National Refinery Limited (NRL) FY09 Review

NPAT dwindled by 74%YoY
On August 19, 2009, the company announced its result for FY09 ending to June 30, 2009. The company faced a sharp decline in profitability for FY09. NPAT for the year shrank by 74% to PKR 1.53 Billion from PKR 6.01 Billion compare to last year whereas the company's earnings per share were at 5-year low in FY09; it reported 74% lower to PKR 19.17 against PKR 75.10 in the same period a year back. The Sales were dropped by 15% to PKR 109.58 Billion compare to the same period last year which also returned in the shape of decline in Cost of Sales by 12%YoY to PKR 104.31 Billion compare to the same period last year. The Gross Profit Margin of the company lowered by 42%YoY to 4.8% in FY09.
Furthermore, the company paid PKR 30.533 Billion on account of trade discount, taxes, duties and levies in FY09 against PKR 16.847 billion in the same account a year back.
Global Oil Prices and PKR-USD Parity lowered the profitability
This drastic decrease in the performance of the company was mainly in result to the global plunge in oil prices of 39% followed by the decrease in PKR-USD parity by 23% during the period.
The average net realized price for the crude oil sold was USD 55.53/bbl, compared to USD 71.29/bbl during the last year whereas the average PKR-USD Parity was PKR 78.56 in FY09 compare to PKR 62.54 during the same period last year.
Lubricants served as the saving grace
The company's petroleum business experienced a throughout cutback in profit during FY09 chiefly in return to massive exchange losses as PKR-USD Parity depreciated by 23% during the period, and in return to the high inventory losses to 39% drop in global crude oil prices.
In an opposite manner, the company’s lubricant business supplied as the saving elegance for its FY09 net results, which would have been highlighted in red otherwise. The company’s margins in lubricant business were outshine in FY09 as the principal cost of production for lubricants which is furnace oil had a dropping trend along with the decrease in crude oil prices. The company has a strong presence in lubricants across the country which allowed benefiting by charging the premium in the market and offset the impact of inventory loss by fall in oil prices.
On the other hand, the average ‘gross refinery margin’ (GRM) were 60%YoY lower in comparison to the GRM of USD 9/bbl during the same period last year.
Dividend payout ratio to a six-year high of 65%
In the face of the gloomy EPS performance in FY09 compare to the same period last year, NRL did not let down its shareholders to get the lower Dividend for the year as the company has strong cash reserves which enabled it to announce the dividend of PKR 12.5/share for FY09.
This takes the company’s dividend payout ratio to a six-year high of 65%, which stayed close to 20% - 30% in the past. This, however, further asserts the view on refineries' reluctance to invest in Euro-II implementation.
Looking ForwardThere are optimistic signs for the company as the global crude oil prices in the market are expected to not to decline sharply and remain in a range of USD 65-70/bbl during 1HCY10. Therefore, on a comfort zone if NRL manages to keep its fuel business margins at 0%, the lubricant business would still be good enough for NRL to post better profits for the next period as lubricant business hedge the impact of crude oil prices on petroleum business. I include the NRL scrip in the buying list.