PACRA Maintain Entity Ratings of National Refinery Limited - Outlook Developing

The ratings reflect National Refinery Limited’s (NRL) strategic importance in Pakistan’s energy supply chain, underpinned by its integral industry role and the backing of a strong sponsor – Attock Group. The NRL’s core operations remain inherently exposed to global petroleum product price volatility, which significantly impacts its GRMs and overall profitability. Following a relatively stable start to FY24, GRMs declined sharply post-Q1 due to global crude price volatility, softening product premiums, and a weak demand-supply environment. These pressures were compounded by rising operational costs, inventory losses, and higher utility tariffs and interest rates. As a result, the NRL operated at reduced throughput levels and reported a gross loss of PKR 7,767mln in FY24 (FY23 gross profit of PKR 13,196mln). The pressure persisted into FY25, with Q1 being the most adversely affected. However, management’s responsive actions—particularly the strategic shift in crude procurement to Arab Extra Light—began to show improved results in the Q2 and Q3 of FY25. This supported a gradual recovery in GRMs. Nonetheless, cumulative margins for 9MFY25 remained subdued due to the significant losses incurred in Q1. NRL reported a gross loss of PKR 7,941mln as of 9MFY25 (3QFY25: PKR 192mln loss) and a net loss of PKR 14,490mln (3QFY25: PKR 2,757mln loss). The fuel segment remained under significant pressure, with its net loss widening to PKR 15,058mln in 9MFY25 (9MFY24: PKR 7,815mln). The shift in crude mix is expected to enhance capacity utilization and improve production of high-value products like MS and HSD, benefiting NRL’s future performance. The lube segment offered some relief in 9MFY25 with a net profit of PKR 569mln. Management plans to enhance this segment through pricing strategies aimed at improving efficiency. NRL’s reliance on working capital financing increased amidst narrowing margins and operational losses. To ease pressure on its financial profile, the Company converted PKR 15,000bln of short-term loans into a 3-year term finance facility with a one-year grace period. This restructuring provided some financial breathing space and helped improve the mismatch in NRL’s current ratio. As of 9MFY25, equity stood at PKR 4,726mln (FY24: PKR 19,216mln), and leverage increased to 92.7%. Cash flows remained under pressure, with Interest coverage dropped to a negative (2.3x), underscoring increased financial and operational risks. Nevertheless, management is actively focused on addressing these challenges through strategic measures aimed at improving the Company’s financial position.
The developing outlook reflects management’s strategies to address the deterioration in NRL’s financial risk profile. The benefits of these efforts have already started to materialize in the 3Q and are expected to continue in the upcoming periods. In addition to the crude mix change, management is actively negotiating with other crude oil suppliers to better align supply timings and reduce inventory losses. Furthermore, operational efficiency measures, product diversification, and cost control initiatives are being implemented to stabilize performance and strengthen the Company’s financial position.

About the Entity
NRL is the third-largest refinery in Pakistan with a designed capacity of ~23.1MBPA, comprising two lube and one fuel refinery. It is primarily owned by Attock Group (~51.00%), with other key shareholders including the Islamic Development Bank (~15.01%), the general public (~19.63%), and Others (~14.36%). Mr. Shuaib A. Malik, a veteran with over 40 years in Attock Group, serves as Chairman of the Board, while Mr. Asad Hassan appointed as CEO in December 2024.