By: Nauman Khan, Topline Securities Pvt. Ltd.
With international petroleum product prices depicting a bullish trend in 1QFY13, it bodes well for the local refineries profitability. The sector is likely to benefit from improving petroleum margin spreads. Moreover, 13% gain in international oil prices (Arab Light) would also render into hefty inventory gains for the sector, while stable PKR against the greenback is also likely to add to bottomline with absence of forex losses. We expect sector’s core refinery margins to stand around US$4 per barrel in 1QFY13 as against US$1.5 per barrel in the last quarter.
Despite the improvement in the international spreads, we maintain ‘Market-weight’ stance on the sector but have our liking towards ‘ATRL’ on account of its superior product mix and benefit of group synergies culminating into higher other income and relative protection from circular debt.
Petroleum prices up 2-3% in 1QFY13
During 1QFY13 (with the exception of Furnace oil), petroleum prices increased in the range of 2-3%, while prices of crude oil (Arab Light), its raw material, remained stagnant as that of last quarter around US$108 per barrel. Subsequently, petroleum product spreads (product prices – crude oil prices) is likely to show a hefty improvement. As per our estimates, the biggest improvement came in gasoline (petrol) spreads that rose to US$4 per barrel in 1QFY13 as against US$1.6 per barrel last quarter. Similarly, Kerosene and Gasoil (HSD) spreads also improved to US$15 and US$24 per barrel, respectively as against US$10 and US$19 per barrel. Margins of the loss making Furnace oil are likely to remain stagnant around (-ve) US$21 as that of last quarter.
Resultantly, we anticipate domestic gross refinery margins (GRMs), primary guage of refinery profitability, to improve to US$4 per barrel in 1QFY13 as against US$1.5 per barrel in 4QFY12. In the same quarter last year, estimated GRMs stood at US$4 per barrel
ATRL to be chief beneficiary
For refineries that we cover, ATRL GRMs are estimated to improve to US$6.5 in 1QFY13 a mark improvement from US$3.5 in previous quarter, while are slightly up from US$6 per barrel in 1QFY12. NRL’s core-refinery margins are likely to stand around US$2.5 per barrel as against break-even margins in the last quarter and are improvement from US$2.5 per barrel registered in 1QFY12. However, sluggish lube margins in 1QFY13 to play down on its profitability.