The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA maintains Entity Ratings of Pakistan Refinery Limited.

Rating Type Entity
(09-Jun-23 )
(09-Jun-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes Yes

The ratings of Pakistan Refinery Limited (the Company) draws comfort not only from its association with the state-owned petroleum corporation; Pakistan State Oil (PSO) but also from the fact that a considerable portion of country’s petroleum demand is met through the Company. The local refinery sector took a toll owing to deteriorating economic condition of the country. The depreciation of PKR against USD resulted in unpredictable losses to the refineries based on imported crude oil. PRL'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. Stability in prices of crude oil was witnessed during the latest quarter resulted in steady product margins, consequently, the Company reported Gross Profit of PKR 4,464mln for third quarter FY23 (3QFY22: PKR 7,156mln) hence, providing support to the financial performance for the period ended nine months FY23. The cumulative Gross Profit for the nine months FY23 reported to PKR 6,174mln (9MFY22: PKR 8,605mln). The net profitability of the Company was impacted due to currency devaluation along with soaring interest rates. The Company incurred finance cost of PKR 3,177mln during 9MFY23. Therefore, during nine months period the Company reported Net Profit of PKR 2,531mln (9MFY22: PKR 5,415mln). With increase in interest rates steep rupee depreciation along with slow offtake as a result of falling demand, the Company reliance on working capital financing has increased significantly but is expected to remain in limits by the end of the fiscal year. The local refinery sector is going through some significant challenges pertaining to up-gradation of the refining complex. 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 reflective of the resilient business profile of Pakistan Refinery Limited (PRL) emanating from its sustainable operational history and its strategic importance in the domestic context. The ratings are dependent upon PRL'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 financial risk profile 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 and better crude mix. Further, the approval of proposed Refining Policy, which will enhance Refineries’ ability to upgrade remains imperative for the ratings

About the Entity
PRL is a public company incorporated in Pakistan in 1960. The refinery is situated at Korangi. PRL, having refinery capacity of 2.1mln tons per annum, came fully online in Oct’62. PRL, a hydro-skimming refinery, is designed to process various imported and local crude oil to meet the strategic and domestic fuel requirements of the country. The company has an eleven-member Board of Directors (including the CEO). Board comprises six non executive, four independent and one executive board member. Mr. Zahid Mir, the Managing Director and CEO of PRL, is a petroleum engineer by profession and also holds a Master’s degree in Business Administration. He is associated with PRL since 2019 and having a cumulative experience of over three decades. His strategic guidance along with support of well experienced and qualified team, bodes well with PRL's growth.

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.