The Attock Petroleum Limited (PSX: APL) is engaged in the downstream petroleum business of the country, and is part of the only integrated oil and gas group in the country - Attock Oil Group. It was incorporated in 1998.
The firm's product portfolio consists of lubricants, commercial and industrial fuels. In the fuel category, the OMC markets and supplies fuels to manufacturing industry, armed forces, power producers, government/semi-government entities, FMCG companies, developmental sector, agricultural customers etc. APL's key commercial and industrial fuels marketed include: high speed diesel, motor spirit, jet fuel, kerosene oil, asphalt, furnace oil, light diesel oil and lubricants. In the lubricants category, the company offers a range of lubricants which include both automotive and industrial grades blended with base oils and additives.
APL has a huge storage, transportation & retail outlet network. 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.
Past Performance
The imposition of certain restrictions on the export of petroleum products to Afghanistan in FY13 was one of the key reasons that affected the profitability of the oil marketing companies in terms of foreign exchange earnings. FY13 saw only a three percent increase in overall petroleum trade in the country. The muted sale volumes came mostly from the decrease in furnace oil despite the rising motor spirit (petrol) volumes.
In the same year, APL witnessed a commendable growth in the number of retail outlet during FY13 with 52 new outlets. The core revenues of the oil marketing company moved up by eight percent year-on-year, but the earnings were eaten by overrun in administrative expenses and finance cost.
APL's bottom line diluted in FY13 due to higher operating expenses and unlike the gross margins that improved slightly year on year, the net margin tanked. Overall in FY13, company's earnings contracted by five percent, year-on-year. In FY14, the industry was able to increase its sales volumes by nine percent year-on-year. 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.
Largely driven by retail volumes growth, the oil marketing sector was in the limelight in FY14 after the improvement in the liquidity and rising petroleum product consumption in the country. From the financial perspective, FY14 was a modest year for the firm. Firm's net revenue rose by an impressive 25 percent in FY14 versus FY13, which was due to increase in volumes sold, and a jump in international oil prices.
Despite strong top line growth, burgeoning inventory losses kept a lid on APL's gross margins. Also, the earnings were affected by escalation in sales the last 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.
OMC sales remained exuberant in FY15; the segment remained eventful as prices plunged to historic low before recovering. The domestic oil marketing segment benefited particularly as falling oil prices fuelled petroleum demand in the country. However, the industry became more turbulent as declining oil price in the global market significantly affected the financial performance of the downstream oil marketing companies.
The industry continued to be fraught with the ongoing energy and liquidity crisis as before. APL was able to achieve eight percent year-on-year increase in sales volume, whereas the overall industry grew by five percent. The firm also surpassed its 500th retail outlet in FY15 with an addition of 48 new outlets, moving on to 516 outlets across the country. The firm's market share increased slightly from 10.1 percent in FY14 to 10.4 percent in FY15 due to its better product sales growing by 19 percent year-on-year in FY14.
Its financial performance in FY15 was marred by higher inventory losses. APL's top line declined by 16 percent year-on-year due to lower POL product prices, which witnessed steep drop post collapse in international crude oil market brimming with supplies. Its bottom-line dropped by 24 percent year-on-year due to the overall impact of inventory losses due to steep decline in oil prices, the reduction in HSD volumes, petroleum prices, and decline in other income.
1HFY16 Performance
APL's financial performance for 1HFY16 continued to feel the jitters from low oil prices and lower volumetric sales. However, it was able to surprise the market with its announcement of above expectation dividend for the 2QFY16. The oil company's revenue dived in 1HFY16. Besides the 10-14 percent decline in overall product volumes and margins, APL continued to witness inventory losses. However, the quantum of inventory losses in 2QFY16 was much less, and the impact of the same on bottom-line was less devastating.
Gross margins shot up north. The decrease on finance cost was positive for the bottom-line, but the exchange losses stemming from depreciation of Pak Rupee resulted in decrease in other income. APL's earnings in 1HFY16 increased by 12 percent, year-on-year. In the same period, the OMC announced an interim cash dividend of Rs 15 per share.
Outlook
The company stood amongst top twenty five companies and won the Top Companies Award 2013 held in March 2015 organised by Karachi Stock Exchange. However, APL has generally underperformed the industry and the stock exchange in 1HFY16 when it comes to volumetric sales by the firm. This was due to stiff competition in the industry that resulted in the firm witnessing a shrink in its market share of energy products during the period. In particular, the firm was affected by lower furnace oil margin sand volumes.
On the brighter side, APL has one of the healthiest balance sheets. APL has been focusing on expanding retail footprint to take advantage of growing demand. The firm commissioned 21 new retail outlets during 1HFY16 taking total number to 537.
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