EUR 4.64 For Business Accounts Only

Pakistan OMCs: Demand growth accelerating; we prefer APL

• OMC industry sales growth is dampened a bit by Mar’17; however, overall 9MFY17 remained strong led by robust demand in all major products. Sales of HSD/Mogas are growing phenomenally (up 13/17% YoY) as per our expectations. FO sales are also showing strong demand due to increased FO based power generation due to GoP’s increased focus on resolution of power crisis.

• Increased in RFO based power generation has led to a whooping increase in circular debt reportedly to PkR414bn. Rise of circular debt despite stalling it under the IMF program points to structural weaknesses; where near term respite seems remote. Given the expected fiscal indiscipline, possibility of another settlement seems thin, in our view.

• Overall outlook of the industry remains strong with respect to demand, where we prefer APL because of its superior risk/reward profile which includes exposure to deregulated non-energy products and immunity to burgeoning circular debt.