Attock Petroleum Limited
The Attock Petroleum Limited (PSX: APL) is engaged in the downstream petroleum business of the country, and is part of the only integrated oil and gas group in the country – Attock Oil Group. It was incorporated in 1998.
The firm’s product portfolio consists of lubricants, commercial and industrial fuels. In the fuel category, the OMC markets and supplies fuels to manufacturing industry, armed forces, power producers, government/semi-government entities, FMCG companies, developmental sector, agricultural customers etc. APL’s key commercial and industrial fuels marketed include: high speed diesel, motor spirit, jet fuel, kerosene oil, asphalt, furnace oil, light diesel oil and lubricants. In the lubricants category, the company offers a range of lubricants which include both automotive and industrial grades blended with base oils and additives.
APL has a huge storage, transportation & retail outlet network. Apart from facilitating export of naphtha to the Middle East, Far East and South Asia, APL also exports petroleum products to the neighbouring country Afghanistan.
34 percent of APL’s shares are held by Pharaon Investment Group Limited Holding s.a.l., a Lebanese holding company that holds most of the Groups businesses. Initially R. Pharaon & Fils, the company was established in 1868 in Beirut, Lebanon and has regularly expanded and developed its activities in diversified fields such as insurance, household appliances, consumer electronics, agrochemicals, industrial and domestic gases, flavours and fragrances, pharmaceuticals and medical equipment.
Another 21 percent of the company’s shareholding is with its Attock Group’s refinery business, Attock Refinery Limited. The remaining shareholding can be seen from the table.
Prior Performance
FY13 saw only a three percent increase in overall petroleum trade in the country. The muted sale volumes came from the decrease in furnace oil while petrol sales spurred. The imposition of certain restrictions on the export of petroleum products to Afghanistan in FY13 was one of the key reasons that affected the profitability of the oil marketing companies in terms of foreign exchange earnings. In the same year, APL witnessed an admirable growth in the number of retail outlet with 52 new outlets. The core revenues of the OMC moved up by eight percent year-on-year, but the earnings slipped due to cost overrun, particularly administrative expenses and finance cost.
With diluted earnings in FY13 due to higher operating expenses, the net margin tanked. However, gross margins improved slightly year on year. Largely driven by retail volumes growth, the OMC sector was in the limelight in FY14 after the improvement in the liquidity and rising petroleum product consumption in the country. APL was able to increase its market share from 9.3 percent in FY13 to 10.1 percent in FY14 due to its better product sales growing by 19 percent year-on-year in FY14.
From the financial perspective, FY14 was a relatively better year for the firm. APL’s net revenue rose by an impressive 25 percent in FY14 year-on-year, which was due to increase in volumes sold, and a jump in international oil prices. Despite strong top line growth, burgeoning inventory losses kept a lid on APL’s gross margins. Also, the earnings were affected by escalation in sales the last quarter of FY14. Overall, there was a decline in margins in FY14 due to decrease in average profit margins on petroleum products and increase in operating expenses due to stiff competition.
OMC sales remained exuberant in FY15; the segment remained eventful as prices plunged to historic lows before recovering. The domestic oil marketing segment benefitted particularly as falling oil prices fueled petroleum demand in the country. However, the industry became more turbulent as declining oil price in the global market significantly affected the financial performance of the downstream oil marketing companies.
The industry continued to be fraught with the ongoing energy and liquidity crisis as before. APL was able to achieve eight percent year-on-year increase in sales volume, whereas the overall industry grew by five percent. The firm also surpassed its 500th retail outlet in FY15 with an addition of 48 new outlets, moving on to 516 outlets across the country. The firm’s market share increased slightly from 10.1 percent in FY14 to 10.4 percent in FY15 due to its better product sales growing by 19 percent year-on-year in FY14.
Its financial performance in FY15 was marred by higher inventory losses. APL’s top line declined by 16 percent year-on-year due to lower POL product prices, which witnessed steep drop post collapse in international crude oil market brimming with supplies. Its bottom line dropped by 24 percent year-on-year due to the overall impact of inventory losses due to steep decline in oil prices, the reduction in HSD volumes, petroleum prices, and decline in other income.
APL in FY16
For FY16, APL’s earnings continued to increase by over 16 percent year-on-year, which was again due to higher inventory gains, depicted by improving gross margins. The firm also saw improvement in its operating margins with 22 percent year-on-year fall in operating expenses due to significant improvement in operations; during FY16, APL was able to 35 new outlets to its retail presence, which is a key growth driver, especially in the retail fuel segment.
A key issue for the top line has been lower furnace oil volumes sold, while motor gasoline (petrol) margins and volumes have been a source of support for the firm’s revenue mix. One likely explanation of APL’s decline in market share could be its deliberate attempt to reduce exposure in furnace oil due to unattractive margins with increased focus on fixed margin retail segment evident from its growing retail outlets. Gross profit ratio improved as compared to previous year due to reduction of inventory losses in year 2016; this also resulted in improved net profit ratio and EBITDA margin to sales ratio.
