Oil Sales May’14: Numbers mounting to all‐time high

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Oil Sales May’14: Numbers mounting to alltime high

Pakistan oil sales reached a record high of 2.2mn tons in the month of May’14 on the back of higher consumption of Furnace oil (FO) and High Speed Diesel (HSD). The government efforts to improve the energy generation in the country helped the volume uptick of the former, while we attributed higher sales of HSD  to seasonal phenomena. In 11MFY14, oil sales stood at 19.5mn tons versus 17.6mn tons in the same period last year, a growth of 10%YoY. Growth stems from 15%YoY and 12%YoY increase in the petrol and FO sales. In a nutshell, the government’s decision to prioritize the industrial sector by trying to overcome their energy issues is boding well for FO and petrol sales (directly or indirectly).

Amongst the individual companies, APL continues to outperform its peer on the back of increased penetration in the white oil market, while PSO seems to be losing the largest ground.

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Number’s rally driven by government’s energy focus

As per the latest numbers by OCAC (Oil Companies Advisory Committee), Pakistan oil sales stood at 2.2mn tons in May’14 versus 1.8mn tons in the previous month, up 28%MoM. As compared to the same month last year, the sale has witnessed an increase of 22%YoY. Higher numbers are attributed to increased sales of HSD (up 21%YoY and 47%MoM) and FO (up 25%YoY and 18%MoM). The two products cumulatively contribute approx. 80% in Pakistan’s oil consumption. The former forms the backbone of the transportation sector while latter is primarily used by the power sector. MS (commonly known as petrol) also showed a respectable growth of 18%MoM and 7%YoY to 383k tons in May’14.

In 11MFY14, oil sales stood at 19.5mn tons versus 17.6mn tons in the same period last year, a growth of 10%YoY. Growth stems from 15%YoY and 12%YoY increase in the petrol and FO sales. In a nutshell, the government’s decision to prioritize the industrial sector by trying to overcome their energy issues is boding well for FO and petrol sales (directly or indirectly).

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APL continued to be the star

Amongst the major listed OMCs, Attock Petroleum (APL) outperformed the industry growth by a significant 6pps in 11MFY14, thanks to higher petrol (up 32%YoY) and HSD (up 19%YoY) companies sold 1.8mn tons of petroleum products in 11MFY14 versus 1.5mn tons in the same period last year. The company’s focus on increasing their retail presence is paying dividends we believe. As per the last published accounts, the company has added 35 new outlets in FY14YTD, which is allowing the company to increase its foothold in the white oil retail business.

In May’14, APL volumetric sales stood at 199k tons, up 23%YoY and 17%MoM.

On the other hand, Pakistan State Oil (PSO) has underperformed the industry by a significant 5%. The company’s below par performance in the white oil market (particularly HSD) has more than diluted the positive impact of the government energy sector reforms on the company’s FO sales. Where FO sales are up 9%YoY, the company’s HSD sales are down 3% YoY. In 11MFY14, the company was able to sell 11.9mn tons of oil product, up 5% YoY.

In May’14, oil sales stood at up 16% YoY and 31% MoM. Though, company was able to sell higher volumes of FO and petrol, the notable factor is 19%YoY and 56%MoM increase in its HSD sales. Higher sales of quick cash and higher margin HSD sales is likely to add positive variance in the company’s 4Q earnings, we believe. Lastly, Shell Pakistan (SHEL) was able to sell 1.9mn tons of oil products in 11MFY14 versus 1.8mn tons in the same period last year, up 8%YoY. In May’14 the company sold 245k tons of oil product, up 24%YoY and 32% MoM.

Outlook

Recent news flow of the resurgence in the circular debt and particularly companies inability to meet its short terms liability has dampened the investors sentiments. Furthermore, non materialization of margin increase has also marginalized the investors interest towards the OMCs, we believe. However, we continue to remain positive towards the sector. The pressure on the government to overcome the crippling energy crisis will continue to play in favor of the OMCs dynamics (particularly PSO), we believe. We maintain ‘Buy’ on PSO and APL.

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