Earnings Report /
Pakistan

Shell Pakistan: 1QCY21 review: Moderate miss on less inventory gains

  • SHEL’s 1QCY21 EPS of PKR9.10 marginally misses our estimate of PKR10.0, except lower inventory gains

  • Net sales are up 22% yoy but distorted by Covid-19 outbreak last year

  • It has booked significant exchange gains, without which the headline EPS would be half

Intermarket Securities
22 April 2021

Shell Pakistan Ltd (SHEL) has posted a NPAT of PKR1.95bn (EPS PKR9.10) for 1QCY21, up a handsome 57% qoq and compared with a big loss last year (LPS PKR20.24). The result is slightly below our EPS estimate of PKR10.0/sh due mainly to less than expected inventory gains.  

Key Highlights for 1QCY21:    

  • Net Sales of PKR51.2bn is up 3% qoq (up 22% yoy), where volumes of major products fell 6% qoq on average (HSD sales fell 15% qoq) but average retail prices rose 8-10% qoq. SHEL improved its market share in both HSD and Mogas by 1ppt to 9% and 11% respectively. Compared with last year, Net sales have risen 22% yoy due to c.26% higher volumes (distorted by Covid-19 outbreak SPLY).      

  • Gross profit of PKR3.9bn is lower than our estimate of PKR4.3bn, indicating either lower-than-expected inventory gains (we assumed c.PKR800mn) or less profits from lubricants. Pump prices of HSD and Mogas (retail fuels) rose by PKR8-10/liter during the quarter.

  • Opex of PKR3.0bn are down 10% qoq and 1% yoy, where Admin expenses are higher than expected. Otherwise, Opex tends to be soft in March quarter.

  • Other income of PKR1.4bn points to exchange gains, in line with our estimate. This emanates from a c.5% PKR appreciation against the USD. Note that without these gains (PKR4.6/sh after tax), the headline EPS would be at least half the actual result.    

  • Effective tax rate has come in at 10%, where SHEL seemingly has taken some credit against prior period losses.

The headline result is impressive, but we highlight that it is majorly because of non-recurring or sporadic exchange and inventory gains. In the next quarter, SHEL might book some inventory losses as retail prices are trending downwards and further PKR appreciation will be moderate, in our view.

We are presently keeping the stock Under-review and will revise our estimates in light of this result.