Explainer: What's happening with MARI Petroleum stocks?

To say that the Pakistan Stock Exchange performed remarkably well this year would just be stating the obvious. There are many reasons stocks (and specific companies) have done so well but one case might be truly baffling — that of MARI Petroleum Company Limited.

MARI stocks are up 198% since the start of 2024 and almost 40% in December alone. To put this into perspective, the benchmark KSE-100 index overall is up 82%.

So, for the layman (and the beginner investor) — what does MARI do, why did its share price reach so high, and why was there a course correction? Nuktaexplains.

What does MARI do?

The largest gas production company in Pakistan, it produces roughly 800 million cubic feet of gas per day (mmfcd).

This gas production accounts for 90% of the company's revenue.

MARI's performance this year

Last week, MARI stocks reached a new high of PKR 899 per share, registering a gain of almost 95% in just 16 days.

However, there was then a correction of over 20% in the share price.

But overall, the company has outperformed its peers by 2.7 times this year.

Why did MARI perform so well?

Rise in profitability

MARI's profitability is up 38% compared to Pakistan Petroleum Limited (PPL) and Pakistan Oilfields Limited (POL), whose profitability is up 17% and 7%, respectively. On the other hand, Oil and Gas Development Company (OGDC) showed a negative growth of 7%.

Trend of huge bonuses

Another reason that can be linked to the extraordinary performance of MARI is its huge bonus announcement of 800%. MARI has a history of giving bonuses in the range of 10%-100% but not 800%. In the last 15 years, MARI has announced a dividend of about 965%.

Rise in volumetric growth

The third reason is a rise in volumetric growth — MARI is the only company listed on the stock exchange that has shown volumetric increase compared to its peers while the rest have declined.

Separately, its reserves' replacement has been around over 400% compared to negative or negligible of OGDC and PPL.

No exposure to circular debt

A very important reason for MARI's profitability is that it is not exposed to circular debt like its peers.

For the layman, circular debt is a cash shortage accrued across the power sector when the power purchaser fails to pay the power generator. Pakistan's circular debt has surpassed PKR 2.5 trillion and while the government agreed with the International Monetary Fund (IMF) to resolve it, the issue isn't going away any time soon.

The reason MARI isn't exposed to circular debt is because unlike its peers, it mainly supplies gas to the fertilizer sector while the others supply it to power producers, which they aren't paid for in full.

Diversifying the business

In recent years, MARI's management has aggressively pursued diversification, including into minerals such as copper and gold, which have huge potential.

Not only have they spent money on exploration, they are also entering the information technology space. MARI has plans to invest in high-profile computers, artificial intelligence, and cloud computing, all of which may lead to an increase in the company's bottomline.

What's behind the correction?

The primary reason is the huge premium to sector.

Put simply, this means that investors were overvaluing MARI shares compared to its peers and usually, when a correction occurs in the stock market, overvalued shares are the first to see a drop in prices.

Secondly, when a company's stocks are trading at a premium, investors have higher expectations from it and if it fails to meet them, its stock price can drop sharply.

Moreover, while the company is diversifying into the minerals and IT sectors, there is no concrete development in either at the moment, according to the management.

While this article and video break down the reasons for MARI's rise and correction, ultimately, it is always up to the investor to decide whether a company — overvalued or not — is worth putting their money in.