Pakistan’s total POL off-take surged by 18.5% YoY to 19.4mn MT during FY21. The increase during the fiscal year was largely a product of 1) higher GDP growth aided by both fiscal and monetary stimuli, and 2) FY20’s low base on account of the economic lockdown instigated by the COVID-19 pandemic. Overall, the growth was witnessed in all 3 major product categories. During Jun21, OMC off-take rose by 20% YoY to 1.93mn MT with bulk of the increase being witnessed in FO sales.
MS sales pick up by 12% YoY/6% MoM: Pakistan’s total MS off-take rose by 12% YoY to 8,236kT during FY21 largely supported by 1) a sharp increase in vehicle sales, 2) an increase in inter-city travels and 3) easing restrictions paving way for a rise in economic activity. Onwards, we project MS sales to remain elevated in the coming months led by a likely re-opening of recreational facilities and educational institutions amidst a sharp decline in COVID-19 infection rates. PSO emerged as the market leader during FY21 with a share of 42%.
HSD sales grow by 17% YoY/2% MoM: Total HSD sales grew by 17% YoY to 7,696kT during FY21 aided by 1) a sharp increase in economic activity with GDP growth projected at 3.94% during FY21 and 2) action against smuggled petroleum with over 2,000 illegal pumps sealed. Going forward, we foresee HSD sales to find support from rising economic activity led by a shift in the government’s focus towards growth. PSO emerged as the market leader during FY21 with a share of 47%.
FO sales surge by 54% YoY/102% MoM: FO sales surged by 54% YoY to 2,986kT during FY21 because of the prevalent gas shortage compelling both the private and public sector to increase their reliance on FO-based electricity generation. On a monthly basis, FO sales shot up by 102% MoM to 339kT likely on account of a sharp increase in electricity demand during the summer months and because of a resurgence in domestic activity amid gas supply curtailments. For the longer horizon, we foresee FO sales to taper off as newer coal-based power plants come online and RLNG supply increases post the addition of newer re-gasification capacities. PSO emerged as the market leader during FY21 with a share of 51%,
PSO remains our top pick in the sector: PSO remains our top pick in the sector with a Dec21 TP of PKR 291/sh, offering an upside of 29%. Our preference for the stock stems from favorable shifts in industry dynamics including 1) prioritizing of circular debt control, 2) expediting action against the supply of smuggled petroleum, 3) changing the pricing mechanism to insulate the company against oil price volatility, and 4) a fundamental shift towards sustainable economic growth aiding long term sales prospects. The stock is presently trading at an FY21 PE of 4.6x.