Provisional numbers show that petroleum volumes dipped by 31% yoy in May. Even excluding Furnace Oil (FO), the decline was still a sharp 13% yoy. In 11M FY 19, OMC sales stand at 17.2mn tons, down by 24% yoy.
Petroleum sales have been on a declining trend throughout FY 19. Mogas volumes also recorded a 5% yoy reduction in May versus moderate growth in July '18-April '19. The key reason is continued increase in retail prices (up 10% mom in May and 4% mom in June). HSD volumes were also down by 21% yoy in May, but broadly in line with the FY 19 average due to slow manufacturing activity and influx of smuggled diesel. FO declined by 66% yoy as it is being replaced by alternate fuels for power generation.
May numbers suggest that PSO made a sustainable recovery in its overall market share, which inched up to 51% versus 11M FY 19 average of 41%, where HSD shares saw a notable gain in March (up 7ppts yoy). This came at the expense of other OMCs including HASCOL, which were growing rapidly until last year. Depressed demand may be forcing them to consolidate rather than target expansion. APL also slightly lost its market share, but SHEL appears to be holding up. However, 11M FY 19 shares for both APL and SHEL have improved on yoy basis due to their continued capex. HASCOL, meanwhile, is undertaking a much larger capex, but its strategy of offering discounts is now being replicated by other small players, resulting in a decline of its market share.
At current levels, we prefer APL (TP: PKR480/sh) due to gradual gains in market share and PSO (TP: PKR 230/sh) as more energy sukuks will improve its cash flows. OMCs are likely to record handsome inventory gains in the Apr-Jun’19 quarter, as fuel prices rose considerably, compared with depressed results in H1 FY 19.