Petroleum volumes dipped by 15% yoy to 1.3mn tons during Aug’19, according to provisional numbers. However, excluding Furnace Oil (FO), volumes declined by a less sharper 6% yoy as Mogas sales are holding up.
A decline in HSD volumes by 18% yoy/25% mom to 0.41mn tons is concerning. Slow economic growth and smuggled HSD are major factors behind the slump in HSD sales (volumes declined by 20% yoy in FY 19), but we suspect a strong rainy season and religious holidays may have also contributed. We highlight that that this is the second-lowest monthly number for HSD sales since we have this data from Jul’04. Mogas sales are up by 2% yoy to 0.63mn tons during Aug’19 as prices of its alternative, CNG, are also on the rise due to gas price hikes. Effective from Jul’19, OGRA increased gas prices by 31% for various customers, including the CNG sector. FO declined by 38% mom as its demand for power generation slows down after peak summer months.
Recent numbers show that PSO has made a sustainable recovery in its market share, where it has been able to capture more than 40% of retail fuel market in the last six months (vs 38% in FY 19). APL and SHEL are also able to defend their market share at an FY 19 average, even as HASCOL’s performance has deteriorated (market share down to 4.6% in 2M FY 20 vs 10.3% in FY 19).
We are concerned with the delay in increasing OMC margins, which was set to increase by 7.2% (or PKR0.19/litre) from Jul’19. At current levels, we only like APL (TP: PKR432/sh), as it has presence in other high margin products and is debt-free. We would be bullish on PSO, if there are developments on circular debt settlement (particularly the second Sukuk issue).
Risks: (i) Inventory losses, (ii) slowdown in sales growth, and (iii) exchange losses.