Ayesha Mudassar

The Pakistan Refinery Limited (PRL) posted robust revenue and profit growth in the first half of the ongoing fiscal year (1HFY24), compared to the corresponding period of the FY23, reports WealthPK. The net sales revenue increased to Rs 182.1 billion in 1HFY24, compared to Rs 130.3 billion in 1HFY23, thus posting a 39.7% growth. The rise in the company's revenue was primarily due to high petroleum product prices and record half-yearly production of high-speed diesel and motor gasoline.

The company's gross profit ballooned to Rs 13.5 billion from Rs 1.7 billion in 1HFY23. Furthermore, the profit-before-tax skyrocketed to Rs 10.4 billion in 1HFY24 from Rs 1.4 billion in 1HFY23, registering a whopping 619.5% growth. The net profit also leapt to Rs 6.5 billion in 1HFY24 from Rs 759 million in 1HFY23, posting a tremendous growth of 757.4% during the period under review.

Performance over the last six years

Operational Performance

Refineries have had a tough time in Pakistan, mainly due to outdated technology, depressed refining margins, and a credit crunch in the country's energy sector. In the year 2019, the refinery posted a shocking decline in earnings due to a fall in petrol prices, steep devaluation of the currency, and depressed refining margins. As a result, the company incurred a loss of Rs 5.8 billion in 2019 as compared to a profit of Rs 504 million in year 2018. Owing to the Covid-19 pandemic, the PRL's earnings were again adversely affected in 2020. During the year, the company's loss after tax widened to 7.5 billion from Rs 5.8 billion in 2019. The fiscal year 2021 was a recovery year. Better product mix, exchange gains, and changes in pricing policy helped the PRL turn losses into profits. The company earned a net profit of Rs 937 million during the year.

In the year 2022, PRL witnessed a record profit owing to healthy gross refinery margins, better inventory management, and optimal product mix. The company's revenue growth doubled in 2022 on the back of higher volume and prices. This was a memorable year for PRL as it recorded not only the highest revenues for the company but also the highest ever gross profits and net profit for the company. In FY2023, the refinery experienced a significant fall of 85.5% Year-on-Year (YoY) in its profitability, clocking in its profit after tax of Rs 1.8 billion in the fiscal year 2022-23, as compared to a profit of Rs 12.5 billion in the earlier fiscal year. The lower profit was mainly due to challenging and adverse economic conditions that included depletion of the country's foreign exchange reserves, depreciation of local currency, and highest-ever inflation.

Profitability ratios

The gross profit ratio measures the proportion of revenue that exceeds the cost of goods sold as a percentage of total revenue. It indicates the efficiency of a company in generating profit from its core operations. In 2018, the gross profit ratio stood at 1.1, demonstrating a slim profit margin. However, in 2019 and 2020, the ratio turned negative. The trend reversed in 2021, with a gross profit ratio of 3.5%, signifying a return to profitability from core operations. Moreover, there was a substantial improvement in 2022, reaching 10.6%, followed by a moderate decline to 2.8% in 2023.

The net profit ratio measures the profitability of a company by evaluating the proportion of net profit generated from its total revenue. In 2018, the net profit ratio was 0.5%, suggesting a modest net profit margin. Nevertheless, from 2019 to 2020, the net profit ratio was negative, indicating that the company experienced net losses after deducting all expenses from its revenue. The trend shifted positively in 2022, with a net profit ratio of 6.6%, reflecting a significant improvement in profitability. In 2023, although the ratio declined slightly to 0.7%, the company still managed to maintain a positive net profit margin.

Company Profile

PRL is a hydro-skimming refinery incorporated in Pakistan as a public limited company in May 1960. PRL is engaged in the production and sale of petroleum products. PRL operates as a subsidiary of Pakistan State Oil Company Limited (PSO), which is the largest oil marketing company in Pakistan. PRL's shares are publicly traded on the Pakistan Stock Exchange Limited. The refinery is strategically located in Karachi, with a designed throughput capacity of 50,000 barrels per day. The major units in the refinery complex are the Crude Distillation Unit, Hydrotreating Unit, Platformer Unit, and Isomerization Unit.

INP: Credit: INP-WealthPk