made immense profits due to the Ukraine crisis, which plunged international oil prices. In 2023, CNERGY's top-line grew by 14.1% YoY. During the year, the company recorded a gross loss of Rs9.74 billion on account of sluggish economic activity in the country. A hike in administrative expenses and finance costs culminated in a net loss of Rs12.66 billion.

Ratio analysis

Cnergyico experienced severe profitability challenges as indicated by its deteriorating financial ratios. The gross profit margin, reflecting the efficiency of production and cost management, plunged to negative 5.03% in 2023, depicting potential inefficiencies or increased production costs.

Likewise, the net profit margin followed suit, recording a negative 6.53% in 2023. This implies challenges in controlling overall expenses and achieving profitability.

Company profile

Cnergyico Pakistan was incorporated in Pakistan as a public limited company in 1995. The company is engaged in oil refinery and petroleum marketing business with the latter launched in 2007. CNERGY was previously known as Byco Petroleum Pakistan Limited.

Future outlook

The recently announced brownfield oil refinery policy aims to encourage existing refineries to upgrade, modernise and expand their facilities to minimise black products such as furnace oil and produce environment-friendly fuels as per Euro-V specifications. This is a positive step as it will attract foreign investment and will surely boost the company's throughput.

Credit: INP-WealthPk