Cnergyico limited(CNERGY) shares key updates in analyst briefing

Cnergyico PK Limited (CNERGY) recently held an analyst briefing to discuss various aspects of its operations and future plans.

Overview of Cnergyico’s Operations

Cnergyico PK Limited stands out as the largest refinery in the domestic sector, with an impressive annual capacity of 156,000 barrels per day (BPD). The company operates across four major segments:

1. Oil Shipping Business: Capable of handling Very Large Crude Carriers (VLCC) with a capacity of 100,000 metric tons.
2. Oil Refining-1: This segment has a capacity of 36,000 BPD and is linked with an isomerization unit, featuring connectivity to the port.
3. Oil Refining-2: Boasting a capacity of 120,000 BPD, it is connected to a larger isomerization unit and the port.
4. Oil Marketing: This vertically integrated segment includes over 470 retail sites.

Challenges and Production Levels

The refinery has faced significant challenges in recent years, primarily due to the sharp depreciation of the domestic currency and the government’s restriction on hedging crude prices. These factors have led to a reduction in the company’s throughput levels, which have fallen to 22,000 BPD as of the first nine months of FY24, compared to 50-55,000 BPD in FY18-19.

The management is optimistic about increasing production to 55-60,000 BPD in FY25, contingent upon the continued export of unwanted Residual Fuel Oil (RFO).

Dealer-Financed Retail Sites

The company has encouraged its dealers to finance and develop their own retail sites, with 74% of the sites being dealer-financed. Cnergyico provides additional technical assistance to support these developments.

Lubricant Segment

Cnergyico’s lubricant segment offers products for both automotive and industrial applications, including lubricants and greases. The average stock turnover time is 90 days, and the company earns a gross margin of 15%.

Demerger Plans

The company has committed to demerging its operations into six wholly-owned subsidiaries, covering Oil Refining, Isomerization Units, OMC, SPM, and Chemical Project. The benefits of this demerger include increased flexibility for potential investors, enhanced corporate governance, and more effective management of operations.

Refinery Upgradation Project

Cnergyico’s refinery upgradation project, costing USD 1.0 billion, aims to produce 48% PMG, 33.3% HSD, and 9.3% RFO post-upgradation, with all products being Euro-V compliant.

Financials

The company’s receivables from the Government of Pakistan (GoP) stand at PKR 55 billion, while payables to the authorities are PKR 47.5 billion. The management expects these matters to be settled in the coming weeks.

Infrastructure and Policy Updates

The damaged infrastructure and pipelines in Baluchistan near Cnergyico’s refinery have been partially resolved with an alternate route now sustaining operations. The management also mentioned that the inclusion of incremental deemed duty (7.5% on HSD) will aid in the recovery of the capital cost for the refinery project.

The acquisition of PUMA has been approved by the Competition Commission of Pakistan (CCP) but has not yet been finalized. Additionally, the deadline for signing the Refinery Policy is expected to be extended by the Cabinet Committee on Energy (CCoE), at which point all five refineries may sign the agreement.

Chemical Segment and Single Point Mooring (SPM)

The chemical segment is currently in its nascent stages, with plans to formally execute it after the demerger, potentially attracting outside investment. The ‘Single Point Mooring’ (SPM) system enhances freight economics, allowing the company to operate vessels at full capacity, thus saving costs from reduced delays and demurrage charges.

Disclaimer:

The information in this article is based on research by AKD Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.