Punjab Oils Mills Limited

Punjab Oil Mills Limited (PMOL) is a leading manufacturer of edible oils and fats, company established in Islamabad. The company was founded in 1983 as a manufacturer of Banaspati and Cooking Oil and started its commercial production in 1984. Since then the company has expanded its product portfolio by introducing specialized products.
By looking at the product line of the PMOL, it is clear that the company has continuously invested in new technology and capital equipment to improve product quality, reduce costs and expand our production capabilities. Currently apart from, a wide range of Banaspati and Cooking Oil products, PMOL is also producing specialty fats targeted to various food processing industries.
PMOL makes and markets a wide range of premium quality cooking and baking mediums and other speciality fats under the Flagship brand names of "Zaiqa", "CanOlive", "Ella" and "Oliva". The company claims that all its products are prepared under the strict supervision of qualified professionals to ensure the highest quality standards. Punjab Oil Mills is also an ISO 9001:2000 and HACCP certified company.
FY14 performance:
Punjab Oil Mills Limited saw a robust growth in its top line over the past five fiscal years, with sales staying quite consistent during this period. But, the company's bottom line saw significant fluctuations. The net profit margin of the company stayed within 2 and 1 percent during the five-year period under review. However, traditionally the edible oil business is a low margin business and PMOL is not different. Having said that, during FY14, the company's profit after tax increased by 33 percent in year-on-year comparison. Beside the top line and other income, a decline in total taxation of FY14 helped the company achieve this goal.
A segment-wise analysis of the top line shows that until FY12, sales of Ghee was booming, and it was 55 percent of the net sales and Ghee sales were performing far better than cooking oil. However, things started turning the other way in FY13, when the sales of cooking oil increased by 48 percent of the net sales and in FY14 the cooking oil sales surpassed the Ghee sales by 53 percent of net sale. This changing pattern in the sales can be attributed to a rising middle class that has become more health-conscious in their eating habits and PMOL changing marketing practices to attract growing middle class.
The company saw its gross margin improve by 200 bps. This improvement happened due to low raw material prices that were down globally during FY14. Furthermore, this increase in gross profit margin is also a result of increased share in the top line of higher margins cooking oil brands of the company. Also, the Ghee margins performed better due to the branding activities by Punjab Oils Mills.
PMOL was unable to control its advertising expense that has significantly increased by 30 percent of the net sales. Even though, it is understood that the FMCG companies usually have to spend a bit more on marketing due to the nature of their business but PMOL has to spend more on marketing because it faces stiff competition in its Basmati Ghee segment from multiple small players. Despite higher expenses, Punjab Oil Mills Limited was able to keep its operating profit margin flat thanks to good performance at gross level.
Recent performance:
Punjab Oil Mills Limited numbers for the nine months ended FY15 are quite interesting. The company has lost the top line by 11 percent year-on-year, but the net profit has increased by a whopping 208 percent. This fall in sales was a combination of a decrease in average selling price due to the lower international price of edible oil price and fall in the volume.
The largest contributor to the volume decrease was the sale of PMOL lowest margin product which are purely price based. The company did not push the sale of low margin product this year again due to the low selling price. Also, during the third quarter, Punjab Government tried to fix the price of the edible price under the Price Control Act, this act also caused the reduction in the volume of the premium brand products.
The gross profit margin has increased 600 bps, largely due to the lower raw material cost that came down by 6 percent of the net sale. Also, the increasing share of higher margin product is another reason for this improvement. These improvements at the gross profitability level also caused the operating margin to increase by 500 bps.
Outlook:
Being one of the major players in Pakistani edible oil industry, Punjab Oil Mills Limited has a strong position in the market. In the last quarter of FY15, the company has planned to lower the average price to push up the sales. It would certainly help the company in the short run but, in the long run, the company has to make sure that it is well prepared to compete.