Earnings Report /
Pakistan

Shell Pakistan: 3QCY21 review – Worse than expected due to greater exchange losses

  • SHEL posted a dismal result for 3QCY21, worse than expected

  • Despite significant inventory gains, its high Opex and lack of FO sales exposed it to exchange losses

  • 9MCY21 bottom-line is however a significant improvement over a loss last year

Intermarket Securities
21 October 2021

Shell Pakistan Ltd (SHEL) has posted a dismal result for 3QCY21, with a NPAT of PKR0.30bn (EPS PKR1.39) down 90% qoq but better than a net loss SPLY. This takes 9MCY21 net profits to PKR2.5bn (EPS: PKR11.44). The 3Q result is worse than our EPS estimate of PKR3.13/sh due to greater-than-expected exchange losses.    

Key highlights for 3QCY21:         

  • Net Sales of PKR62.0bn are up 11% qoq (up 42% yoy), where volumes of major products were flattish qoq - Mogas volumes rose 6% qoq but HSD volumes fell 7% - while prices rose 5-9% qoq. SHEL's overall market share in petroleum products fell 0.6ppt qoq to 7.3% as lockdowns earlier during the quarter affected urban sales.     

  • Gross profit of PKR6.5bn is greater than expected (PKR5.7bn), indicating nearly a PKR2.5bn of inventory gains (PKR8.0/sh after tax) - about PKR1.0bn more than we expected. Mogas/HSD prices rose PKR13.0/9.0 per liter during the quarter. 

  • Opex of PKR1.9bn (up 10% qoq) are nearly in line with expectations, but SHEL has booked greater exchange losses, of at least PKR1.5bn (PKR5.0/sh after tax). Other charges (clubbed in Opex and including Fx losses) have come in at PKR2.4bn vs. PKR1.7bn in the previous quarter.   

  • Effective tax rate has come in at 52%, where SHEL has evidently booked turnover tax.

The result is weaker than expected, while APL has just posted handsome profits for the period. Despite big inventory gains, SHEL’s relatively hefty Opex and lack of Furnace oil sales (unlike peers, in this quarter) made it susceptible to exchange losses and turnover tax rate. The stock is presently under review.