PACRA Revises Entity Ratings of National Refinery Limited

The ratings reflect National Refinery Limited's (NRL) stressed profitability owing to decline in product margins followed by challenges emanating from global drop in crude oil prices and reduced sales due to lower demand/smuggled products, causing the Company to incur inventory losses. NRL's core business remains exposed to the vicissitudes in international crude and petroleum products’ (POL) prices, which in turn, steer the gross refining margins (GRMs) of the Company. Furthermore, the consumption of refined products has declined in the local market resulting in lower offtake which has hampered the throughput of the refinery. Although there was a slight recovery in product margins during the third quarter but as a result of escalating operating cost particularly driven by high utility tariffs resulted in cumulative gross loss of PKR 3,168mln during the nine month period ended March 2024. Moreover, the Company’s reliance on Short term Borrowings has increased over the period to manage its working capital cycle. As a result, higher finance cost further impacted the Company’s performance resulting in Net loss of PKR 7,523mln during the period. With declining furnace oil consumption by the power sector and lower offtake of HSD due to infiltration of smuggled products in the economy, the operational utilization of the refinery remained low. Lube segment also reported lower profitability of PKR 292mln during 9MFY24 (9MFY23: 3,553mln) as a result of turnaround during the second quarter leading to lower sale volumes. Going forward, the demand for Lube is expected to pick up and the management is of view that this will have a positive impact on the result of the lube segment. The government has finalized the Refinery Policy for upgradation of existing refineries (as amended in Feb'24). The upgrade agreements will be finalized and signed by the refineries in the coming months which would provide fiscal incentives. Going forward, the upgradation plans will further increase the Company’s leveraging currently standing at 60.7%.
The assigned ratings reflect the strategic importance of NRL to the economy which is also evident from the presence of Attock group having proven history of operating in the sector. Furthermore, the rating takes comforts from the fact that the refinery policy will provide support for the upgrade of the fuel refinery which would in turn contribute towards sustainability of the operations.

About the Entity
NRL is engaged in the manufacturing, production, and sale of a large range of petroleum products. The Company was incorporated in 1963. It consists of two lube and one fuel refinery. With the designed capacity of ~23.1mln barrels per annum, it is the third largest refinery in the country. Attock Group (AG) through its group companies retains the majority stake (~51%) in NRL. Other major shareholders include; Islamic Development Bank (~15%), Institutions collectively include Banks, Insurance Companies, NBFIs, Joint Stock Companies, Modarabas, Mutual Funds and Trusts etc. holds (~16%). The general public holds ~18% of the shareholding. Mr. Shuaib A. Malik is the Chairman of the Board of Directors and has been associated with AG for above 40 years. Mr. Jamil A. Khan, has a long association with the Company and is serving as CEO since 2018.