Punjab Oil Mills Limited

Punjab Oil Mills (PSX: POML) is incorporated as a public limited company in Pakistan. The principal activity of the company is the manufacturing and sale of cooking oil, Ghee, specialty fat, coffee, as well as mushroom and laundry soap.

Pattern of Shareholding

As of June 30, 2023, POML has a total of 7.763 million shares outstanding which are held by 1153 shareholders. Local general public has the majority stake of 44.36 percent in the company followed by directors, CEO, their spouse and minor children holding 28.15 percent shares of POML. NIT and ICP account for 10.32 percent shares of the company while Modarabas and Mutual funds hold 8 percent of POML’s shares. Around 7.7 percent of the company’s shares are held by its parent company. The remaining 1.45 percent shares are held by joint stock companies.

Historical Performance (2019-23)

Except for a marginal decline in 2020, POML’s topline has shown reasonable growth over the period under consideration. The bottomline dropped in 2020 and turned into net losses in 2021. This was followed by a rebound in 2022. In 2023, POML’s net profit shrank again. POML’s margins portray an asymmetrical pattern over the period under consideration. Its gross margin posted a slight drop in 2019, maxed out in 2020 and then rode a downward trajectory until 2022 followed by an uptick in 2023. Conversely, POML’s operating and net margin peaked in 2019, and then plunged for the next two successive years to post a rebound in 2022. In 2023, operating margin continued to tick up while net margin gave in. The detailed performance review of the period under consideration is given below.

In 2019, POML’s topline grew by 11.2 percent year-on-year which is primarily attributable to increase in sales volume of cooking oil segment. The newly introduced brands, Naturelle and Ella were performing well and setting their foothold in the market. Mushrooms were also in great demand in 2019; however, the coffee sales didn’t prove to be satisfactory. Due to 40 percent depreciation in the value of Pak Rupee, the company’s cost of sales grew by 11.5 percent year-on-year as it used imported raw and packaging materials. During the year, the company revamped its production sites which provided greater operational and cost efficiency. This coupled with upward price revision enabled POML to maintain its GP margin which posted only a meager downtick from 14.94 percent in 2018 to 14.7 percent in 2019. Distribution expense dropped by 6.8 percent year-on-year in 2019 as the company adopted a rational approach in advertising and promotion to combat the steep rise in cost due to Pak Rupee depreciation which translated into reduced profitability in the first half of the year. Administrative expense grew by 21.9 percent year-on-year due to rise in salaries and wages coupled with additional human resource induction during the year for its new brands. Other expense grew by 12.9 percent year-on-year in 2019 due to higher provisioning for WPPF on account of higher profitability. However, other expense was very much offset by 45.3 percent year-on-year rise in other income on the back of scrap sales and higher profit on bank deposits due to higher discount rate. This culminated into a 34 percent year-on-year rise in operating profit with OP margin climbing up from 3.7 percent in 2018 to 4.4 percent in 2019. While POML has a very low debt profile which only comprises of short-term borrowings, its debt-to-equity ratio grew from 7.4 percent in 2018 to 10 percent in 2019 on the back of greater working capital requirements. This coupled with higher discount rate fueled the finance cost by 95.1 percent year-on-year in 2019. The bottomline grew by 55.3 percent year-on-year in 2019 to clock in at Rs.107.377 million with NP margin of 1.95 percent versus 1.4 percent in 2018. EPS also grew from Rs.12.83 in 2018 to Rs.19.92 in 2019.

POML’s topline posted 4.3 percent year-on-year plunge in 2020. The year started on a gloomy note with the imposition of 17 percent sales tax which averted the distributors and retailers as they were not willing to come under the sales net. Then COVID-19 hit the local and global economies, resulting in the complete shutdown of entertainment and restaurant industry. This greatly reduced the consumption of cooking oil and resulted in 6 percent drop in sales volume. Cost of sales also plummeted by 4.6 percent year-on-year in 2020. While gross profit shrank by 2.4 percent year-on-year in 2020, GP margin improved to 14.98 percent as the company increased prices when sales improved in the beginning of 4QFY20 due to COVID related panic as households started stockpiling grocery in anticipation of lockdown. Distribution expense showed no change in 2020 while administrative expense increased by 3.9 percent year-on-year due to 10 percent rise is salaries in wages on account of inflation. Other expense dropped by 12.1 percent year-on-year in 2020 on account of lower provisioning for WWF and WPPF. Other income posted a robust 75.7 percent year-on-year growth due to higher profit on bank deposits coupled with gain on disposal of fixed assets as the company sold its hydrogen cell plant during the year. Tolling income of 1.3 million also added to the growth of other income in 2020. Operating profit shriveled by 6.5 percent year-on-year in 2020, however, OP margin almost remained intact. Finance cost posted growth of 35.9 percent year-on-year in 2020 due to higher short-term borrowings coupled with SBP Refinance facility obtained by the company in 2020 for the payment of salaries and wages. This increased POML’s debt-to-equity ratio to 15.6 percent in 2020. The bottomline nosedived by 21.6 percent year-on-year in 2020 to clock in at Rs.84.18 million with NP margin of 1.6 percent. EPS dropped to Rs.15.62 in 2020.

