Hi-Tech Lubricants Limited (PSX: HTL) is one of the leading synthetic engine and machinery lubricant marketing company of Pakistan with a sizeable market share in lubricants market. Its product portfolio under brand name "ZIC" includes a wide range of specialty lubricants in automotive, industrial and marine segments that are imported from S.K Lubricants, South Korea. SK Lubricants of South Korea owns of world's largest petrochemical complex.
The firm has been marketing lubricants in Pakistan for over two decades now. The firm stands for high-end synthetic products and caters to the market that isn't price conscious but is looking for quality. The firm has gained competitive edge over other players in the market not only due to its availability of imported lubricants but also a wide-spread channel. HTL has outreach and availability at over 20,000 retail outlets, wash stations and transporters. Sales and technical force comprises over 175 employees across the Pakistan in all 5 provinces as well as Azad Jammu & Kashmir. Over 300 distribution vans carry out door to door delivery for customers.
In 2017-18 HTL also launched its HTL Express, one-stop shop solution for the customer' vehicle maintenance, and its HTL fuel stations will be rolled out soon offering quality fuel with a wide range of Non Fuel Retail (NFR).
Blending plant and expansions HTL owns state-of-the-art blending plant in Lahore, which is an integrated unit producing International Standard Specifications Lubricants in HDPE bottles, filling, capping & labeling of finished products on an automated high accuracy filling line. The company conceived the idea for a state of the art blending plant group back in 2013. The rationale for setting up this plant in Pakistan was backward integration to reduce the cost of lubricants to end customer and create different avenues for marketing. Hi-Tech Blending (Pvt.) Limited (HTBL)is HTL's100 percent owned subsidiary.
HTL has also ventured in oil marketing sector under the brand name HTL fuel stations. Storage facilities are also under construction in Punjab & Khyber Pakhtunkhwa (KPK).
Pattern of shareholding Hi-Tech Lubricants partnership (AOP) was bought over by Hi-Tech (PVT) Limited and converted into a public unlisted corporate back in 2011. However, for forward integration, the firm needed funds, and decided go public in FY16. Today; it is a public limited company with sponsors that include Mr. Tahir Azam, Mr. Shaukat Hassan, Mr. Muhammad Basit Hassan (Late), Mr. Hassan Tahir, Mr. Muhammad Ali Hassan and Mrs. Uzra Tahir. Key shareholders are Mrs. Uzra Tahir and Mrs. Arifa Shaukat. Details of the shareholding are shown in the illustration.
Past financial performance The firm's net revenues saw significant growth from FY10 to FY15, whereas net margins, came down from 11 percent in FY10 to 6 percent in FY15, due to relatively higher operating costs that include especially administrative and distribution costs. Coming to FY16, the revenue growth continued (28% YoY) along with improvement in gross margins on the back of volumetric growth, reduction in custom duties on non-synthetic products and lower freight charges The company's flagship ZIC range registered sales growth of 23 percent during FY16.
HTL performed well in FY17; growth in sales led by 5 percent volumetric growth was around 6.8 percent year-on-year despite the 15 percent rise in direct costs. During the year, finance cost increased staggeringly by 125 percent year-on-year owing to investment in stocks due to substantial discount offered on imported stocks. Unconsolidated earnings for the year saw an increase of 37 percent, year-on-year
Hi-Tech Blending Plant Ltd. (HTBL) was established as a fully owned subsidiary of HTL, and it became fully operational in August 2016. As per the annual accounts, the plant was blending lubricants from 0.7 liter to 200 liters drums and all its products were being sold locally. The company moved ahead with its strategy develops a retail network across Pakistan with multitude of unique services and technical support to prime users. It successfully opened one HTL Express Center in Lahore with plans for more in Lahore and Karachi.
FY18 Financial performance A sales growth of 24 percent, year-on-year and 16 percent increase in volumes highlighted HTL's performance in FY18. Gross profits improved by 8 percent, year-on-year, but gross margins declined for the year due to factors affecting commodity prices and hence increase in the cost of sales. Despite challenging market and economic conditions, HTL maintained stability in administrative expenses. However, distribution cost increased due to marketing spending on introducing new products. Overall, in FY18 the earnings diminished due to increase in distribution and marketing cost coupled with the depreciation of rupee. According to the annual report, the decrease in net profit came from the expansion and growth phase that increased marketing, and other related cost
FY19 and beyond FY19 has been a tough year so far for the company. Where unconsolidated earnings remained in the negative, the company's earnings for the latest quarter on a consolidated basis returned to profits. However, overall, 9MFY19 earnings were in the red zone - impacted largely by exchange losses and a slowing economy.
