Attock Refinery Benefits from Pakistan’s Economic Challenges

By Newztodays Team

Attock Refinery Benefits from Pakistan’s Economic Challenges. Here is how Pakistan’s economic challenges, including monetary tightening, Pak rupee devaluation, and import restrictions, have unexpectedly benefited the refinery sector in Pakistan, with a particular focus on Attock Refinery (ATRL).

This report explores how ATRL has capitalized on these economic conditions, citing its substantial cash reserves, exchange rate benefits, and improved refining margins.

Strong Cash Position

ATRL boasts a significant cash and cash equivalent balance of Rs29 billion, primarily invested in 3-month T-bills and banks.

This prudent financial strategy has not only provided attractive returns but also served as a cushion for its volatile refining business. Over the past five years, the company’s cash reserves have grown by an impressive 3.7 times, largely attributed to record Gross Refinery Margin (GRM) and rupee devaluation.

In FY23 alone, the interest income generated from these investments amounted to Rs7.1 billion, contributing nearly 15% to the total EPS of Rs274.

PKR Devaluation Benefits

Despite incurring an exchange loss of Rs2.2 billion in FY23, primarily due to imported catalysts used in refining, ATRL fared better than other local refineries in managing exchange rate fluctuations.

ATRL’s reliance on local crude minimized the risk of exchange losses, contributing to its robust financial performance.

The 28% devaluation of the Pak rupee during FY23 translated into earnings gains of approximately Rs10-11 billion, propelling ATRL’s net profit to Rs29.2 billion (EPS Rs274), a substantial increase from Rs9.9 billion (EPS Rs93) in FY22.

Record Gross Refinery Margin (GRM)

In FY23, ATRL achieved an impressive average GRM of US$18.4 per barrel, representing a remarkable 38% YoY increase.

This remarkable achievement meant that ATRL earned an average of US$18.4 per barrel for each barrel of crude refined, before accounting for processing and other associated costs.

ATRL’s efficient plant maintenance has kept refining costs consistently within the range of US$5.5-6 per barrel over the past few years, further bolstering its profitability.

Attractive Valuation

While ATRL is not currently under active research coverage, it is trading at an attractive FY24 PE ratio of 0.9x, compared to the energy sector’s PE of 2.0x.

This suggests significant upside potential, estimated at 122%. Based on a base-case scenario for FY24 with an average GRM of US$14 per barrel, current exchange rates, and near-term crude oil prices of US$80 per barrel, ATRL’s projected EPS for FY24 stands at Rs334, Sherman Research said in a report.

In a best-case scenario where GRM remains at US$18 per barrel (similar to FY23), FY24 EPS could reach approximately Rs455.

In a worst-case scenario, assuming ATRL’s GRM reverts to its historical average of US$8 per barrel, FY24 EPS might fall to around Rs81.5. OGDCL Announces Major Gas Discovery in Mari East Block Punjab

However, this scenario appears unlikely, given ATRL’s 1QFY24 estimated GRMs have already remained around US$18 per barrel, with expected earnings around Rs125.

Final Words

Despite Pakistan’s economic challenges, Attock Refinery (ATRL) has successfully navigated these conditions to its advantage, thanks to its prudent financial management, local crude reliance, and exceptional refining margins.

With a promising outlook and attractive valuation, ATRL appears to be positioned for continued growth in the coming years,” Sherman Research adds.