Byco Petroleum Results Review

Company Overview

Byco Petroleum was incorporated as a public limited company in Pakistan in 1955. The company is a subsidiary of Byco Industries Incorporated (BII), Mauritius.

The company operates in two business segments namely Oil Refinery Business and Petroleum Marketing Business. The Company has two refineries with an aggregate rated capacity of 155,000 bpd. Petroleum Marketing Business was formally launched in 2007 and has 391 retail outlets across the country.

91.83% of company shares are held by the parent company while 4.47% are held by general public and 3.46% are held by banks, development finance institutions and non banking financial institutions as of June 2020. At the time of writing of this report, company’s 12 month trailing P/E until 1H 2021 stood at 70.87 while other refineries in the sector had negative 12 month trailing P/E for same period.

The refinery sector was hit hard in 2019 and onwards by a combination of negative environmental factors that lead to rise in cost of imports and decrease in sales value. Among these, the leading causes were drop in international oil prices due to COVID-19 outbreak, rupee devaluation and reduction in furnace oil demand due to a shift in energy generation from furnace oil to coal, LPG and other sources. Byco Petroleum was no exception in being affected by these changes in the economic environment. From a review of company’s directors’ reports, it appears that the company has started to diversify to address the issue of decreased furnace oil product demand by initiating a project to convert furnace oil to motor spirit and diesel to increase sales.

Historical results review

Form a glance at the historical charts, the impact of adverse economic environment becomes clear. Even with increased turnover, company’s gross profit, operating profit and net profit margins fell in 2019 and it incurred a net loss due to exchange rate losses and decline in oil prices. Even though GP and OP margins were improved in 2020, NP margin fell further. Operationally other costs were more or less kept in control.

These drops in margins also effected operating cash flow, which became negative in 2019 and 2020. Company’s loan structure changed from 2019 onwards with short term loans making up almost 50% or higher of total interest based liabilities. This was most probably the result of a need to meet working capital requirements due to losses incurred in 2019 and 2020. This increase in short term loans also lead to a steady increase in finance cost, which cut into company’s profits.

Despite an increase in short term loans, company’s current ratio has been more or less maintained around 0.50.

Latest Results Review

As it can be seen from above table, company’s turnover fell by 30.62% in 1H of 2021 on YOY basis. This was mainly due to fall in international oil prices due to COVID-19. However, despite this, company’s margins and EPS improved indicating that the company is starting to bring costs under control. Operating cash flow however fell by 86.11 %. This was primarily due to trade and other payables. In the current half of 2021, company’s trade and other payables declined whereas in 2020 for the same period they had gone up by almost Rs. 14 billion.

Overall the company seems to be going through a problematic phase due to changed economic environment instead of any operational deficiency. It now depends on the company’s management that how well they can adjust its operations to meet the new challenges.