Equity Analysis /

Pakistan OMCs: Slowdown continues in September while PSO gains market share

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    2 October 2019

    As per provisional OCAC numbers, petroleum volumes declined by 15% yoy (similar to Aug'19) to 1.5mn tons during Sep'19. Excluding Furnace oil (FO), which is being phased-out, volumes dipped by 14%yoy, due to significant decline in HSD sales during Sep'19. On monthly basis, volumes improved by 16% during Sep'19, but in-line with historic trend (volumes improved by 17% mom in Sep'18).

    During Sep'19, HSD sales declined to 0.55mn tons, down 24% yoy. HSD segment continues to be impacted by smuggled volumes in a tough macroeconomic environment and low demand from agricultural sector. Mogas sales are down 4% yoy to 0.65mn tons during Sep'19, but recent trend suggests stable demand (flat yoy volumes in Q1 FY 20). This is despite 18% yoy decline in 2/3 wheeler sales during 2M FY 19 as this segment account for half of the consumption. FO volumes reduced to 0.24mn tons in Sep'19, down 23% yoy as it is being replaced with other fuels for power generation.

    In terms of market share, PSO has been the major beneficiary as HASCOL's aggressive strategy has come to an end. PSO's market share in retail fuels stand at 44% during Q1 FY 20, up 6ppts yoy. On the other hand, HASCOL has lost a similar market share during this period with Q1 FY 19 share at 6%. SHEL and APL are broadly stable in terms of their shares on yoy basis during Q1 MY 20.

    We are concerned with the delay by GoP increasing OMC margins, which were scheduled to increase by 7.2% (or PKR0.19/litre) from Jul'19. Industry sources suggest that it may be revised any time as ECC has to approve it, which is the final step. We have a Buy stance on both APL (TP: PKR432) and PSO (TP: PKR191/sh).

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