Punjab Oil Mills Limited

Punjab Oil Mills (PSX: POML) is incorporated as a public limited company in Pakistan. The principal activity of the company is the manufacturing and sale of cooking oil, Ghee, specialty fat, coffee, as well as mushroom and laundry soap.

Pattern of Shareholding

As of June 30, 2022, POML has a total of 5.391 million shares outstanding which are held by 1102 shareholders. Local General Public is the major shareholder of POML holding 48.36 percent shares. This is followed by Directors, CEO, their spouse and minor children having a stake of 24.3 percent in POML. NIT and ICP hold 10.32 percent shares of the company while Modarabas and Mutual funds have a representation of 8 percent in the outstanding shares of POML. Around 7.7 percent of the company’s shares are held by its parent company. The remaining 1.3 percent shares are held by joint stock companies.

Historical Performance (2018-22)

Except for a marginal 4 percent year-on-year decline in 2020, POML’s topline has shown reasonable growth in all the years under consideration. The bottomline also dropped in 2020 and turned into net losses in 2021. The gross margin posted a slight drop in 2019, recovered in 2020 and then again rode a downward trajectory. Conversely, the operating and net margin peaked in 2019, and then plunged for the next two successive years to post a rebound in 2022. The detailed performance review of each of the year under consideration is given below.

In 2019, POML’s topline grew by 11 percent year-on-year which is primarily attributable to increase in sales volume of cooking oil segment. The newly introduced brands, Naturelle and Ella were performing well and setting their foothold in the market. Mushrooms were also in great demand in 2019; however, the coffee sales didn’t prove to be satisfactory. Due to 40 percent depreciation in the value of Pak Rupee, the company’s cost of sales grew by 12 percent year-on-year as it used imported raw and packaging materials. Upward revision in pricing and cost efficiency, however, enabled POML to maintain its GP margin which posted only a meager downtick from 14.9 percent in 2018 to 14.7 percent in 2019. During the year, the company revamped its production sites which provided greater operational and cost efficiency. Distribution expense dropped by 7 percent year-on-year in 2019 as the company adopted a rational approach in advertising and promotion to combat the steep rise in cost due to Pak Rupee depreciation which translated into reduced profitability in the first half of the year. Administrative expense grew by 22 percent year-on-year due to rise in salaries and wages coupled with additional human resource induction during the year for its new brands. Other expense grew by 13 percent year-on-year in 2019 due to higher WPPF on account of higher profitability. However, other expenses were greatly offset by a 45 percent year-on-year rise in other income on the back of scrap sales and higher profit on bank deposits due to higher discount rate. This culminated into a 34 percent year-on-year rise in operating profit with OP margin climbing up from 3.7 percent in 2018 to 4.4 percent in 2019. While POML has a very low debt portfolio which only comprises of short-term borrowings, its debt-to-equity ratio grew from 7.4 percent in 2018 to 10 percent in 2019 on the back of greater working capital requirements. This coupled with higher discount rate fueled the finance cost by 95 percent year-on-year in 2019. The bottomline grew by 55 percent year-on-year in 2019 to clock in at Rs.107.377 million with an NP margin of 2 percent versus 1.4 percent in 2018. EPS also grew from Rs.12.83 in 2018 to Rs.19.92 in 2019.

POML’s topline posted a 4 percent year-on-year plunge in 2020. The year started on a gloomy note with the imposition of 17 percent sales tax which averted the distributors and retailers as they were not willing to come under the sales net. As the company’s sales started gaining momentum, COVID-19 hit, resulting in the shutdown of entertainment and restaurant industry. This greatly reduced the consumption of cooking oil and resulted in a 6 percent drop in sales volume. Cost of sales also plummeted by 5 percent year-on-year in 2020. While gross profit shrank by 2 percent year-on-year in 2020, GP margin improved to 15 percent as the company increased prices when sales improved in the beginning of 4QFY20 due to COVID related panic as households started stockpiling grocery in anticipation of lockdown. Distribution expense showed no change in 2020 while administrative expense increased by 4 percent year-on-year due to 10 percent rise is salaries in wages on account of inflation. Other expense dropped by 12 percent year-on-year in 2020 on account of lower WWF and WPPF. Other income posted a robust 76 percent year-on-year growth due to higher profit on bank deposits coupled with gain on disposal of fixed assets as the company sold its hydrogen cell plant during the year. Tolling income of 1.3 million also added to the growth of other income in 2020. Operating profit shriveled by 7 percent year-on-year in 2020, however, OP margin almost remained intact. Finance cost posted a growth of 36 percent year-on-year in 2020 due to higher short-term borrowings coupled with the SBP Refinance facility obtained by the company in 2020 for the payment of salaries and wages. This increased POML’s debt-to-equity ratio to 15.6 percent in 2020. The bottomline nosedived by 22 percent year-on-year in 2020 to clock in at Rs.84.18 million with an NP margin of 1.6 percent. EPS dropped to Rs.15.62 in 2020.

