The Pakistan Credit Rating Agency Limited
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Hashim Yazdani

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PACRA Updates Entity Ratings of National Refinery Limited | Rating Watch

Rating Type Entity
(26-May-23 )
(27-May-22 )
Action Maintain Maintain
Long Term AA+ AA+
Short Term A1+ A1+
Outlook Negative Negative
Rating Watch Yes -

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. The local refinery sector took a toll owing to deteriorating economic conditions of the country. The depreciation of PKR against USD resulted in unpredictable exchange losses to the refineries based on imported crude oil. 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 57% as compared to 61% in the corresponding period. However, the lube segment showed sustained performance with throughput recorded at 85% as compared to 86% during same period last year. Stability in prices of crude oil was witnessed in the latest quarter resulting in steady product margins. Consequently, the Company reported Gross Profit of PKR 7,848mln for 3rd quarter FY23 (3rd quarter FY22: 3,804mln) providing support to the financial performance for the period ended nine-months FY 2023. The cumulative Gross Profit for the nine-month FY23 reported to PKR 7,950mln (9MFY22: 8,850mln). However, profit before tax of the Company was wiped off due to the impact of currency devaluation along with soaring interest rates. The Company incurred an exchange loss of PKR 6,159mln during the current quarter. Therefore, during nine months period the Company reported a loss from fuel segment of PKR 9,577mln which was partially offset by profit from lube segment of PKR 3,553mln. With increase in interest rates along with slow offtake as a result of falling demand, the Company’s reliance on working capital financing has increased significantly but is expected to remain in limits by the end of the fiscal year. The government has approved the Pakistan Oil Refining policy for New/Greenfield refineries while negotiations on policy for Current/Brownfield refineries is ongoing. The policy remains crucial for the refineries to enhance their capacities and upgrade their plants in order to meet better product compositions and standards.
The Rating Watch reflects various challenges, including decreased demand, high fuel prices, Letter of Credit (LC) opening issues, limited credit facilities, and high policy rates that have significantly impacted oil refiners. Consequently, some are considering temporary shutdowns or significant reductions in production. The Company is working closely with other industry members and concerned authorities to mitigate the challenges however nothing material has been seen in this respect.

About the Entity
NRL is engaged in the manufacturing, production, and sale of a large range of petroleum products since 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.

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.