Pakistan Oxygen Limited (PSX: PAKOXY) was incorporated in Pakistan as a private limited company in 1949 and was converted into a public limited company in 1958. The principal activity of the company is the manufacturing of industrial and medical gases and welding electrodes besides marketing of medical equipment.
Pattern of Shareholding
As of December 31, 2023, PAKOXY has a total of 87.124 million shares outstanding which are held by 2082 shareholders. Sponsors, associated companies, undertakings and related parties are the largest shareholders of PAKOXY with a stake of 70.25 percent in the company. This category is largely dominated by M/s Adira Capital Holdings (Private) limited, holding 33.55 percent of the company’s shares. Local general public accounts for 17.41 percent of PAKOXY’s shares. Directors, CEO, their spouse and minor children hold 7.28 percent of the company’s shares. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-23)
Except for a marginal cut in 2019, PAKOXY’s topline has recorded growth in all the years under consideration. Conversely, its bottomline fell thrice – in 2019, 2022 and 2023. The margins depict a varying pattern over the period (see the graph of profitability ratios). Gross margin stayed afloat in 2019 and then rode a downward trajectory thereafter. Operating margin descended persistently since 2019 until 2022 and then posted an uptick in 2023. Net margin which had also been narrowing down since 2019 saw a marginal uptick in 2021 only to fall back in the subsequent years. The detailed performance review of the period under consideration is given below.
In 2019, PAKOXY’s topline posted 3.98 percent year-on-year slump. Policy measures to contain fiscal and current account deficits had pushed the GDP growth down to 3.3 percent with LSM also posting a decline. With major customer industries slowing down their activity and with the complete shutdown of the ship breaking sector, PAKOXY’s banked on the oil and gas and medical engineering sectors to soften its sales decline. Cost of sales slid by 4 percent year-on-year in 2019. The in-house manufacturing of electrodes resulted in cost savings for the company which otherwise would be immense due to massive hike in electricity tariffs during the year. GP margin stayed intact at 22.8 percent in 2019. Higher payroll expense as well as greater allowance booked for expected credit losses in 2019 resulted in 22.28 percent year-on-year spike in distribution expense in 2019. Administrative expense also escalated by 7.93 percent year-on-year in 2019. This culminated into 12.97 percent year-on-year drop in operating profit with OP margin sliding down from 13.47 percent in 2018 to 12.21 percent in 2019. Finance cost multiplied by 48.77 percent year-on-year in 2019 not only because of higher discount rate but also because of the usage of additional credit facilities during the year particularly running finance facilities. Net sales slumped by 24.61 percent year-on-year in 2019 to clock in at Rs.300.59 million with NP margin of 6.44 percent versus NP margin of 8.2 percent recorded in 2018. EPS also dropped from Rs.12.25 in 2018 to Rs.7.70 in 2019.
PAKAOXY’s topline grew by 18.83 percent year-on-year in 2020. While all the sectors of the economy were under severe pressure due to sudden outbreak of the novel Coronavirus which not only hampered the demand across the board but also created widespread supply chain problems and immensely impacted the routine business activity. In such uncertain scenario, PAKOXY took the apt decision and banked on the healthcare segment which grew by 69 percent during the year. In 2020, the company prioritized oxygen supplies to the healthcare segment and also enhanced its medical engineering portfolio through localization. Cost of sales grew by 23.35 percent year-on-year in 2020 due to unprecedented increase in electricity tariffs and one-off arrear of Rs.45 million charged by K-Electric on the withdrawal of Industrial Support Package (ISPA) in 2020. As a consequence, GP margin inched down to 19.90 percent in 2020. In absolute terms, gross profit posted a paltry growth of 3.55 percent in 2020. In the absence of allowance booked for ECL, distribution expense tumbled by 1.8 percent year-on-year in 2020. Conversely, administrative expense rose by 9.81 percent year-on-year in 2020. Other income posted hefty 131.22 percent growths in 2020 on account of insurance claims worth Rs.50 million due to failure of motor at one of the company’s ASU plants. Operating profit grew by 8.14 percent year-on-year in 2020, however, OP margin eroded to stand at 11.1 percent. Finance cost shrank by 5.47 percent year-on-year in 2020 due to rate cuts and also because of better cash flow and liquidity management. The result was a 15.2 percent year-on-year improvement in PAKOXY’s net profit which clocked in at Rs.346.28 million in 2020 with NP margin of 6.24 percent and EPS of Rs.7.39. EPS dropped by 4 percent despite bottomline growth due to the issuance of 20 percent bonus shares in 2020.
In 2021, PAKOXY’s topline and bottomline witnessed the highest year-on-year growth. PAKOXY’s net sales grew by 26.34 percent year-on-year in 2021 which was backed by robust growth across all the segments i.e. industrial and medical segments, welding portfolio and medical engineering. However, healthcare segment proved to be the major growth driver during the year as COVID-19 wasn’t completely subsided and the company kept providing oxygen to hospitals across the country on priority basis. To make sure that none of its clients is short of oxygen at any point in time, the company introduced an “Emergency Response Center” – an automated stock monitoring and delivery system. The medical engineering segment also continued to impress in 2021 with the creation of 2700 new beds with Oxygen supply system for the treatment of COVID-19 patients. Cost of sales grew by 27 percent year-on-year in 2021. Gross profit grew by 23.28 percent year-on-year in 2021, however, GP margin slightly inched down to 19.42 percent. Distribution and administrative expenses grew by 21.28 percent and 7.87 percent year-on-year respectively primarily on account of higher sales volume and induction of new employees respectively during the year. Operating profit posted 22.15 percent jump, however, OP margin contracted to clock in at 10.75 percent in 2021. Finance cost dropped by 27 percent year-on-year in 2021 on account of low discount rate and better working capital management. Net profit grew by 30.27 percent year-on-year to clock in at Rs.451.10 million with NP margin of 6.44 percent, slightly higher than last year. EPS grew to Rs.7.70 in 2021, signifying 4 percent growth due to the issuance of 20 percent bonus shares in 2021.
