The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Maintains Entity Ratings of National Refinery Limited

Rating Type Entity
Action Maintain Maintain
Long Term AA+ AA+
Short Term A1+ A1+
Outlook Negative Negative
Rating Watch - -

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 is going through some significant challenges for an extended period, majorly pertaining to up-gradation of the refining complexes. The global oil market was further struck by widespread uncertainty due to outbreak of COVID-19 pandemic. This had severely weakened the International Oil dynamics, creating a manifold impact on the domestic economy as well as the local refinery industry. In order to cater the issues, Working Group constituted by the Government, comprising of the Government officials and representative of refineries, had finalised a draft Refining Policy which envisages certain fiscal and tariff concessions to the refining sector which are likely to improve financial condition of the refineries enabling up-gradation of plants. However the final approval of the Refinery Policy and its actual financial impact is yet to be seen. 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 head on a stabilization trajectory and demand takes a gradual uptick on account of eased 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. During the nine months period ended March 31, 2021, the Company’s risk profile moderately improved with bottom-line profits. Sales shows growth majorly on the back of increase in sales price although volumes remained steady. The Company’s lube segment report profit of PKR 2,666mln in 9MFY21. Meanwhile the Company’s utilization of FO as feed for the lubes domain is considered positive.
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 ~23.1mln 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%), Institutions collectively include Banks, Insurance Companies, NBFIs, Joint Stock Companies, Modarabas, Mutual Funds and Trusts etc. holds (~16.3%). The general public holds ~17.7% 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. 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.

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.