Karachi, October 28, 2021 (PPI-OT): BYCO – Upgrade will yield ROE of 20% without 10% duty protection
Byco Petroleum Pakistan Limited (BYCO) announced earnings of PKR 3.6bn (EPS: PKR 0.65) in FY21 against a loss of PKR 2.43bn (LPS: PKR 0.46) in the previous year. The company was able to post earnings as MS and HSD spreads improved to US$4.5 to 5.5 per barrel upon strong recovery in economic activity. As far as FO is concerned, FY21 witnessed increase in FO demand owing to mild gas shortage.
Key takeaways from the investor briefing
BYCO started procuring more Naphtha from the refinery which allowed it to produce additional MS to be able to add more to bottomline. In addition to this, OMC margins were revised upward from Rs2.81/litre to Rs2.97/litre from Apr 01‟21 which bolstered profitability more in the last quarter of FY21.
Inventory gains also came to the rescue owing to increasing price trend during FY21. Additionally, exchange gains emerged from appreciation of PKR during the year. The passing-on of exchange rate will be more feasible ahead as the new pricing formula for HSD and MS is now applicable from Sep 01’21 which allows exchange rate adjustments to become a part of pricing subject to 60 days; since prices are updated every fortnight, there is always a 15-day lag.
During FY21, IGCF Oil and Gas Limited (formerly known as Abraaj Mauritius Oil and Gas) divested 22% shareholding in BYCO and the major shareholder’s name was also changed to “Cynergico Mu Incorporated”. It is pertinent to note that another entity Integrate Pk (Pvt) Ltd now owns c.5% of BYCO upon this divestiture.
BYCO continues to work on Fluid Catalytic Cracking (FCC) for more FO conversion to Premium Motor Gasoline (PMG) and HSD along with the Diesel Hydro Desulphurization (DHDS) unit to upgrade to Euro V standards. The company’s current FO output composition is around 30-40% and this will enable it to reduce to around 10%, also enabling better refinery margins from the PMG and HSD products.
Total cost of the project is estimated at US$756mn with equipment costing US$576mn sourced under the supplier credit at a markup of 4.5%. The remaining cost of US$180mn is related to construction but its financing is yet to be finalized.
BYCO has planned to change its name to Cynergico Pk Limited after the management decided that the upgradation project has to go full throttle. Similarly, an associated party Cynergico Acisal Incorporated will be engaging for setting up the upgradation ahead. The company expects ROE of 20% from the increase in refinery margins with a timeline of 4 years and an estimated payback period of 4-6 years; this is without the duty protection of 10% which remains to be approved by the government.