KARACHI, Feb 20: Pakistan State Oil Company Limited (PSO)—the largest oil marketing company in the country—posted 66 per cent plunge in after-tax profit to Rs452 million for the first half of the current year to end-December 2001, from Rs 1.355 billion in the corresponding period of the previous year.

The Board, which met on Wednesday morning to sign off the half- term results, also declared an interim cash dividend at Rs3 per share (30 per cent); Rs4 per share (40 per cent) had been paid for the similar period last year.

The PSO’s results sent no ripples through the market for a profit plunge was already foreseen and discounted in the OMC’s stock price. Results unveiled earlier in the month by rival Shell Pakistan, had shown about an equal (62 per cent) drop in after tax earnings to Rs186 million for the July-December 2001 six months, from Rs485 million same time the previous year.

Far from losing more value, the share in PSO gained 7 per cent on Wednesday to close at Rs131.70 from its earlier day’s closing at Rs122.60, which traders attributed in part to a better-than- expected dividend (punters were looking forward to Rs2 per share) and partly to unconfirmed reports of major buying by Lahore-based traders. Around 15 million shares were traded on Wednesday.

Citing reasons for the profit slump, the company said: “Effective July 1, 2001, the linking of domestic prices to international price risks as a result of the mandate given to the OCAC by the government to notify the POL prices on fortnightly basis have exposed OMCs to international price fluctuations, while margins have remained fixed.” The company statement added that prior to July 2001, the government used to absorb all such fluctuations.

“Eight downward price revision during July-December 2001 against maximum three in the last 32 years resulted not only in margin drops in the range of 15-30 per cent but also caused inventory losses to OMCs in the last six months,” the company said.

Problems were said to have been exacerbated by the September 11 crisis, following which overall POL industry shrank by 9.1 per cent. All key products witnessed negative growth in the first half of the year, in the range of 4 to 30 per cent, the company stated.

Analysts agree that the OMCs have been through a nightmare. “PSO was unfortunate to face one of the most difficult periods in its 25-year history, when for the first time, industry oil sales dipped by 10 per cent with PSO’s sales declining by over 10 per cent, as the company lost its fuel oil sales to Wapda for a brief period,” comments Mohammed Sohail, head of research at InvestCap.

He says that the oil prices were revised downwards for as many as eight times during the six months under review, which no one recalls ever happened before. Add to that the stagnant margins, volume shrinkage and the inventory losses, all of which make up a recipe for the disastrous results, presented by the OMCs.

The half term results of PSO, do not identify the amount of ‘inventory losses’, but analysts assume those could be in the region of Rs600 million to Rs1 billion.

Saad Hashemy, head of research at IP Securities commented that PSO’s profits were down on the back of lower sales (sales revenue declined 9.6 per cent to Rs63.231 billion, from Rs70.021 billion) and reduced margins (gross margin declined to 2.5 per cent, from 4.7 per cent).

But the six months results are not casting a pall of gloom on the PSO’s silver jubilee year. The company statement talks of strong focus on New Vision Retail Development Programme, which saw expansion in network to 343. And many other things to brighten up the forward view. Analysts like Mohammed Sohail hold optimistic prospective view: Oil prices are rising; demand is picking up as evident by January 2002 sales and PSO’s supplies to Wapda have resumed, are their reasons to hope that the second half would be better than the first.