POML’s net sales grew by 13.5 percent year-on-year in 2021. During the first three quarters of 2021, the effect of COVID-19 continued which resulted in disturbance in the HORECA industry, the main customer of POML. The increase in topline is the effect of upward revision in prices due to higher international edible oil prices. Moreover, the company also made export sales of cooking and specialty fat during 2021 which also buttressed the topline growth. The rise in cost due to high international prices couldn’t be offset by higher prices keeping in view tamed demand. This translated into an 11.4 percent year-on-year drop in gross profit with GP margin posting a steep fall to clock in at 11.7 percent in 2021. Distribution and administrative expenses grew by 8.3 percent and 19.5 percent respectively in 2021. The company allocated higher advertising budget in 2021. Salaries and wages also grew in line with inflation. Furthermore, the company paid higher rent, rates and taxes for the renewal of lease agreement during 2021. Other expense dropped by 64.8 percent year-on-year in 2021 due to lower provisioning for WWF and WPPF. Other income posted a phenomenal 33.9 percent rise in 2021 on account of higher scrap sales and tolling income. Lower gross profit and higher operating expenses translated into a substantial 63 percent year-on-year dip in operating profit with OP margin tapering off to 1.4 percent in 2021. Finance cost reduced by 16.2 percent year-on-year in 2021 due to monetary easing while POML’s debt-to-equity ratio grew to 19.6 percent in 2021 due to higher short-term borrowings primarily for the retirement of L/C documents. The company posted net loss of Rs.16.96 million in 2021 with loss per share of Rs.3.15.

In 2022, POML heaved a sigh of relief after sustaining two difficult years. POML’s topline posted a staggering 47.7 percent year-on-year rise in 2022. With the HORECA industry operating at its optimum potential, the demand of cooking oil grew. This coupled with increase in prices due to high international edible oil prices kept the topline robust in 2022. However, high cost of sales due to commodity super cycle in the international market coupled with Pak Rupee depreciation reduced the GP margin of POML to 9.2 percent – the lowest among all the years under consideration. The company kept a thorough check on its operating expenses whereby its distribution expense slid by 8.3 percent year-on-year while its administrative expense only posted a marginal 2 percent year-on-year rise despite high inflation. The company scaled back its advertising and promotion budget as well as reduced directors’ remuneration to contain its operating expenses during the year. Conversely, other expense surged by 190 percent year-on-year in 2022 owing to higher provisioning for WWF and WPPF. However, it was offset by 38 percent year-on-year growth in other income in 2021 mainly on account of sale of a plot, reversal of provision against doubtful debt as well as profit on bank deposits. Operating profit grew by 171.9 percent year-on-year in 2022 with OP margin improving to 2.6 percent. Finance cost grew by 165.5 percent year-on-year in 2022 due to higher discount rate coupled with higher short-term borrowings. POML made net profit of Rs.67.31 million in 2022 with NP margin of 0.76 percent. EPS grew to Rs.8.67 in 2022.

POML posted 11.4 percent year-on-year growth in its net sales in 2023. While sales volume remained depressed due to contraction in the purchasing power of consumers, the topline growth was the result of higher prices due to increase in the cost of imported raw materials (particularly edible oil) and Pak Rupee depreciation. As the company passed on the impact of cost hike to its consumers, it was able to record an uptick in its GP margin in 2023 which clocked in at 9.36 percent. Gross profit improved by 12.9 percent in 2023. POML recorded a meager 0.8 percent growth in its distribution expense in 2023. While freight charges went up sharply due to high international petroleum prices, the company curtailed its advertising & promotion budget to keep its distribution expense in check. Administrative expense mounted by 20.99 percent year-on-year in 2023 on account of higher payroll expense and fuel cost. This was despite the fact that the employee headcount was reduced from 299 in 2022 to 270 in 2023. 3.1 percent lower other expense in 2023 was due to lower profit related provisioning. Other income also shrank by 5.2 percent in 2023 due to high-base effect as the company sold its KPT plot in 2022. POML recorded 21.7 percent higher operating profit in 2023 with OP margin inching up to 2.84 percent. Finance cost escalated by 162.6 percent year-on-year in 2023 due to high discount rate coupled with increased borrowings. Higher finance cost drove POML’s net profit down by 36.1 percent year-on-year to clock in at Rs.42.998 million in 2023 with EPS of Rs.5.54 and NP margin of 0.44 percent.

Recent Performance (9MFY24)

During 9MFY24, POML’s net sales declined by 21.63 percent. In 2023, the company’s topline was supported by higher prices due to upward trend recorded in the international prices of edible oil during the year. However, in 2024, lower volume and lower international oil prices resulted in topline contraction. Due to stability in the value of local currency as well as cost optimization measures put in place by the company such as installation of solar power plant and an efficient cooling system enabled it to attain GP margin of 11.89 percent in 9MFY24 versus 10 percent in 9MFY23. This was despite 6.98 percent lower gross profit in absolute terms. Distribution expense increased by 7.7 percent in 9MFY24 due to elevated advertising & promotion budget allocated for the period. Administrative expense also multiplied by 17.58 percent in 9MFY24 on account of higher salaries & wages, transportation cost and also because of general inflationary pressure. Other expense tapered off by 55.37 percent in 9MFY24 apparently due to lower profit related provisioning. Other income built up by 56.35 percent during the period due to higher profit on bank deposits. POML registered 30.16 percent lower operating profit in 9MFY24 with OP margin inching down to 3.41 percent from 3.82 percent during the same period last year. Finance cost surged by 39.51 percent in 9MFY24 due to high discount rate. All these factors translated into 93.76 percent lower net profit to the tune of Rs. 7.023 million recorded by POML in 9MFY24. EPS also drastically fell from Rs.19.52 in 9MFY23 to Rs.0.9 in 9MFY24. NP margin clocked in at 0.11 percent in 9MFY24 versus 1.42 percent in 9MFY23.

Future Outlook

POML is undertaking strategic moves such as installation of phase-II of solar power plant, expansion of its mushroom section and installation of canning plant for preserved foods and vegetables. The company is also mulling over streamlining its sales mix to invest in more profitable brands to guard its margins and profitability. While demand is not expected to show any significant enhancement due to eroded purchasing power of consumers, a meticulous check on cost and operating expense as well as finance cost is imperative to shield the bottomline and margins from further contraction.