Analysis: What contributes to PSO impressive earnings?
Despite persistent circular debt issue which squeezed the liquidity for the state giant oil marketing company, PSO was able to maintain its market share to 78.2 percent in Black Oil and 54.4 percent in White Oil during fiscal year 2010-2011 (FY10-11).
Rise in international oil prices provided the basis for PSO to improve bottom line as during FY10-11, international oil prices had seen an increase of 25 percent which had positive implications for the company and led to improved gross margins.
PSO's escalating receivables surged to Rs 138.2 billion as of August 9. But, despite that, PSO registered after-tax-earnings of Rs 14.7 billion for this financial year against the after-tax-earnings of Rs 9.05 billion during the previous financial year.
The short term financing led the financial charges of PSO increase by 20.45 percent YoY to Rs 11.903 billion owing largely to the ongoing circular debt issue. However, the reduction in turnover tax rate brought a colossal support to the net profits. The taxation amount of the company shrinked by 64.16 percent YoY to Rs 3.195 billion during the period under review. The further support came from massive inventory gains during the period.
PSO has developed a strategy to cope up with its finance cost through recovery of receivables from both the government and power sector entities.
Surprisingly, some recoveries of Rs 30 billion made to PSO by the government in the fiscal year 2011 also contributed positively to the PSO's financial health.
Besides that, PSO had to also face certain risks including currency risk. Depreciating rupee value has impacted PSO, as the company has to pay its outstanding liabilities in dollars to foreign suppliers.
PSO's healthy earnings along with healthy cash dividends attracted investors to invest in the scrip. The company announced a final cash dividend of Rs 2.00 per share along with the result taking the FY11 payout to Rs 12.00 per share.
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