Dear Clients,

According to data released by OCAC, total OMC sales increased by 57% YoY to 1,672kT during Apr’21 against 1,068kT recorded during Apr’20. The increase was largely on account of Apr’20’s low-base because of peak lockdown restrictions implemented during the month. On a monthly basis, OMC off-take picked up by 13% MoM supported by a sharp increase in HSD sales.

MS off-take increases by 13% YoY during 10MFY21

Total MS off-take increased by 13% YoY to 6,729kT during 10MFY21 largely supported by higher vehicle sales, comparatively relaxed COVID-19 restrictions, and increased inter-city transport. On a monthly basis, however, MS off-take fell by 2% MoM to 671kT largely because of re-implementation of stricter restrictions, including closure of educational institutions, amidst the 3rd COVID-19 wave. Onwards, we believe a potential for stricter lockdown restrictions, including a ban on inter-city travel, in light of rising infection rates will likely keep the commodity’s off-take growth capped in the coming months. PSO emerged as the market leader in MS with a share of 45%.

HSD off-take increases by 20% YoY during 10MFY21

Total HSD sales picked up by 20% YoY to 6,159kT during 10MFY21 aided by: 1) recovering economic activity evidenced by high LSM growth (+7.5% YoY), and 2) action against smuggled petroleum with over 2,000 illegal pumps being sealed. On a monthly basis, HSD sales shot up by 47% MoM to 786kT because of the wheat harvest season. Onwards, we project HSD sales to find support from the government’s pro-growth stance and the consequent increase in overall economic activity. Our growth thesis, however, may be temporarily derailed incase the federal government opts for imposing stricter economic restrictions if infection rates surge past a certain threshold. PSO emerged as the market leader in the commodity with a share of 48% during Apr’21.

FO off-take increases by 48% YoY during 10MFY21

FO sales picked up by 48% YoY to 2,479kT during 10MFY21 because of increased demand from FO-based power plants. The prevalent gas shortage in tandem with FO’s comparatively lower price (vs. last year) increased demand for the commodity from both the national power plants and private-sector captive plants. On a monthly basis, FO sales dipped by 36% MoM to 176kT during Apr’21 as domestic FO prices rose in tandem with global oil prices and the national gas supply likely normalized once the warmer weather commenced. Onwards, the commencement of several coal-based power projects will likely limit the overall demand for FO. PSO emerged as the market leader in the commodity with a share of 43% during Mar21.

PSO remains our top-pick for the sector

Fundamental shift in the OMC industry’s dynamics reinforces our positive stance on PSO. The company is expected to benefit from: 1) rejuvenated focus on curbing circular debt proliferation, 2) recovering economic activity boding well for off-take growth outlook, 3) lower interest rates keeping financial charges under control, and 4) a change in the pricing mechanism to insulate the company against oil price and exchange rate volatility. We reiterate our BUY stance with a price target of PKR 291/sh (upside: 36%).

Regards,
KASB Research