Pakistan State Oil
Needing no introduction, Pakistan State Oil Company Limited (PSX: PSO) has been fuelling the nation for the past many years. Engaged in marketing and distribution of various POL products including Motor Gasoline (Mogas), High Speed Diesel (HSD), Furnace Oil (FO), Jet Fuel (JP-1), Kerosene, CNG, LPG, Petrochemicals and Lubricants, the company also imports products based on the demand. These include Mogas, HSD, JP 1 and FO as and when required.
It has the largest distribution network in the country comprising of 3,754 outlets out of which 3,565 outlets serve the retail sector and 189 outlets serve its bulk customers. PSO also operates 26 company-owned and company-operated (Co-Co) sites serving the retail sector; and fuels more than 2,000 industrial units, business houses, power plants and airlines.
With 9 installations and 23 depots located across the country, PSO’s storage capacity is the largest in the country and is approximately a million metric tons, representing 68 percent of the total storage capacity owned by all the OMCs.
Pattern of shareholding and investments
PSO’s strategic investments include 12 percent in Parco’s White Oil Pipeline Project; 22.5 percent in PRL; 22 percent in Pak Grease Manufacturing Company Limited; 49 percent in Asia Petroleum Limited; and 62 percent investment in Joint Installation of Marketing Companies.
The company’s shareholding is divided such that the Government of Pakistan holds around 22.47 percent of PSO’s shareholding; around 45 percent is distributed among banks, DFIs, insurance companies, NIT, ICP and mutual funds; please refer to the table for a complete breakup.
PSO’s share price performance has been under pressure of late when compared to the benchmark index primarily due to the resurgence of the circular debt and the rising receivables.
However, the share price recent decline was when it went ex-dividend on October 11, 2017.
Financial performance FY17
FY17 was a year of retail focus for the OMC sector. For PSO, it was a year where it took the lead and became the first OMC to introduce the higher grade RON environment-friendly gasoline brands Altron Premium and Altron X High Performance. And it was after this that other players in the market too joined the giant in moving up the product ladder. In FY17, PSO also introduced Action+ Diesel, a superior quality and environment friendly Euro-II compliant diesel.
With the launch of these two premium POL products, sales volumes witnessed a noticeable surge of around 8 percent compared to a year-on-year growth ranging between -9 percent to 4 percent in the last six fiscal years. During the year, the company saw its top line grow by 30 percent due to increase in sales volume coupled with positive price variance arising on account of increase in POL prices. Its growth in top line also came from the RLNG business, which was balanced by a decrease in furnace oil volumes. POL demand and monthly volumetric sales numbers from Oil Companies Advisory Council (OCAC) show that PSO has seen its motor gasoline and high speed diesel volumes grow, while furnace oil volumes have taken a breather. This has been due to increase in LNG usage in the power sector, which along with coal is likely replacing most of furnace oil by 2020.
The rise in the firm’s net revenues was the prime reason for the 77 percent increase in PSO’s bottom line. Other factors that lifted the bottom line was a reduction in the finance cost.
PSO continued to be a leader in the liquid fuel market with an overall market share of 54.8 percent in FY17. Market share of Black Oil (FO) rose to 73 percent from 70.5 percent in FY16, whereas the market share in White Oil (Mogas, HSD, SKO, Jet Fuel) stood at 43.9 percent versus 46.8 percent. Its retail network expanded with the addition of more than 60 New Vision Retail Outlets, whereas PSO achieved 12.5 percent increase in FO sales to the power sector on a year-on-year basis.
Its LNG business continued with 58 LNG vessels supplied during the year carrying 186,672,980 MMBTU. On an average, 400 MMCFD of RLNG was supplied to Sui Northern from Jul 2016 up to Jan 2017. It was further ramped up to 600 MMCFD from Feb 2017.
1QFY18 snapshot
The retail focus streak continues in FY18 as the firm recently posted an increase of around 35 percent year-on-year in its net revenues in 1QFY18, which largely came from the increased volumetric sales. Both Mogas and HSD sales are expected to have risen by over 30 percent, year-on-year for PSO in 1QFY18. Its latest Analyst Briefing highlighted that its lube segment witnessed a strong growth of 36 percent year-on-year. The increase in sales revenue was however, matched by a higher rise in cost of products sold due to inventory losses in the diesel segment. While the margins shrunk in 1QFY18 versus 1QFY17, the firm’s earning for the quarter was up by 15 percent year-on-year. This was after a significant decline in finance costs, which came from the OMC’s recent payment of its short-term borrowings, and a heightened reliance on foreign borrowing and low cost loans.
Future outlook
The OMC sector is experiencing increased competition. The number of OMCs increased to 15 during FY17. Furthermore, OGRA granted licenses for development of new OMCs, provided marketing permission to four others, granted four licenses for the development of new oil storages terminals, and granted licenses to two lube oil blending plants and six lubricant marketing companies as well.
Though PSO retains market leadership position, it has seen its market share being eaten away by smaller new players. Its overall market share in FY17 at 55 percent was lower compared to 65 percent in FY11-12. However, the firm plans to combat this with increased capital expenditure; it has a planned capex of around Rs40-45 billion over the next three years to battle any decline amid intensifying competition. The OMC also plans to secure its supply chain through backward integration by doubling the refining capacity of PRL.
Despite lower oil prices, circular debt continues to haunt PSO and the receivables build-up show no respite. The rise in receivables is likely to impact the firm’s upcoming capex with regards to securing market share.
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PSO Shareholding Pattern as of June 2017 %
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Associated Companies, Undertakings and related parties
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Government of Pakistan 22.47
GOP's Indirect Holding:-PSOCL Emp. Empowerment Trust 3.04
NIT and ICP 0.09
NBP Trustee Department 15.01
Banks, Development Financial Institutions, Non-Banking Financial Institutions 4.94
Insurance companies 8.47
Modarabas and Mutual Funds 16.25
Members-Board of Management, Chief Executive Officer and their spouse and minor children 0.01
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Public Sector Companies Corporations
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Individuals-Resident 13.9
Non Resident 0.38
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Others
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Non Resident Companies 7.2
Public Sector Companies & Corporations and Joint Stock Companies 6.98
Employee Trusts/Funds etc. 1.26
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TOTAL 100
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