Net sales grew by 14 percent year-on-year in 2021. During the first three quarters of 2021, the effect of COVID-19 continued which resulted in disturbance in the HORECA industry, the main customer of POML. The increase in topline is the effect of upward revision in prices due to higher international edible oil prices. Moreover, the company also made export sales of cooking and specialty fat during 2021 which also buttressed the topline growth. The rise in cost due to high international prices couldn’t be offset by higher prices keeping in view tamed demand. This translated into an 11 percent year-on-year drop in gross profit with GP margin posting a steep fall to clock in at 11.7 percent in 2021. Distribution and administrative expense grew by 8 percent and 19 percent respectively in 2021. The company allocated higher advertising budget in 2021. Salaries and wages also grew in line with inflation. Furthermore, the company paid higher rent, rates and taxes for the renewal of lease agreement during 2021. Other expense dropped by 65 percent year-on-year in 2021 due to lower WWF and WPPF. Other income posted a phenomenal 34 percent rise in 2021 on account of higher scrap sales and tolling income. Lower gross profit and higher operating expenses translated into a substantial 63 percent year-on-year dip in operating profit with OP margin tapering off to 1.4 percent in 2021. Finance cost reduced by 16 percent year-on-year in 2021 due to monetary easing while POML’s debt-to-equity ratio grew to 19.6 percent in 2021 due to higher short-term borrowings primarily for the retirement of L/C documents. The company posted a net loss of Rs.16.96 million in 2021 with a loss per share of Rs.3.15.

In 2022, POML heaved a sigh of relief after sustaining two difficult years. POML’s topline posted a staggering 48 percent year-on-year rise in 2022. With the HORECA industry operating at its optimum potential, the demand of cooking oil grew. This coupled with increase in prices due to high international edible oil prices kept the topline robust in 2022. However, high cost of sales due to commodity super cycle in the international market coupled with Pak Rupee depreciation reduced the GP margin of POML to 9.2 percent – the lowest among all the years under consideration. The company kept a thorough check on its operating expenses whereby its distribution expense slid by 8 percent year-on-year while its administrative expense only posted a marginal 2 percent year-on-year rise despite high inflation. The company scaled back its advertising and promotion budget as well as reduced directors’ remuneration to contain its operating expenses during the year. Conversely, other expense surged by 190 percent year-on-year in 2022 owing to higher WWF and WPPF. Other income grew by 38 percent year-on-year in 2021 mainly on account of sale of a plot, reversal of provision against doubtful debt as well as profit on bank deposits. Operating profit grew by 172 percent year-on-year in 2022 with OP margin improving to 2.6 percent. Finance cost grew by 165 percent year-on-year in 2022 due to higher discount rate coupled with high short-term borrowings. POML made a net profit of Rs.67.3 million in 2022 with an NP margin of 0.8 percent. EPS grew to Rs.12.49 in 2022.

Recent Performance (9MFY23)

POML’s performance in 9MFY23 proved to be quite satisfactory whereby its net sales grew by 21 percent year-on-year mainly on account of higher prices while last quarter also showed an improvement in sales volume. Cost of sales grew by 19 percent year-on-year in 9MFY23 due to Pak Rupee depreciation; however, the company was able to drive its gross profit up by 40 percent year-on-year by successfully transferring the onus of price increase to its customers. Moreover, the company had procured the edible oil inventory at favorable rates before the price hike which also contributed towards better margin. GP margin improved from 8.7 percent in 9MFY22 to 10 percent in 9MFY23. Operating expense grew by 16 percent year-on-year due to the effect of high inflation, higher salaries and wages, transportation cost and freight charges. Operating expenses also grew by 39 percent year-on-year in 9MFY23. Other income shrank by 61 percent year-on-year in 9MFY23. POML made 63 percent higher operating profit in 9MFY23 with OP margin growing from 2.8 percent in 9MFY22 to 3.8 percent in 9MFY23. Finance cost jumped up by 186 percent year-on-year in 9MFY23 due to higher discount rate and high working capital related borrowings. Bottomline grew by 56 percent year-on-year in 9MFY23 to clock in at Rs.112.54 million with an NP margin of 1.4 percent versus 1.1 percent during the same period last year. EPS grew from Rs.13.39 in 9MFY22 to Rs.19.52 in 9MFY23.

Future Outlook

The last quarter generally results in higher demand owing to Ramadan related purchases. Moreover, increase in prices due to Pak Rupee depreciation will also result in higher net sales.

With the elimination of import restrictions, the company will hopefully be able to procure raw materials without any supply chain impediments. The downward trend in the edible oil prices in the global market coupled with anticipations of improvement in the value of Pak Rupee in the short-term due to foreign inflows is likely to reduce the cost of POML. Besides, the company is also mulling over streamlining its sales mix to invest in the more profitable brands to guard its margins and profitability.