However, the company in its latest quarterly report highlights that it believes that that the Passenger Car Motor Oil (PCMO) segment which represents the bulk of the HTL's revenues has largely recovered. It is the diesel segment that remains very weak due to reduced trucking of goods and trucking of fuel caused by the furnace oil curtailment. It is also cautiously optimistic for the next quarter (4QFY19), which is traditionally one of its stronger quarters.
The company had initiated a two-phased expansion plan in 2016 after the IPO for HTL Express centers, HTL Stations, and HTL Mart. Phase 1 of the expansion plan was the development of HTL state of the art retail outlets across Pakistan with multiple services and technical support. As per the progress in FY18 annual report, Phase-1 of the expansion plan was underway, as out of five retail outlets in Lahore, four were operational and contributing to revenues. 3 centers in Karachi were too on their way to be operational. The company after that was looking to replicate the model of Lahore and Karachi based HTL Express centers in other big cities of the country such as Rawalpindi/Islamabad.
In the recent period, the company completed 2 new express service centers in Karachi taking the total count of HTL express centers to 7, while 2 additional centers are in the pipeline. HTL Express Franchise Model is also under development coupled with the upcoming HTL Fuel stations inductions.
Phase 2 was about setting up an OMC and a network of fuel stations in different parts of Pakistan. Under this expansion phase, a total of 360 fuel stations have been expected to be laid out across the country in the coming years. Construction of fuel depots had been planned in multiple parts of the country to support the operations of HTL Stations of which one located in Punjab is fully completed and other under construction in KPK. The company has also been granted renewable license to operate first oil storage depot located at Sahiwal. Grant of final Marketing License by OGRA is expected soon, which will enable the Company to commence business of HTL stations.
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Hi-Tech Lubricants Ltd.
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FY13 FY14 FY15 FY16 FY17 FY18
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Profitability
GP margin % 24.92 24.72 24.47 29.16 23.66 20.84
NP margin % 5.88 5.7 6.18 7.55 9.71 5.99
ROE % 40.4 33.16 27.28 15.9 19.41 14.24
ROA % 20.89 15.96 16.75 13.28 12.36 10.04
Liquidity
Current ratio times 1.81 1.46 1.35 3.96 1.75 1.84
Quick ratio times 0.66 0.63 0.66 2.92 1.02 1.2
Cash to Current Liabilities times 0.15 0.34 0.12 0.29 0.04 0.31
Market
Earning per Share Rs/share 3.1 3.46 3.88 5.43 6.27 4.78
Dividend payout % 93.41 26.04 34.74 27.65 43.09 73.23
Capital Structure
Financial leverage ratio times 0.03 0.05 0.03 0.01 0.21 0.16
Debt to Equity (As per BV) % 6.39 9.71 4.18 1.13 24.90 18.14
Interest coverage % 15.51 18.15 21.5 55.13 29.78 11.62
Activity/Turnover
Total Assets Turnover times 3.56 2.8 2.71 1.76 1.27 1.68
Fixed Assets Turnover times 22.42 22.01 24.63 20.88 7.9 6.66
No. of Days in Inventory days 72.3 71.97 44.95 48.71 96.11 7.89
No. of Days in Receivables days 8.64 11.73 15.88 7.9 8.74 9.35
No. of Days in Payables days 44.54 66.61 60.58 42.86 51.4 30.81
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Source: Company accounts
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HTLL Shareholding pattern (As on June 30, 2018)
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Shareholder Percentage
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Directors and their spouse(s) and minor children 65.45
of which
Uzra Tahir 24.64
Arifa Shaukat 21.41
Hassan Tahir 6.47
Muhammad Ali Hassan 6.47
Muhammad Basit Hassan 6.47
Associated Companies, undertakings and related parties 0
Public Sector Companies and Corporations 0.15
Banks, DFIs,NBFC, Insurance, modarabas, pension funds 6.1
Mutual Funds 4.90
General Public
a. Local 20.47
b.Foreign Investor 0.93
Others 1.99
Total 100.00
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Source: Company accounts
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Hi-Tech Lubricants Limited
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Rs(mn) 9MFY19 9MFY18 YoY
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Net sales 5,822 6,727 -13.5%
Cost of sales 5,129 5,227 -1.9%
Gross profit 693 1,500 -53.8%
Distribution costs 519 547 -5.2%
Administrative expenses 343 266 28.9%
Other expenses 76 54 39.7%
Other income 82 78 6.0%
Profit/(Loss) from operations -162 710
Finance cost 166 61 172.2%
Profit/(Loss) before tax -328 649
taxation 144 207 -30.1%
Profit/(Loss) after tax -473 442
EPS (Rs/share) -4.07 3.81
Gross margin 11.91% 22.30%
Net margin -8.12% 6.57%
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Source: Company accounts
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