AKD Quotidian about — Aug’13 Monthly oil sales update

Karachi, September 10, 2013 (PPI-OT): According to official statistics, total sales of POL products during 2MFY14 have clocked in at 3.Bmn tons, a growth of 8%YoY.

According to AKD Securities among major products, sales of MS during 2MFYI4 increased by 13%YoY to 643k tons, FO sales increased by 12%YoYto 1.9mn tons while HSD sales declined by 5%YoY to 1.lmn tons. Sequentially, Aug’13 industry sales were down by 11%MoM to 1.Smn tons, where HSD, MS and FO sales were down by 30%MoM, 4%MoM and 2%MolVl, respectively. Among major players, PSO’s sales during 2MFYI4 declined by 3%YoY to 2.4mn tons, where a prominent decline of 19%YoY to 598k tons was witnessed in HSD sales.

FO sales for PSO during 2MFYI4 stood at 1.4mn tons, marginally up by 3%YoY. In Aug’13, PSO’s total sales were down by a sizable 16%MoM to 1.lmn tons, where a 1O%MoM decline in FO sales and 35%MoM decline in HSD sates kept volumes subdued. Going forward, AKD Securities expects volumes for the sector, particularly FO, to pick up as the government’s conviction to restrict the power shortfall should lead to higher demand. Additionally, higher recoveries with the recent hike in power tariff should ease liquidity constraints across the energy chain.

Industry sales up by 8%YoY; Total industry sales during 2MFY13 stood at 3.8mn tons, an increase of 8%YoY. Among major products, the highest growth of 13%YoY was witnessed in MS volumes, which stood at 643k tons1 where gas curtailment to the CNG sector continues to drive petrol sales, in AKD Securities views.

The government’s focus on reducing the power shortfall along with the recent liquidity injections in the power sector helped drive FO sales during 2MFY13, which were up by 1 2%YoY to I .9mn tons. Sequentially, total industry volumes were down in Aug’13 by 11 %MoM to 1 .8nin tons, where a decline was seen in sales of all major products.

Oil Sales

                            Industry                          sso
(`000 tuna)       Aug13   Moe   5M5513    SoY      Aug15  MoM   2M5Y13   SoS

 MS                315    -4%       543   13%        159    0%      317   6%
 HSD               475   -30%     1149    -5%        236  -35%      598  -19%
 40                 63    22%       115   61%         32    1%       64   72%
 FO                917    -2%     1851    12%        683  -10%    1439    3%
 Others             16   -25%        37   17%          5  -35%       24   21%
 Total            1,784  -11%     5,555    8%       1,119 -16%    2,442   -5%

Source Company Reports and A5D Research

PSO’s sales face decline: Volumetric sales for PSO during 2MFY14 totaled 2.4mn tons, representing total market share of 64% and a marginal 3%YcY decline over 2MFY13. While MS and FO sales for P80 were up by 6%YoY and 3%YoY to 317k tons and 1.4mn tons, respectively, HSD sales depict a worrying trend. In this regard, HSD volumes of S98ktons during 2MFY14 depict a decline of 19%YoY. During Aug’13 total sales for PSO registered a decline of 16%MoM, where a 1O%MoM decline in FO sales represents lower sales to the power sector. AKD Securities believes FO sales should pick up going forward as the impact of increased tariffs as of Aug13 is realized during Sep’13.

Outlook and Investment Perspective: AKD Securities believes MS volumes for the industry should remain on the uptrend during FY14, in line with AKD Securities expected growth of 1O%YoY for the year, as gas curtailment to the CNG sector continues to drive demand for the product.

The government’s conviction to reign in the power shortfall coupled with improved liquidity across the power sector from the recent liquidity injections and a hike in power tariffs should stimulate FO demand. From and investment perspective, PSO trades at a FY14F PIE of 527x, a discount of 36% to the broader market PIE of 82x. AKD Securities are in the process of revising AKD Securities investment case for PSO and wEll update investors accordingly.