PACRA Maintains Entity Ratings of National Refinery Limited | Negative Outlook

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 and petroleum products’ (POL) prices, which in turn, steer the gross refining margins (GRMs) of the company. The country’s refinery sector has been going through significant challenges for an extended period, majorly pertaining to upgradation of the refining complexes and management of furnace oil (FO) produce. The FO offtake has further obstacles on the export avenue as IMO 2020 came into play, since Jan’20. Depressed crude and POL prices in the International market coupled with the underlying issues of the sector had hampered the performance indicators of the industry players in FY19. Adding to the woes, the global oil market was further struck by widespread uncertainty due to the outbreak of the COVID-19 pandemic. This severely weakened the International Oil dynamics, creating a manifold impact on the domestic economy as well as the local refinery industry. Inventory accumulation, NRV adjustments and POL demand slide pressurized the GRMs and profitability margins of the sector players drastically. Nonetheless, the concerns are expected to reverse, going forward, as global prices move towards a stabilized trajectory and demand takes a gradual uptick, on account of ease in lockdown. Having said this, uncertainty still prevails as to the timeliness of complete restoration and recovery of losses that the Industry has absorbed, under the current situation. Likewise, NRL’s financial risk profile exhibited a tightened position with persistent bottomline losses, increased short term funding to cater working capital needs and reduced equity. The outlook of the ratings reflects on the same and captures the need to regain improved results in due course of time. Meanwhile, the company’s utilization of FO as feed for the lubes domain is considered positive in tackling the FO offtake challenge.
The ratings are dependent upon 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.

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 stake (~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, power generation, information technology, etc. The company’s eight-member board of directors includes five representatives of AG (including two members of the Pharaon family). Mr. Shuaib A. Malik, was appointed as chairman of the board, after serving as deputy chairman & chief executive officer. He has been associated with AG for ~40 years. The CEO, Mr. Jamil A. Khan, has been associated with the company since 2005. 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.