Lahore, August 26, 2021 (PPI-OT):The ratings reflect the resilient business profile of Byco Petroleum Pakistan Limited (Byco) emanating from its diversified operational capability and its strategic importance in the domestic context. Byco possesses a notable share in meeting the economy’s demand for petroleum products, with its refinery and marketing business. Byco’s refinery 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. Significant challenge underlying the future of refinery industry in Pakistan pertains to up-gradation of the refining complexes. In order to cater the issue, ‘Working Group’ constituted by the Government that comprising of the Government officials and representative of refineries.
This group finalised a draft ‘Refining Policy’ which envisages certain fiscal and tariff concessions to the refining sector that has improved implications on the financial condition of the refineries, also enabling up gradation of plants. However, the final approval and actual financial impact is yet to be seen. Economic activities have resumed despite continuing vicissitudes of COVID 19. This resulted in improved oil demand along with pricing implications supporting refining margins. It is important that the uptick trend continues, going forward. Uncertainty is still around as the third and fourth waves of the pandemic occasions frequent reviews of business timings and otherwise.
Byco has resumed to report profitability from previous years losses and booked Net Profit of PKR 2,180mln in 9MFY21 (FY20: PKR (2,431) mln; FY19: PKR (1,684)mln; FY18: PKR 5,020mln). On the back of revival in economic dynamics, this trend is going to continue in upcoming periods. Byco’s financial risk profile is well managed even in challenging position with essential borrowings to cater working capital needs and also stands in range bound. Nonetheless, Byco stands out in embarking on a new strategic venture to upgrade its refinery process in order to cope with the key challenges prevailing in the sector.
The project also encompasses installation of DHDS plant, which would enable the company to produce Euro V and Euro-VI, compliant with requirements. Byco has completed the feasibility study for the DHDS plant and ground construction work has already been started, in next phase the Company starts to import the machinery. Management is of view that project will be completed in FY 2025. More recent changes in the capital structure on account of the divestment of Abraj Fund’s stake, one of the two key sponsors poses changes on strategic sphere. Wherein, the key sponsoring family – Abbassciy family, is committed to ensure continuity and extending essential support.
The ratings are reflection of Byco’s largest capacity, efficient processes that enables the company to effectively shield its business profile from external vulnerabilities. Improved performance indicators and promising financial discipline, are imperative to the ratings. The entity has been placed on Rating Watch to oversee challenges on the business and financial risk profile of the company, amongst others, related to industry dynamics.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com