PACRA Maintain Entity Ratings of National Refinery Limited

The rating incorporates NRL’s association with only integrated oil group – Attock Group (AG). Key character of AG is low leveraged capital structure with sound cash flow generation ability; ably replicated to NRL too. The company predominantly financed its upgradation projects, including desulphurization unit and ISOM, through internally generated funds; completed FY17 and FY18 respectively. This translated into accelerated growth in topline FY18. Although GRMs remains in comfortable range throughout the period, higher operation cost from new units dented the gross profit. Management is pushing the government for upward revision of deemed duty (from 7.5% to 9%) to address the issue; actual outcome remains to be seen. Nevertheless, size of the free cash flows from operations (FCFO) remains robust. This cushions financial risk profile, enabling the company to undertake further expansion planned in lube segment, although previous cash reserves have already been exhausted. Very low leveraging (end-Mar18: 1.2%) allows ample room to the company to raise debt.

The ratings are dependent upon sustained market position of the company, herein continuous growth in revenue is important. Prudent management of financial matrix while keeping optimal capital structure would remain critical. Prolonged downturn in gross profit thereby translating in significantly lower cash flows would impact the ratings.

About the Entity
With a refining capacity of 2.831mln tpa, NRL, the third largest refinery in the country was incorporated in 1963 and privatized in 2005. Attock Group (AG) through its group companies retains the majority stakes of (51%) in NRL. Other major shareholders include; Islamic development Bank (15%), State life Insurance Corporation (4.49%) and NIT funds (2.94%). Attock Group (AG), is a fully integrated group covering all segments of oil and gas industry from exploration, production and refining to marketing of a wide range of petroleum products besides also engaged in manufacturing and trading of cement, information technology, etc.
The Company’s seven member Board of Directors includes four representatives of the AG – including two members of the Pharaon family. The remaining two member are independent directors including one nominee representing IDB and one nominee of NIT. The CEO, Mr. Shuaib A. Malik, is a veteran of oil business and is supported by an experienced management team that has extensive experience in both the upstream and downstream segments of the oil business.