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PSO profit may depict 40 percent growth in fiscal year 2005

KARACHI (July 28 2005): Pakistan State Oil Limited (PSO) is expected to report a 40 percent growth in its earnings for the year ended June 30 because of higher sales of black and white oil and higher crude oil prices.

According to an analyst from Investcapital Securities, the net profit of the PSO would range between Rs 5.88 billion and Rs 5.92 billion (EPS Rs 34.3-Rs 34.5) against previous year's EPS of Rs 24.56 or Rs 4.212 billion.

For 9MFY05, dividends of Rs 11 and Rs 5/share have already been distributed. “We expect the final dividend to be Rs 9-Rs 10 per share”, analyst said.

Such a performance is expected through a 31 percent jump in sales. On the volume front, PSO registered around 14 percent growth in oil sales. Contrary to a 47 percent decline in fuel oil sales during FY04, PSO recorded 32 percent increase in fuel oil sales in FY05, and HSD sales retained their pace with a 5 percent increase, whereas Mogas sales volume surged by 8 percent.

In line with the global markets, PSO product prices also went up by a thick quantum. Furnace oil (completely deregulated product) won the race with a 45 percent YoY jump. The government subsidy capped the escalation in diesel and petrol prices to 19 percent and 23 percent, respectively. Consequently, the current pricing formula, which fixes OMCs margins at 3.5 percent of the final sales price, PSO also enjoyed extraordinary profits during the year – 9MFY05 earnings were up 42 percent.

Abdul Rasheed, research analyst from Jahangir Siddiqui Capital Market, said because of strong growth in demand, the consumption of both white and black oil witnessed significant growth on the back of increasing economic activity in the country.

Despite the government policy to subsidise consumers, average retail POL prices remained higher by 16-22 percent during the last fiscal year. This would directly benefit OMCs profitability as they charge a fixed 3.5 percent of retail price as margin.

With an inventory holding period of 15-25 days, the PSO and the Shell also booked significant inventory gains which have contributed 15-20 percent of these companies' gross profit, as per our calculation, during the year.

The PSO board will meet on June 28 to announce its FY05 annual results where the company is likely to post 40 percent growth in its profitability, expected at Rs 5.9 billion for the whole year. The EPS during the year is expected at Rs 34.5 with final cash dividend of Rs 8.5-Rs 9.5.

PSO has already distributed Rs 16/share through two interim cash dividends. In FY04, PSO paid final cash dividend of Rs 7.5 with total annual dividend of Rs 17.5.

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