KARACHI, Aug 20: Aggregate profitability of the three listed oil marketing companies (OMCs) - PSO, Shell and APL - for the year ended June 30, 2007 showed sharp decline of 41pc at Rs7.1bn compared with Rs12.1bn recorded the earlier year.

“With the exception of APL which saw an earnings growth of 24pc at Rs1.7bn (eps: Rs43.22), profitability of both PSO and Shell depicted a 38pc and 78pc plunge respectively to Rs4.7bn (eps: Rs27.34) and Rs0.7bn (eps: Rs12.9)”, said Jawad Haleem, senior research analyst at Atlas Capital Markets.

In his report of Monday, the analyst observed that a host of factors were responsible for the decline in industry earnings. The major one was inventory losses that prevailed during the first half of the fiscal year.

The impact could be gauged from the fact that during the course of 1H/FY07, ex-refinery prices fell by 18pc. Consequently, on a y-o-y basis, cost of sales rose by 25pc compared to a 21pc growth in sales revenue, whereas over 2H/FY06, costs were up three per cent while revenue remained more-or-less flat.

Another reason attributed to the decline in gross profits was a change in pricing formula by Oil and Gas Regulatory Authority (Ogra) in March 2006.

Earlier, gross margins of OMCs were equated to 3.5pc of the final sales price of the product. Following the revision, they were made equivalent to 3.5pc of just ex-refinery price + PDL + inland freight. This in effect squeezed their margins by 20pc.

Due to a hefty payable built-up, PSO’s and Shell’s combined short-term loans were estimated to have risen by 84pc up to March 2007. Topping that was soaring interest rates as the six-months KIBOR during FY07 was up 1.1bps (13pc). As a result, financial charges during the year soared by 61pc.

The OMC sector had shown strong rebound in profitability during the second half and particularly during the last quarter. Overall earnings rose by 153pc on a q-o-q basis on the back of significant upsurge in oil prices leading to inventory gains and an 18pc upsurge in industry sales volumes to 5m tons in 4Q/FY07 compared to 4.2m tons in the previous quarter.