A quarterly analysis shows that the highest sale revenue was earned by APL in the first quarter because average prices were higher in first quarter as compared to other three quarters. According to the firm’s Annual Report 2016, the sales revenue started to decrease in the second quarter and lowest sales revenue was earned in the third quarter due to significant fall in prices. The downward trend in the oil prices led to substantial inventory losses in the third quarter. However, it also mentions that due to recovery in the international oil prices and better profit margins, the company’s net profitability was highest in the last quarter
APL in 1HFY17
APL’s financial performance is elevated with 1HFY17 profits up by 92 percent and 2QFY17 earnings up by 68 percent, year-on-year. However, little does it come from increased revenues in revenue; the firms top line in 1HFY17 remained static at Rs61 million in 1HFY17; volumes are expected to be cowed by around 8-9 percent quarter-on-quarter in 2QFY17. However, after withstanding tumbling oil prices for around two year, the OMC sector is poised to benefit from relatively stable input cost. This is why APL witnessed a 65 percent year-on-year increase in gross profit for 1HFY17, with gross refining margins (GRMs) improving by over 200 basis points to 6.37 percent in the same period.
What further boosted the bottom line was the reversal of Worker Welfare Fund expense in the period with inflows under ‘other charges’. According to the market, APL wrote back WWF provisions of Rs661 million following a Supreme Court decision. Another factor that helped APL’s profits was the share of profits from associates. However, APL’s finance cost jumped by 58 percent on account of ambitious capex plans according to AKD securities.
Outlook
Despite higher than expected earnings growth in 1HFY17, Attock Petroleum Limited (PSX: APL) share prices went down due to lower dividend announced (Rs15 per share). On the brighter side, APL has a healthy balance sheet. The firm has also been focusing on expanding retail footprint to take advantage of growing demand. The firm’s total retail outlets stand at 583 by the end of 1HFY17.
Recently, the company also increased its market share of the Premier Motor Gasoline (PMG) and in order to meet the increased demand, imports PMG on regular basis with scheduled cargoes every month.
The latest Director’s Report highlights that APL is focusing to improve its lubricants segment and started marketing of internationally recognized lubricant brand, which shall add to the company’s expertise.
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Attock Petroleum Limited - Shareholding Pattern
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Categories Percentage
held (%)
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DIRECTORS, CHIEF EXECUTIVE OFFICER, 6.73
THEIR SPOUSES & MINOR CHILDREN
ASSOCIATED COMPANIES, UNDERTAKINGS 72.51
AND RELATED PARTIES
Pharaon Investment Group Limited Holding s.a.l. 34.38
Attock Refinery Limited 21.88
Attock Petroleum Limited Employees Welfare Trust 7.04
Pakistan Oilfields Limited 7.02
The Attock Oil Company Limited 2.2
NATIONAL INVESTMENT TRUST & INDUSTRIAL 0.07
CORPORATION OF PAKISTAN
BANKS, DEVELOPMENT FINANCE INSTITUTIONS, 5.73
NON-BANKING FINANCIAL INSTITUTIONS
INSURANCE COMPANIES 3.3
MODARABAS & MUTUAL FUNDS 2.44
FOREIGN COMPANIES 0.63
TRUSTS AND FUNDS 1.67
JOINT STOCK COMPANIES 0.69
GENERAL PUBLIC (LOCAL) 6
GENERAL PUBLIC (FOREIGN) 0.23
Total 100
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Source: Company Accounts
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Attock Petroleum Limited
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Rs (mn) 1HFY17 1HFY16 Ch 2QFY17 2QFYI6 Chg
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Net sales 61,495 60,842 1.1% 29,993 29,440 1.9%
Cost of sales 57,576 58,460 -1.5% 28,366 28,085 1.0%
Gross profit 3,919 2,382 64.5% 1,628 1,355 20.1%
Other income 481 455 5.6% 256 242 5.7%
Operating expenses 875 863 1.4% 455 387 17.8%
Operating profit 3,524 1,974 78.6% 1,428 1,211 18.0%
Share of profit from asset 68 14 387.9% 23 5 404.0%
Other charges 463 171 621 100
Finance Income 558 586 -4.7% 279 283 -1.3%
Finance cost 132 83 57.8% 70 46 51.9%
PAT 3,157 1,641 92.4% 1,594 949 67.9%
EPS (Rs/share) 38.06 19.78 92.4% 19.21 11.44 67.9%
Gross margin 6.37% 3.91% 5.43% 4.60%
Operating margin 5.73% 3.24% 4.76% 4.11%
Net margin 5.13% 2.70% 5.31% 3.22%
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Source: PSX
