PACRA Maintains Entity Ratings of National Refinery Limited

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. NRL's core business remains exposed to the vicissitudes in international crude oil and products prices, which in turn, steer the gross refining margins (GRMs) of the company. During FY19, volatile oil prices coupled with a sharp rupee depreciation emerged as one of the key challenges to NRL and the Refinery Sector as a whole. Resultantly, overall refinery margins remained under pressure hampering the profitability of the sector. Another major issue encountered was the declining demand of Furnace Oil (FO), as the Government took steps to shift power sector needs to alternate fuels like LNG and coal. The recent trend, however, is reflecting a revival, as is evident from a stabler rupee and lower cost of FO, which serves as feed for the lubes domain; this is expected to augur well for the lube segment. The mixed trend of positive and negative delta of PMG and crude oil, also played a role, has now reversed. During FY19, NRL's financial risk profile reflected on a pressured impact as slow offtakes resulted in piled up inventories eventually necessitating funding working capital needs from external sources. Capital structure, therefore, transformed into a leveraged one with borrowings majorly comprising short-term fundings. Historically, the company has predominantly financed its upgradation projects, including desulphurization unit and ISOM, through internally generated funds; capitalized in Jun’17 and Oct’17, respectively. This has enabled the company to advocate its financial strength and maintain its market share in high margin products.
The ratings are dependent on 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. Meanwhile, continuity of deemed duty on diesel is also crucial.

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 ~21.5mln barrels per year, it is the third largest refinery in the country. Attock Group (AG) through its group companies retains the majority stakes of (~51%) in NRL. Other major shareholders include; Islamic Development Bank (~15%), insurance companies (~6%) and NIT & ICP (~3%). The general public holds ~16% of the shareholding. 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 engaging in manufacturing and trading of cement, information technology, etc.
The company’s eight-member board of directors includes five representatives of the AG - including two members of the Pharaon family and the chief executive. Mr. Shuaib A. Malik, was appointed as chairman of the board, after serving several years as deputy chairman & chief executive officer. He has been associated with the Attock Group for ~40 years, and is a veteran of the oil business. The CEO, Mr. Jamil A. Khan, has been associated with the company since 2005, serving as deputy managing director since 2009. He has been serving as the chief executive officer since November'18. He is supported by an experienced management team that has considerable experience in the refinery sector.