Higher petroleum sales have positively affected the oil marketing companies (OMCs) like Attock Petroleum Limited, especially after the settlement of the circular debt in the latter half of 2013. The Attock Petroleum Limited (APL) was incorporated in 1998. It is engaged in the downstream petroleum business of the country. It belongs to the only integrated oil and gas group in the country--Attock Oil Group-and is the fourth OMC to be granted the marketing license.
APL's product profile consists of lubricants and commercial and industrial fuels. In the fuel category, APL markets and supplies fuels to manufacturing industry, armed forces, power producers, government/semi-government entities, FMCG companies, developmental sector, agricultural customers, etc. Its main commercial and industrial fuels that are marketed include: High-Speed Diesel (HSD), Motor Spirit (MS), Jet fuel, kerosene oil, asphalt, furnace oil, light diesel oil and lubricants. In the lubricants category, the company offers a range of products which include both automotive and industrial grades blended with base oils and additives.
APL has a large storage, transportation and retail outlet network that supplements its product range with 468 retail outlets. Apart from facilitating export of naphtha to the Middle East, Far East and South Asia, APL also exports petroleum products to the neighbouring country, Afghanistan.
INDUSTRY DYNAMICS FY14 continued to move forward with fiscal challenges, which resulted in a number of consequences for the energy sector as well as the entire economy. Besides law-and-order situation continuing to plague everyone and every business, power and gas shortages, mounting circular debt and increased petroleum product prices were some of the key challenges faced by the OMC sector, too.
Amid all this, the industry was able to increase its sales volumes by nine percent year-on-year in FY14. 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 growing by 19 percent year on year in FY14. Its contribution to the national exchequer stood at Rs 47.5 billion.
FINANCIAL PERFORMANCE FY14 From the financial perspective, FY14 proved to be a modest year for Attock Petroleum Limited. Largely driven by retail volumes growth, the oil marketing sector had been in the limelight in FY14 after the improvement in the liquidity and rising petroleum product consumption in the country.
With rapid expansions in its retail network, the company seems to be reaping the fruits of consistent CNG shortages in the country which is reflected in its strong retail sales volume. Furthermore, enduring energy shortages has compelled power producers to resort to furnace oil, and expensive fuel, which is a positive wave for the company.
The firm's net revenue rose by an impressive 25 percent in FY14 versus FY13, and it was a result of increase in volumes sold, and a jump in international oil prices. Furnace oil volumes are estimated to have grown by 13 percent year on year in FY14, while that of HSD and motor gasoline (petrol) witnessed an upsurge of 20 percent and 32 percent, year on year, respectively.
Despite strong top line growth, burgeoning inventory losses kept a lid on expansion in gross margins, which remained the primary victim of denting the bottom line growth. This happened particularly due to escalated cost of sales in the fourth quarter of FY14. Overall, the decline in margins in FY14 resulted due to decrease in average profit margins on petroleum products and increase in operating expenses due to stiff competition.
Moreover, the drop in the finance income by a massive 61 percent was offset, to a great extent, by a significant improvement of 92 percent in finance charges due to circular debt resolution in 2013, and a 38 percent drop in 'other income'. Overall, the inhibitors and propellers eventually resulted in the bottom line to grow by 11 percent, year on year.
OUTLOOK APL's liquidity, as explained in its annual report for FY14, seems to be well-positioned to meet its future developments and future commitments. The development of a bulk oil terminal at Mehmood Kot, Muzaffargarh is anticipated to fuel APLs storage capacity, which in turn will help the company meet the increasing demand for petroleum products in the country. The firm is also increasing its footprint across Pakistan by expanding its retail network.
APL's net cash and cash equivalents decreased by Rs 2.32 billion mainly due to utilisation of cash to pay dividends. The firm's financial performance for FY14 was also accompanied by a final cash dividend of Rs 30 per share taking the full-year cash dividend to Rs 47.5 per share. Not bad at all!
In future, one key challenge for the OMC industry, as mentioned in the company's annual report, would be to maintain its return on working capital as rising international crude oil prices amid fixed OMC margins will increase the working capital requirements. And with circular debt rising once again, this working capital conundrum is imminent.
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Attock Petroleum Limited
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FY10 FY11 FY12 FY13 FY14
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Profitability
Gross margin 4.5% 4.3% 3.0% 3.1% 2.9%
Net margin 4.3% 3.9% 2.7% 2.4% 2.1%
Operating leverage 39.1% 75.2% -15.5% -12.2% 22.80%
Return on equity 44.1% 41.0% 34.4% 29.56% 31.08%
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Liquidity
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Current ratio 1.63 1.76 1.58 1.75 1.59
Quick ratio 1.55 1.35 1.35 1.42 1.24
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Efficiency
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Inventory turnover 139.29 33.55 31.5 34.23 33.36
Debtor turnover 10.73 12.95 12.4 13.36 17.42
Creditor turnover 7.09 8.86 9.97 9.65 11.41
Total asset turnover 4.17 4.76 5.56 5.43 6.39
Fixed asset turnover 70.52 84.41 102.71 95.09 108.16
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Market
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EPS 62.4 61.6 59.61 56.52 52.16
Dividend yield 8.61% 12.08% 11.98% 8.96% 9.01%
Dividend cover 2.08 1.48 1.19 1.26 1.1
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Source: Company accounts
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