Pakistan Petroleum Limited (PSX: PPL) reported a softer earnings performance in 1HFY26, as a modest decline in revenue, rising operating costs, and a sharp drop in other income weighed on profitability despite the company remaining solidly in the black.
During the first half of FY26, revenue from contracts with customers fell 7 percent year-on-year. The decline in the topline proved significant, particularly as the company’s cost structure did not adjust proportionately. While royalties and levies declined 10 percent year-on-year, offering partial relief, operating expenses rose 10 percent, resulting in margin compression.
Gross profit consequently declined 12 percent year-on-year, reflecting pressure on core operations. Exploration expenses, however, dropped sharply to Rs2 billion compared to Rs6.7 billion in 1HFY25 — a 71 percent reduction — providing a meaningful cushion to operating profitability. This benefit was partly offset by a 16 percent increase in administrative expenses, signalling higher overheads even as exploration activity slowed.
On the financial side, finance costs improved 19 percent year-on-year, while other charges eased 14 percent. Nonetheless, these savings were insufficient to fully counterbalance weaker gross margins and a steep fall in non-operating income.
The key swing factor during the period was other income, which plunged 63 percent year-on-year to Rs5.7 billion, compared to Rs15.2 billion in the same period last year. Although the tax expense offered limited relief, profit after tax (PAT) fell 21 percent year-on-year to approximately Rs40 billion.
Quarterly performance mirrored the half-year trend. In 2QFY26 alone, PPL posted PAT of Rs20.3 billion, down 26 percent year-on-year, as higher operating expenses and lower other income continued to weigh on earnings despite relatively stable revenues.
Overall, PPL’s unconsolidated 1HFY26 results depict a company still generating strong absolute profits but facing profitability pressures. Earnings resilience during the period stemmed more from reduced exploration charges than revenue growth, while the year-on-year decline was largely driven by margin compression and a sharp normalisation in other income — underscoring the material influence of non-operating income on reported performance.
Despite softer earnings, PPL maintained shareholder payouts, announcing an interim dividend of Rs4.0 per share for 1HFY26, including Rs2.0 per share for 2QFY26.
Looking ahead, performance in 2HFY26 will hinge on oil and gas price trends, potential normalization in operating expenses, and the trajectory of other income amid a lower interest rate environment.
