In a meeting of Economic Coordination Committee (ECC) Chaired by PM’s adviser on finance and revenue, Dr. Abdul Hafeez Shaikh on 6th November 2019, the committee approved annual margin increase for OMCs and dealers on MS and HSD in line with average annual CPI inflation for the year ending Jun-2019.
Although ECC faced opposition from Oil and Gas Regulatory Authority (Ogra) and the Planning Commission, Committee has decided on several points and revised increase in margins of both HSD and petrol instead of 25 paisa per litre proposed by the petroleum division as per PKR 0.17/litre to PKR 2.81/litre each from current PKR 2.64/litre with an immediate effect and would be applicable until next due revision which would be effective from 1st-Jul-20.
The margin increase stands PKR 0.3/litre lower than the expectation of PKR 2.84/litre (25 paise) for FY20 owing to the lower inflation rate applied by the ECC. Dealer margins are increased by PKR 0.22/litre on MS to PKR 3.70/litre, while HSD dealer margin is increased by PKR 0.18/litre to PKR 3.11/litre.
|PKR/liter||Current Margin||Increase Inflation||Rate Revised||Margin|
Economic Coordination Committee (ECC) also directed that from here onwards, OMC margins will be increased annually based on the average inflation of fiscal year (year ending June).
According to IGI research, this may imply some issues in the application as OMC margins are effectively increased from 1st of July (for which notification is issued on 30th of June) each year and the average inflation for the year would require incorporating inflation for the month of Jun which is not published by that time. Based on this, we highlight both PSO and APL to benefit from MS and HSD margin increase.
Assuming revised margins are effective from 1st Dec-19, average OMC margins for FY20 would stand at PKR 2.74/litre and PKR 2.75/litre if effective from Nov-19. As a result of the average margin of PKR 2.74/litre for FY20, we expect annual earnings impact of PKR 1.58/share and PKR 2.18/share for PSO and APL respectively for FY20.
|PKR/share||FY/CY20 EPS Impact||% of FY/CY20 EPS|
That’s it from our side, drop your thoughts in the comments section below.