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Karachi, November 29, 2012 (PPI-OT): A package of Positives in the offing!
The stock of Pakistan State Oil (PSO) has gained 6% during Nov-12; outperforming the benchmark KSE-100 Index by 3%.
According to Arif Habib Limited believes the stock to remain in the limelight due to factors like (1) healthy MS demand outlook amid frequent suspension of CNG (2) expected revival in FO volumes amid winter with upcoming elections (3) easing intensity of the notorious circular debt with declining receivables and consideration of another TFC issue by the gov’t.
Rising CNG suspensions to add to Petrol demand, PSO to benefit the most
CNG, a cheaper alternate to petrol at the moment, is expected to remain scarce in coming months due to a combined effect of seasonal gas curtailment during winter and reluctance of CNG operators to sell at significantly lower prices. This scarcity, Arif Habib Limited believes, will stimulate MS (Petrol) demand in upcoming months. Preempting this demand, PSO is seeking 450k tons of MS cargos for 3QFY13 (Jan-Mar13), which are about 30% higher than the MS sales during same period last year. The company has already achieved a 15% YoY jump in its MS off take during the 1QFY13 and, Arif Habib Limited believes, this momentum will continue during the rest of FY13 with a 22% YoY growth to 1.6 million tons. As per Arif Habib Limited’s calculations, with current market share of ~50%, every 0.1 million tons jump in MS volumes increases PSO’s bottomline by PKR 0.9/share for PSO on annualized basis.
Furnace Oil volume to also pick up in tandem
FO demand is also expected to firm up in FY13 as the gov’t makes effort to ease the power crises just before its tenure ends in Mar-13. During the on-going winters, lower gas availability for power generation and seasonal decline in hydel power may compel the gov’t to focus on FO to bridge the gap. Increasing credit period for additional FO imports and other measures would further improve the FO demand, which combined with the fact that FO is a de-regulated product will bode well for PSO. However, increasing FO volume does expose the company to the plague of circular debt, which has created a liquidity nightmare for the oil giant recently.
Significant decline in Receivables-Payables on the go
Arif Habib Limited’s discussion with the company management reveals that, PSO’s receivables have fallen by 28% to PKR 120 billion (excluding others of Rs12 billion) to date from PKR 166 billion as on Sep-12. Similarly, payables to refineries have also significantly dropped to only PKR 83 billion (including refineries’ PKR 22.3 billion) in a couple of months, from PKR 161 billion earlier. As summarized in the table below, it has an implied cash outflow impact of PKR 12 billion net. However, declining payables to refineries are expected to lower financial burden on PSO’s bottomline on a net basis (adjusted for decline in other income owing to lowering receivables) to about PKR 1.3/share.
| Position (PKR billion) |
Balance Sheet Impact |
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|
Cash inflow |
Cash inflow |
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|
(outflow) |
(outflow) |
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| Period | Receivables | Payables | Net | Receivables | Payables | Net Impact |
| Aug-12 | 242 | 158 | -84 | -24 | -35 | -59 |
| Sep-12 | 166 | 161 | -5 | 76 | 3 | 79 |
| Nov-12 | 120 | 83 | -37 | 46 | -78 | -32 |
| Total | Total | 98 | -110 | -12 | ||
| Source: PSO, AHL Research | ||||||
Measures are underway to ease up Circular debt
Arif Habib Limited’s industry channels suggest the gov’t is considering another TFC issue to ease up the intensity of the existing circular debt. In addition, media reports reveal the gov’t has given task to the Ministry of Power to arrange PKR 550 billion in next six months to ensure load shedding is not an issue that should determine the 2013 general election results. If materialized, Arif Habib Limited believes these measures would keep energy stocks, particularly PSO, in the limelight.