2022 didn’t fare well for Pakistan’s economy as rising economic and political turmoil took a heavy toll on the business activity. PAKOXY’s sales registered a skimpy 4.15 percent year-on-year growth mainly driven by Hard goods and medical engineering services and as well as sales of Carbon dioxide to food and beverages segment. 5.79 percent rise in cost of sales was driven by higher raw materials prices particularly energy and fuel charges as well as Pak Rupee depreciation. This squeezed the gross profit by 2.65 percent year-on-year. Gross profit contracted to 18.15 percent in 2022. Distribution and administrative expense grew by 8.86 percent and 11.53 percent respectively, which was well below the inflation level. Operating profit recorded 9 percent plunge in 2022 with OP margin marching down to 9.38 percent. Finance cost grew by a massive 75.20 percent year-on-year in 2022 due to policy rate hikes during the year. The result was 6.88 percent downtick in bottomline to clock in at Rs.420.05 million with NP margin of 5.76 percent and EPS of Rs.5.74.
In 2023, PAKOXY’s topline strengthened by 17.72 percent year-on-year. During the year, the company successfully commissioned Pakistan’s largest Air Separation Unit at its Port Qasim plant which doubled its production capacity. This enabled the company to maintain its position as a leading supplier of industrial gases. While demand from ship-breaking, glass and steel sectors was weak during the year, healthcare, hard goods and nitrogen gas segments came to rescue the company’s topline in 2023. Gross profit enhanced by 17.83 percent year-on-year in 2023 with GP margin staying intact at 18.17 percent. The company was able to maintain its gross profit despite inflationary pressure, Pak Rupee depreciation, soaring raw material prices and elevated energy tariff by revising its prices and attaining operational efficiency through the installation of Air Separation Unit. Distribution expense grew by 11.34 percent in 2023 which was mainly due to increase in salaries, benefits and allowances. 8.64 percent year-on-year increase in administrative expense in 2023 was also the result of an escalation in payroll expense due to inflationary pressure. Other expense slid by 35 percent in 2023 on the back of lower profit related provisioning. Conversely, insurance claim worth Rs.21.874 million enabled PAKOXY to record 30.52 percent increase in its other income in 2023. Operating profit improved by 30.38 percent in 2023 with OP margin rising up to 10.39 percent. Finance cost surged by 228.57 percent in 2023 due to unprecedented level of discount rate and increase in external borrowings. PAKOXY’s gearing ratio climbed up from 45.98 percent in 2022 to 46.48 percent in 2023. High finance cost result in 65.54 percent contraction in the company’s bottomline which stood at its lowest level of Rs.144.74 million in 2023 with EPS of Rs.1.66 and NP margin of 1.69 percent.
Recent Performance (1HCY24)
PAKOXY recorded 48.65 percent year-on-year growth in its net sales in 1HCY24 on account of higher demand in the healthcare and medical engineering segments. However, hard goods segment witnessed demand destruction due to slowdown in the overall economic activity. Upward price revision and operational efficiency achieved through the installation of Air Separation Unit (ASU) enabled the company to record 165.15 percent year-on-year enhancement in its gross profit in 1HCY24. GP margin clocked in at 26.35 percent in 1HCY24 versus GP margin of 14.77 percent recorded during the same period last year. Distribution expense spiked by 38.10 percent in 1HCY24 possibly due to increased salaries and sales promotion expense incurred during the period. Higher freight charges due to increased sales volume might also have contributed in driving up the distribution expense in 1HCY24. Administrative expense inched up by just 3.39 percent despite inflationary pressure and enhanced operations. Higher provisioning for WWF, WPPF and doubtful debts resulted in 223.19 percent year-on-year surge in PAKOXY’s other expense in 1HCY24. However, this was wiped off by 169.30 percent bigger other income recorded during the period. Detailed financial statements are not yet available to comment on the break-up of the company’s other income. During 1HCY24, PAKOXY also recorded gain on sale of non-current assets to the tune of Rs.50.424 million which also propelled itsoperating profit. Operating profit boosted by 415.20 percent in 1HCY24 with OP margin clocking in at 19.92 percent versus OP margin of 5.75 percent registered in 1HCY23. Finance cost mounted by 241.17 percent in 1HCY24 due to high discount rate and finance cost associated with the ASU. Net profit picked up by 822.85 percent in 1HCY24 to clock in at Rs.310.909 million with EPS of Rs.3.57 versus EPS of Rs.0.39 recorded during the same period last year. NP margin progressed from 0.91 percent in 1HCY23 to 5.66 percent in 1HCY24.
Future Outlook
Lower demand from the industrial sectors is increasingly being offset by a stronger foothold in the healthcare segment and nitrogen gas market. The shift in the sales mix of PAKOXY is not only keeping its topline energetic but is also buttressing its margins. The installation of ASU is further helping the company to attain high margins by controlling its cost.
Comments