PACRA Maintains Entity Ratings of Attock Refinery Limited

Lahore, November 28, 2019 (PPI-OT): The ratings reflect ARL’s robust risk absorption capacity emanating from its sizable equity base. ARL’s core business remains exposed to the vicissitudes in international crude oil and products prices, which in turn, steer the gross refining margins (GRMs) of the company. During FY19, volatile oil prices coupled with a sharp rupee depreciation emerged as one of the key challenges to ARL and the Refinery Sector as a whole. Resultantly, overall refinery margins remained under pressure hampering the profitability of the sector.

Another major issue encountered was the declining demand of Furnace Oil (FO), as the Government took steps to shift power sector needs to alternate fuels like LNG and coal. The recent trend, however, is reflecting a revival, as is evident from a stabler rupee. This is expected to augur well for the company. The PMG and crude oil negative delta, which also played a role, has now reversed. ARL’s topline takes benefit of its value-added products; post installation of DHDS and isomerization plant, the company is continuously enjoying benefits in sales volume as well as price.

Free cashflows from operations, and in turn, coverages, have improved in 3MFY20, as compared to the prior year. ARL’s strategic investments and sizable bank placements, continue to contribute in the form of dividend and interest income. It provides support to the risk profile of the company and remains a stable source of recurring non-core income. The Company’s association with the country’s only integrated oil group – Attock Group (AG) – demonstrates to be a source of comfort to the ratings.

The ratings remain dependent on ARL’s ability to effectively shield its business profile from external vulnerabilities. Upholding of comforting factors, including income flow from other sources, remains imperative. Meanwhile, continuity of deemed duty on diesel is also crucial.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com