KARACHI, Sept 12: On Wednesday, National Refinery Limited (NRL) announced financial results for the year ended June 30, 2003, posting 73 per cent growth in after tax profit to Rs1,352 million, from Rs781 million a year ago. The board also recommended final cash dividend at Rs7.50 (75 per cent) per share, which including the interim already paid at 2.50 (25 per cent), which lifted the total payout at 100 per cent for 2003 compared with 60 per cent paid last year and 50 per cent the year before.
The 10-rupee share in National Refinery is currently trading at Rs168, which is perhaps its life-time high. The stock has kept pace with the bull run at the market and gained 107 per cent since January 1, 2003, price of Rs81 per share. The Refinery was listed at the stock exchange in 1964. The previous highest stock value was recorded at Rs142 in 1994, while the lowest was Rs9, touched in 1998. Like most of the market, the share in NRL saw extensive volatility during the January-August eight months of the current year, its high and low during the period being Rs175 and Rs70, respectively. Punters who may have acquired the stake at dips may have made big fortunes.
A June 2003 report by Taurus Securities mentions that NRL, located at Karachi is the country’s second largest refinery after Parco and the largest among the listed refineries. The Refinery has two sections: a fuel section and a lubricants section. Those sections have a designed capacity of 2.71 million tons and 0.62 million tons, respectively, while the combined refinery capacity was rated at 2.9 million tons per annum.
NRL was understood to be calculating the possibility of setting up a coastal refinery. Earlier during August, a Letter of Understanding (LoU) was signed between NRL, PSO and Sunaid Khair Consortium of Saudi Arabia for a proposed coastal refinery project. The cost of the integrated refinery project had been estimated between $1.5 and $1.7 billion.
Net sales at Rs36.1 billion for the latest year ended June 30, 2003, rose by 21.2 per cent, while cost of sales increased by 20.6 per cent and the gross profit improved 33.3 per cent with gross margin up to 5.8 per cent, from 5.2 per cent last year. Growth in profit and gross margin improvement was attributable mainly to high international oil prices. Crude oil (Arab Light) prices reached peak of $31.1 per barrel in February 2003 then fell during March-April 2003 before regaining upward momentum in May 2003. Naphtha exports could also have helped realize better unit price (due to high oil prices) and could be another reason for improved profitability. NRL had begun exporting surplus Naphtha in July 2002.
The scope of the refineries in Pakistan has been fettered by the so-called ‘Import Parity Pricing Formula’, under which the refineries are not allowed to retain more than a fixed return on their equity, notwithstanding their operational and financial performance.
But perhaps the refineries with predominant share from ‘lube oil’ refineries, such as NRL are at a lesser disadvantage than the ‘simple fuel’ refineries, such as Pakistan Refinery Limited (PRL). Lube Refinery is not subjected to pricing control by the government and it operates in an open market environment. Tanvir Abid, head of research at Jahangir Siddiqui Capital Markets (Pvt) Limited, stated that the company was expanding its lube base oil production base. The “Lube Refinery Revamp Project” was estimated to result in an outlay of approximately Rs1 billion and was expected to be completed by December 2004. That would add another 20,000 tons of production capacity to NRL’s Lube Base Oil production. “As the prices of Lube Base Oils (utilized to produce lubricants by the Oil Marketing Companies) are deregulated, NRL being the sole domestic LBO supplier is expected to reap windfall profit,” said the analyst. Higher income from lube refinery provides space to the company to distribute higher dividend as there is no cap on dividend distribution from the profits of that segment, while the fuel refinery’s earnings are subject to a maximum payout limit of 50 per cent of the paid-up capital.