Analyst
Hamza Ghalib
hamza.ghalib@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of National Refinery Limited
Rating Type | Entity | |
Current (31-May-19 ) |
Previous (07-Dec-18 ) |
|
Action | Maintain | Maintain |
Long Term | AA+ | AA+ |
Short Term | A1+ | A1+ |
Outlook | Stable | Stable |
Rating Watch | - | - |
The rating incorporates NRL’s association with only integrated oil group – Attock Group (AG). The strength of the company is its base oil business in which the company is supplying a predominant portion of the country’s total demand for lubes and lubricants in Pakistan. Generally, it has been observed that Gross Refining Margins (GRMs) are on a higher scale in the lube business when compared to PoL products. The financial strength of the company is also reflected in its low leveraged capital structure. It mostly comprises short-term borrowings related to the working capital needs of the company. The company 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 make headway in gaining the market share in high margin products. The volatility in the oil prices coupled with deep depreciation in Pak Rupee against dollar led to negative profitability. Gross Refining Margins (GRMs) were also negatively impacted because of the reverse delta between crude oil price and petroleum products unprecedentedly MS. The recent trend is reflecting a positive relationship, which will augur well for the company.
The ratings are dependent upon the 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. A prolonged downturn in gross profit thereby translating in significantly lower cash flows would impact the ratings.
About
the Entity
National Refinery Limited (NRL) is listed on the Pakistan Stock Exchange. NRL 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 refineries and one fuel refinery. With a refining capacity of ~2.8mln 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%), Public sector companies (~5.11%) and NIT & ICP (~2.98%). 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 eight-member board of directors includes five representatives of the AG - including two members of the Pharaon family. The other two members are independent directors including one nominee representing IDB. Mr. Shuaib A. Malik, recently appointed as a 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, is a veteran of the oil business. A fair number of board members have related experience, which is positive. The CEO, Mr. Jamil A. Khan, has been associated with the company since 2005, served as deputy managing director since 2009. He has been elevated as the chief executive officer effective November 03, 2018. He is also serving on the board of director of ARL since January 2017. He is supported by an experienced management team that has extensive experience in the refinery sector.