OGDC and PPL Witness Recovery Amid Gas Sector Reforms

Staff Report

OGDC and PPL are experiencing positive trends in their recoveries from customers, marking a significant turnaround in their financial performances.

Recalling recent events, the Government of Pakistan, as part of the IMF program, implemented substantial increases in gas prices, rising by approximately 75% in November 2023 and a further 20% in February 2024.

These adjustments aimed to address the mounting circular debt crisis in the gas sector, which had soared to around Rs 3 trillion by January 2024.

Among the sectors most impacted were the oil and gas exploration companies, including OGDC and PPL.

However, following the adjustments in gas prices, there has been a notable improvement in the cash flows of these companies.

Examining the financials for the quarter ending March 2024, we observe a significant decrease in the receivables to net sales ratio for both OGDC and PPL, dropping to 21% and 20%, respectively, for 3QFY24 and 9MFY24, compared to an average of 29% over the past six years (FY18–23).

This decline indicates a partial recovery in receivables for the exploration and production companies.

For OGDC, the change in receivables to sales ratio averaged 27% from FY18–23, with a range of 21%–30%.

However, during 3QFY24/9MFY24, this ratio has decreased to 20%/14%, indicating a notable improvement in collection efficiency.

Analysts anticipate that the ongoing adjustments in gas tariffs under the IMF program will further enhance recoveries for Sui companies, consequently benefiting the E&P sector and potentially leading to more consistent dividend announcements.

Our outlook remains bullish on OGDC, with a forecasted FY25F PE of 2.6x,” Topline said.

Similarly, PPL has witnessed a remarkable improvement in its collection ratio, reaching 74% as reported in 3QFY24.

Over the past six years, PPL’s receivables from Sui Companies, considered a true reflection of the gas sector circular debt, averaged at 35%, with fluctuations ranging from 8% to 52% (reaching 52% in FY23).

This suggests that approximately 35% of net sales remained outstanding during this period.

However, in 3QFY24/9MFY24, this ratio has notably decreased to 22%/30%, marking a significant improvement from the FY23 ratio of 52%.

It’s worth noting that PPL’s 3QFY24 report also highlights this improvement, citing a collection ratio from customers of 74% compared to 49% in the corresponding period.

Our stance on PPL remains optimistic, with a projected FY25F PE of 2.6x,” Topline said in a report.