The financial performance of Pakistan State Oil Company Limited (PSO) in Q1 2024 reflects a challenging operating environment characterized by several key trends impacting its profitability and financial metrics.
Firstly, the significant 70.1% Year-on-Year decrease in profits is primarily attributed to various factors such as a notable increase in the cost of sales by 9.2% YoY, resulting in a 51.6% YoY decrease in gross profit. This decline in gross profit is further exacerbated by a reduction in gross margins from 5.83% to 2.67% Year-on-Year, indicating intensified pressure on profitability margins.
Moreover, while consolidated revenue witnessed a modest growth of 5.6% YoY to Rs873.63 billion, the increase was outpaced by the rise in operating expenses. Distribution and marketing expenses surged by 11.9% YoY, highlighting the company’s efforts to expand its market presence and maintain competitiveness. Additionally, administrative expenses escalated significantly by 45.9% YoY, reflecting increased operational costs and administrative overheads.
Furthermore, the rise in finance costs by 9.0% YoY to Rs15.88 billion is attributed to higher interest rates, indicating increased borrowing costs for the company. This increase in finance costs adds further strain on PSO’s profitability, contributing to the overall decrease in net earnings.
The notable shift from a tax credit of Rs13.95 billion in the same period last year to a tax expense of Rs1.27 billion in Q1 2024 further impacts PSO’s bottom line. This change in tax position significantly affects the company’s after-tax profits, representing a reversal of its tax benefit from the previous year.
Despite the challenges faced, PSO’s other income grew by 31.5% YoY to Rs3.3 billion, providing a partial offset to the decline in profitability. However, it is evident that the company continues to grapple with various operational and financial headwinds, necessitating strategic measures to enhance efficiency, manage costs, and mitigate risks in order to restore profitability and sustain long-term growth.
