July sales depict mix trend; APL share grows

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  • As per our channel checks, overall petroleum products sales clocked in at 1.95mn tons in July 2014, 4% higher vis-à-vis June 2014. That said on a YoY basis, consumption declined by 3%.
  • Pakistan State Oil (PSO) witnessed an uptick of 5% MoM in sales volumes, however the same declined by 9% YoY. Attock Petroleum Limited (APL) was largely unscathed, with +0.5% MoM and +21% YoY growth.
  • Looking ahead, we expect oil consumption to grow by 3% YoY in FY15F, where government’s efforts to eliminate/reduce circular debt menace will be a pivotal demand driver.
  • With media reports suggesting ECC still considering increase in margins for Oil Marketing Companies (OMCs), we flag the same to provide earnings upside for the sector.
  • Our preferred play in the sector is PSO (TP: Rs534), where potential (1) power tariff hike (held back for now) and (2) intermittent cash injections by the government will be key stock price catalysts. Meanwhile, we believe a strong final cash payout (JS expectation of Rs30) by APL (Hold – TP of Rs588) with its upcoming result announcement will keep investor interest intact in the stock.

APL share grows as July sales up 4%MoM
As per our channel checks, domestic petroleum product consumption clocked in at 1.95mn tons in July 2014, 4% higher vis-à-vis June 2014 off-take of 1.87mn tons. Demand growth was led by (1) 5% MoM higher Furnace Oil (FO) off-take on the back of government’s efforts to reduce load shedding in Ramadan and (2) 11% MoM higher High Speed Diesel (HSD) sales; though Motor Gasoline sales dipped by 6% MoM.
On a YoY basis, consumption declined by 3% with (1) 1% YoY lower FO sales and (2) 5% YoY lower HSD sales. Pakistan State Oil (PSO) witnessed an uptick of 5% MoM in sales volumes, however the same declined by 9% YoY. Attock Petroleum Limited (APL) was largely unscathed, with +0.5% MoM and +21% YoY growth. APL’s market share expanded to 10% (8% in July last year) while PSO’s market share slipped to 60% from 66% last year.

Increase in margin back on the cards; PSO preferred play
Looking ahead, we expect oil consumption to grow by 3% YoY in FY15F, where government’s efforts to eliminate/reduce circular debt menace will be a pivotal demand driver. With media reports suggesting ECC is still considering increase in margins for Oil Marketing Companies (OMCs), we flag the same to provide earnings upside for the sector. Our preferred play in the sector is PSO (Target
Price: Rs534), where potential (1) power tariff hike (delayed for now due to political unrest) and (2) intermittent cash injections by the government to ease sector’s liquidity woes will be key stock price catalysts. Meanwhile, we believe a strong final cash payout (JS expectation of Rs30) by APL (Hold – Target Price Rs588) with its upcoming result announcement will keep investor interest intact in the stock.

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