Incorporated in 1998, Attock Petroleum Limited (PSX: APL) is an oil marketing company and is part of the Attock Oil Group of Companies. Its product portfolio consists of lubricants, commercial and industrial fuels; and it markets and supplies fuels to manufacturing industry, armed forces, power producers, government/semi-government entities, FMCG companies, developmental sector, and agricultural customers. APL has a strong retail network with over 700 retail outlets nationwide.
Shareholding pattern
APL is part of the Attock Oil Group of Companies, which is a fully vertically integrated oil and gas group including exploration, production, refining and marketing of a wide range of petroleum products. APL’s sponsor, Pharaon Investment Group Limited Holding s.a.l holds the largest shareholding at 34 percent, whereas other key shareholders include Attock Refinery, Pakistan Oilfields Limited, and Attock Oil Company as shown in the illustration.
APL in the last 5 years
The OMC sector has been through ups and downs over the last decade. Its performance in the recent five years can be seen to largely come from the demand for petroleum products in the country and price movement, while its liquidity position is mostly driven by circular debt situation in the country. A lot has been going on in the sector in terms of changing consumption patterns; industrial and economic activity; international oil prices; petroleum product pricing mechanism in the country; government policies like furnace oil curtailment; power sector merit order etc.
Back in FY14, the OMC sector came in the limelight due to volumetric growth in retail fuels along with peaking furnace oil consumption in the power sector. APL was able to increase its market share from 9.3 percent in FY13 to 10.1 percent in FY14 due to its better product sales. In terms of profitability, FY14 was good for APL where revenues improved on the back of volumetric growth in fuels. However, rising inventory losses kept earnings restricted.
The growth in retail sector continued in FY15 as oil prices continued to decline and the economic activity flowed. However, lower oil prices also brought inventory losses and affected the liquidity position of the downstream oil marketing companies. APL’s market share increased slightly from 10.1 percent in FY14 to 10.4 percent in FY15. However, higher inventory losses affected both revenues and bottomline.
In FY16 higher oil prices resulted in inventory gains that lifted revenues. Moreover, the retail volume drive continued in FY16. However, the firm’s overall volumes were adversely affected by the phasing out of furnace oil. As a result, APL lost market share in attempt to reduce exposure in furnace oil due to unattractive margins.
In FY17, revenue growth for APL was strong due to growth in volumetric flows, diesel and petrol sales particularly which translated to the bottomline as well. Overall, APL’s earnings were up by 38 percent year-on-year.
As petroleum prices remained high and volumes grew as well, APL continued its revenue growth in FY18. Increase in sales volume and inventory gains due to rising price trend of petroleum products during the year resulted in higher gross margins. However, earnings increased by only 7 percent, year-on-year due to reversal of provision of other charges and higher exchange losses due significant currency depreciation during the year.
FY19 turned out to be a slow year for APL due to falling crude oil prices and domestic currency nosediving. Where the falling crude oil prices resulted in significant inventory losses for the OMCs, the depreciating rupee brought in substantial exchange losses. In addition, the effects of monetary and fiscal tightening adversely affecting the OMC sector in FY19. APL’s topline grew by around 26 percent year-on-year, which was entirely due to higher petroleum product prices, because voluemtric growth remained subdued in FY19. APL’s volumes declined by 11 percent year-on-year decline led by furnace oil and high speed diesel sales and the OMC’s earngins were down by 30 percent.
APL in the midst of the pandemic
FY20 was undoubtedly a difficult year for many sectors including the OMCs largely due to demand destruction. APL’s earnings too plummeted to levels not seen in at least a decade - Rs1 billion. Weakness in earnings due to inventory losses from lower prices of petroleum product in the country versus international prices, along with decline in volumes were key inhibiting factors. During FY20, APL’s overall market share remained the same around 10.5 percent. However, its volumes sold registered a decline of around 11 percent year-on-year, which was highest for diesel followed by petrol and then furnace oil. Apart from the weakness in the topline and higher inventory losses, jump in finance cost amid high interest rates, relatively lower other income, decline in profits from associated also added to the bottomline decline.
FY21 and beyond…
After a shaky year FY20, the ongoing fiscal year (FY21) has been better for the oil marketing due to increase in global oil prices. Sector also saw some demand recovery lifting of the lockdown and restrictions and companies witnessed growth in volumes of petroleum products sold.
APL’s earnings in 9MFY21 increased by over 4 times, and all three quarters witnessed improved earnings with 3QFY21 showcasing a turnaround from a period of losses (3QFY20) to a quarter with profits after tax. The key growth factor was the inventory gains.
During 9MFY21, net revenue decreased by over 18 percent due to 14 percent year-on-year drop in average selling prices as well as a 5 percent decline in the company’s sales volume. The company’s market share for 9MFY21 stood at 9 percent versus 11 percent in 9MFY20. However, inventory gains particularly in second and third quarter of FY21 were due to increase in oil prices as well as due to change in the petroleum pricing format to fortnightly basis that reduced the volatility from the lag. Growth in earnings also came from meager increase in operating expenses, exchange gains and reduced share of loss of associates.
Volumes sold by the OMC sector have started to revive with a rebound in economic activity including car sales, industrial activity, agriculture output, along with continued restrictions on cross-border smuggling. APL also posted improved volumes of FO due to increased demand from the power sector, as well as retail fuels in the recent months. Plus, it pivoted its strategy towards expansion into storage and retail network, which will unlock growth potential in the coming years and help it regain lost market share.
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