Hi-Tech Lubricants Limited (PSX: HTL) has been marketing lubricants in Pakistan for the past two decades. The firm has been involved in the sale of imported lubricants, greases, specialty oils etc. manufactured by S.K Lubricants, Korea under the brand name ZIC Lubricants. SK Lubricants of South Korea owns the world's largest petrochemical complex according to the company. HTL has been focusing its marketing efforts mainly in the retail markets.
Its brand ZIC is available in more than seventy-two cities across Pakistan through a wide network of distributors. HTL's strategy has been to offer high-end synthetic products in a price conscious market looking for quality. The firm has been able to gain competitive edge over other players in the market due to its availability of imported lubricants with a wide-spread channel.
In 2011, Hi-Tech Lubricants partnership (AOP) was bought over by Hi-Tech (PVT) Limited and converted into a public unlisted corporate. The company went public for forward integration last year in January. HTL is keen on expanding its retail presence and aims to have its own service centres across the country.
The expansion is progressing with the concept of one-stop-shops with services like car wash, oil changing, realignment, rebalancing, availability of accessories etc. These investments worth Rs 1.25 billion are the rationale for public listings, and the firm expects to IPO proceeds to fund this plan; the remaining will likely be financed through internally generated resources.
Recent financial performance
HTL saw its revenues in FY16 increase by almost 28 percent as compared to the previous year. In addition the gross profit also increased by a decent 53 percent during the period. The growth involves volume growth of 30 percent with overall prices falling. The gross margin during the year showed improvement of five percent.
This was due to reduction in custom duties on non-synthetic products along with freight charges. The effective rate of tax has increased by 7 percent as the company moves from normal tax regime to final tax regime following Finance Act 2015. The company's flagship range of ZIC registered sales growth of 23 percent during FY16. The EPS for FY16 was Rs 5.43 and the company is still growing rapidly. The growth comes on the back of increased margins and increased capacity.
FY16 also saw HTL's blending plant commence commercial production. The idea for a state of the art blending plant was conceived by the group back in 2013. The rationale for setting this plant in Pakistan was backward integration to reduce the cost of lubricants to end customer and create different avenues for marketing.
It is an integrated unit producing international standard lubricants in HDPE bottles, filling, capping & labelling of finished products on an automated high accuracy filling line. The firm plans to continue importing some of its high-end products, whereas it will be importing base oil and blending in Pakistan.
In FY17, HTL managed to increase revenues by almost 7 percent whereas volumetric sales jumped by 5 percent. Due to increased competition that resulted in discounts offered by OMC companies, HTL also had to decrease prices to retain its customer base. The company also witnessed a 15 percent increase in direct cost which added to the cost and reduced gross margins as compared to the previous year.
The company's ZIC top-tier operations grew by 6 percent, which was achieved by an improved product mix coupled with fuel savings and engine efficiencies. HTL's ZIC mid-tier segment registered revenue growth of 8.5 percent on the back of increased awareness of consumers about choice of lubricants.
For the most recent quarter, 1QFY18, HTL has managed to increase its revenue by almost 30 percent whereas the gross margins dipped a bit due to discounts provided to diesel customers under a special trade scheme. The other reason for lower margins has been the increase in international market prices since July 2017.
The company managed to increase its bottom-line by 35 percent and has been focusing on its expansion projects during the period. According to its quarterly report for 1QFY18 the company is setting up an oil depot at Sahiwal for storage and marketing products under the provisional licence from the regulator.
Stock performance
HTL's stock has not fared well against the benchmark KSE-100 index over the past year. It has consistently underperformed the KSE-100 by a wide margin and the slide has been relentless throughout the year. The script registered a 52-week high of Rs 129.35 while a corresponding low of Rs 63 recently.
Outlook
Impressive growth in the automobile sector both via import and local manufacturing has resulted in an increase in the demand for lubricants. HTL is nicely positioned to take advantage of the increased demand and the firm has invested in establishment of Hi-Tech blending and bottling plant. The retail expansion is also under way and will bear dividends for the company in the coming years.
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HTL Shareholding pattern
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Shareholder Percentage
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Directors and their spouse(s) and minor children 62.22
of which
Uzra Tahir 24.64
Arifa Shaukat 21.41
Associated Companies, undertakings and related parties -
Public Sector Companies and Corporations 0.06
Banks, DFIs,NBFC, Insurance, modarabas, pension funds 6.27
Mutual Funds 3.1
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General Public
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a. Local 24.69
b. Foreign Investor 0.84
Of which 2.47
Others 2.05
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Total 100.00
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Source: Company accounts
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