S.S. Oil Mills Limited

S.S. Oil Mills Limited (PSX: SSOM) was established as a public limited company in 1990under the repealed Companies Ordinance, 1984. The company’s business essentially is Solvent Extraction (Edible Oil, Meal) that includes extracting, refining, processing and selling semi refined washed oil and meal. Some of its products are canola oil, soybean oil, sunflower oil, sunflower meal and soybean meal.

Shareholding pattern

As at June 30, 2022, close to 53 percent shares are owned by the directors, CEO, their spouses and minor children. Within this category, Mr. Nawabzada Shahzad Ali Khan and Mr. Nawabzada Shaharyar Ali Khan are major shareholders. The local general public owns around 29 percent shares followed by over 14 percent shares in associated companies/undertaking and related parties. The latter solely includes Sikandar Commodities (Private) Limited. The remaining about 4 percent shares is with the rest of the shareholder categories.

Historical operational performance

The company has mostly seen a growing topline, barring the yearsFY13, FY14, and FY16. Gross and operating margin grew between the years FY17 and FY21, before declining in FY22. Net margin has been more or less flat between FY17 and FY20, before witnessing a sharp incline in FY21, and decreasing in FY22.

In FY18, revenue posted a growth of 30 percent to reach Rs 3.5 billion in value terms. Sales of refined oil registered an 8 percent incline, while sales of by products posted a growth of nearly 50 percent. As cost of production grew marginally to 95.3 percent of revenue, gross margin reduced to 4.7 percent. While operating margin increased marginally to 3.5 percent, net margin was adversely impacted by finance expense that grew to consume 2.5 percent of revenue. This was a result of higher mark-up rates, in addition to utilizing short-term financing for the purpose of importing raw materials. As a result, net margin reduced to 0.3 percent. With the bottomline at Rs 12 million, this was the lowest positive net profit recorded.

Revenue in FY19 grew by nearly 12 percent, inching closer to Rs 4 billion in value terms. Both production and sales volumes were lower suggesting an increase in prices as a possible rationale for the increase in revenue. While gross margin improved to almost 6 percent on the back of a lower cost of production, finance expense escalated to consume 3.6 percent of revenue. The rise in finance expense is again attributed to a rise in short-term financing to import raw material. Thus, net margin remained flat at 0.3 percent for the year.

Topline registered a growth of almost 29 percent in FY20 to reach Rs 5 billion in value terms. This was largely contributed by sales from refined oil segment that escalated from Rs 1.5 billion in the previous year to Rs 5.5 billion in FY20. Sales from by products, on the other hand, almost disappeared as they fell from Rs 2.6 billion in FY19, to Rs 77 million in FY20. With a marginal decline in cost of production to almost 94 percent of revenue, gross margin increased to 6.4 percent. Net margin followed, as it increased marginally to 0.6 percent.

The company continued its growth momentum in FY21 as it posted a topline growth of over 60 percent to reach Rs 8 billion in value terms. Like the previous year, majority of the revenue was again contributed by the refined oil segment, however, the by products segment had also witnessed some improvement to Rs 113 million for the year. Coupled with a decrease in cost of production to an all-time low of 92 percent, gross margin peaked at nearly 8 percent. With lower mark-up rates, net margin also reached a peak of nearly 4 percent. Bottlomline too, was recorded at an all-time high of Rs 312 million for the year.

Recent results and future outlook

Topline reached a peak of Rs 10.5 billion as it witnessed a growth of 31.4 percent. Sales volumes were also higher to a similar extent. Sales volumes for washed oil was higher by 19.4 percent. Between the two categories of refined oil and by products, the sales of the former were higher by almost 39 percent, while that of byproducts was higher by 50.4 percent, however the major contribution to revenue was made by sales of refined oil. But as cost of production inclined marginally to 93 percent, gross margin reduced to almost 7 percent. With finance expense bouncing back to consume over 2 percent of revenue, along with a higher taxation figure, net margin also decreased, to 2 percent.

With rising global commodities following the Ukraine-Russia, preceded by the event of Covid-19, prices of oil seed are expected to move upwards. This will enable the current finished product to be sold at better prices. Moreover, expectation of an improved yield is dependent on the quality of the local seed crop.