PSO: Circular debt buildup is manageable so far; concerns ahead
- ​​PSO’s receivables have reportedly crossed PkR252bn as circular debt is building up again for the company. Our channel checks suggest that the buildup is not as severe as the reports suggests; it is much slower than at the peak of the crisis. This can, however, become a problem in 2HFY17, if the GoP does not address it adequately.
- We think the company may be preempting to highlight the problem to the GoP now before it increases to levels beyond their threshold. It may also be directed to persuade the GoP for a partial settlement of PSO’s outstanding balance of the debt.
- At this stage, we maintain our estimates as we see potential mitigating factors in 2H from rising oil prices – inventory gains and higher FO margins. Cumulative PkR5/liter change in petrol/HSD prices during a quarter will result in estimated inventory gains of about PkR3.5/sh, by our estimate.
Pakistan State Oil is a petroleum group based in Pakistan. Co.'s principal activities are the procurement, storage and marketing of petroleum and related products. Co. also blends and markets various kinds of lubricating oils.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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