Equity Analysis /

Pakistan OMCs: Sharper decline in retail fuels in FY 19

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    2 July 2019

    Provisional OMC data show a 29% yoy drop in petroleum products in June. FY 19 sales then settled at 18.6mn tons, down 24% yoy. There were major volume contraction in Furnace Oil (FO) sales from a continuous shift from expensive FO to other fuels (coal, LNG) in FY 19. 

    HSD sales slumped by 24% yoy in June, from weak demand due to an economic slowdown and unchecked smuggling. In addition, Mogas volumes also declined by 8% yoy in June, the sharpest drop for any month in FY 19. Prices of retail fuels have been on an upswing (MS/HSD prices up 18%/14% during CY 19td), where PKR depreciation has been offsetting lower oil prices in international markets. 

    APL stood out in terms of market share performance in June, adding 2.8ppts from last month to take its share to 11.3%. APL has been adding storages and retail outlets to maintain its market share in early teens. This came in again at the expense of HASCOL as its share dropped to a four-year low. New competition is also eating HASCOL’s share as the company wants to focus on higher margin customers only. PSO and SHELL witnessed smaller changes and appear to be consolidating at their recent averages (market share of 45.0% and 8.5%, respectively). Recent improvement in PSO’s share is also due to seasonally higher FO demand.

    PSO can benefit from power sector reforms under the IMF programme, as circular debt issue is being addressed. For example, there has already been a power tariff hike of PKR1.49/unit from July, while additional Power Sukuks are expected. The recent recovery in its market share is also encouraging. Also, petroleum sourced from Saudi Arabia with a deferred payment arrangement will come entirely through PSO, thereby likely to improve its market share further in FY 20.

    Risks: (i) Inventory losses, (ii) slowdown in sales growth, and (iii) exchange losses.