Punjab Oil Mills Limited

Punjab Oil Mills Limited (PSX: POML) was established in 1981 as a public limited company. It manufactures and sells ghee, specialty fats, cooking oils, laundry soap, mushroom and coffee. Its plant is located in Islamabad.

Shareholding pattern

As at June 30, 2022, over 24 percent shares are owned by the directors, CEO, their spouses and minor children. Within this category, Furqan Anwar Batla, a non-executive director, is a major shareholder. More than 48 percent shares are with the local general public, followed by 10 percent held in NIT & ICP. The remaining 17 percent shares are with the rest of the shareholder categories.

Historical operational performance

The company has seen a growing topline with the exception of FY15, FY16 and FY20. Profit margins on the other hand, have been more or less flat between FY17 and FY20 after which gross margin decreased, while operating and net margin improved.

At 11.5 percent, revenue growth in FY18 stood at the highest thus far to reach Rs 4.9 billion. While there was not much movement in prices, the growth in topline was largely a result of a growth in volumes. But higher cost for raw materials and greater share of low-margin products in the topline led gross margin to reduce, albeit marginally, to almost 15 percent, compared to 15.6 percent in FY17. Net margin further decreased to 1.4 percent, from last year’s 3.2 percent as distribution expense increased to consume a larger share in revenue due to higher marketing expense and expansion of sales force, along with an increase in taxation.

Topline growth in FY19 was more or less consistent at 11 percent, with revenue reaching Rs 5.5 billion in value terms. This was a result of an increase in volumes and price, both. Gross margin was flat at close to 15 percent, as production cost hovered around 85 percent of revenue. However, net margin improved slightly to 1.9 percent as distribution expense reduced due to deliberate curtailment of advertising expense. Bottomline stood at Rs 107 million, the highest seen between FY18 and FY22.

In FY20, topline contracted by 4.3 percent. Business in the first half was impacted by wholesalers and distributors being unwilling to become part of the tax net, whereas the second half of the year saw lower sales due to the outbreak of Covid-19 pandemic that adversely impacted demand generated from the entertainment and restaurant industry. With production cost undeterred at around 85 percent of revenue, gross margin remained close to 15 percent. But the rise in operating and finance expenses brought net margin down to 1.6 percent for the year.

The company posted the highest revenue growth seen thus far, in FY21, by 13.5 percent to reach close to Rs 6 billion in value terms. This was largely attributed to an increase in selling prices. This, in turn was a result of an increase in international edible oil prices. After remaining around 85 percent of revenue consistently for three years, production cost increased to 88.3 percent of revenue that brought gross margin down to 11.7 percent. This was the lowest seen since FY14. The rise in production cost can be attributed to a general inflationary pressure in the economy and rise in global commodity prices. The rise in selling prices could not be matched with the rise in costs due to growing competition. The lower gross margin also trickled to the net margin that was recorded at a negative 0.3 percent as the company incurred a loss for the first time, of Rs 17 million.

Recent results and future outlook

The company witnessed a whopping growth of almost 48 percent in revenue in FY22 to reach Rs 8.8 billion in value terms. This was primarily attributed to a rise in selling prices. This in turn was a result of an increase in international edible oil prices. Palm oil price went up from US$ 800 per ton to US$ 1,100 per ton in September. The impact of this was not only seen in revenue but also in costs as production cost crossed 90 percent of revenue. As the rise in selling price could not be matched with the rise in costs due to prevalent market trends, and because the consumers are price sensitive, gross margin for the company reduced to 9.2 percent, a level last seen in FY13. On the other hand, with significant decline in administrative and distribution expense, the company was able to post a net margin of almost one percent, with bottomline recorded at Rs 67 million.

Several factors have led to challenges during the year and may continue to hamper growth in the future, such as rising global commodity prices, Ukraine-Russia war, and a temporary ban on export sales by Indonesia, which is the world’s largest producer of palm oil. While edible oil prices have come down compared to that in the recent past, the company expects selling prices to remain higher in the future. Moreover, the volatility in the exchange rate has added to the uncertainty.