The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Maintains Entity Ratings of National Refinery Limited

Rating Type Entity
(27-May-22 )
(28-May-21 )
Action Maintain Maintain
Long Term AA+ AA+
Short Term A1+ A1+
Outlook Negative Negative
Rating Watch - -

The ratings reflect National Refinery Limited's (NRL) association with the integrated oil group – Attock Group (AG). The strength of the Company is its base oil business wherein NRL possesses a notable share in meeting the economy's demand for lubricants. Global recovery has been witnessed in the oil demand leading to higher volumetric sales coupled with higher pricing of petroleum products, leading to better GRMs and profitability margins for the local refinery sector. However, uncertainty still prevails with respect to oil supplies as a result of Russia-Ukraine conflict which could further impact the pricing dynamics. 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. Throughput of fuel refinery operations declined to 61% as compared to 67% in the corresponding period mainly due to planned turnaround of fuel refinery however, this decrease is offset by the lube segment where throughput improved to 86% as compared to 79% during same period last year. During the period ended March 31, 2022, the Company’s profitability improved after reporting a net profit of PKR 3,673mln (9MFY21: PKR 892mln). Sales have improved majorly on the back of increase in international oil prices and better volumes especially in lube segments. Upward revision in policy rate and decline in Pak Rupee against US Dollar during the period impacted the NRL’s profitability. The working capital requirement of the Company have also increased considerably due to sharp increase in crude oil prices.
The local refinery sector is going through some significant challenges pertaining to up-gradation of the refining complex. The company along with other refineries has been in continuous discussion with the government to finalize a refinery policy that would address the upgradation concerns along with certain fiscal and tariff concessions to the refining sector. However, no final approval has been granted by the government which is expected to get delayed further amid current political instability in the country. The ratings are dependent upon NRL's ability to effectively shield its business profile from external vulnerabilities. Revived performance indicators and prudent financial matrix are imperative to uphold the ratings. Further outlook of the Company is expected to improve as the company is projected to recover from the losses incurred previously during the lockdown period on account of sustainability in international oil prices and available demand drivers in the market. Further, the approval of proposed Refining Policy, which will enhance Refineries’ ability to upgrade remains imperative for the ratings.

About the Entity
NRL, incorporated in 1963, is listed on the Pakistan Stock Exchange, since 1964. It is engaged in the manufacturing, production, and sale of a large range of petroleum products. The refinery complex of the company comprises three refineries, consisting 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 (~18%). The general public holds ~16% of the shareholding. Mr. Shuaib A. Malik is the Chairman of the Board of Directors. He has been associated with AG for about 45 years. The CEO, Mr. Jamil A. Khan, has been associated with the company since 2005 and has been serving on the current position since 2018.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.