Byco Petroleum Pakistan Limited

Part of the downstream oil and gas sector, Byco Group was formed in January 1995. Its first refinery began operations in 2004 with a capacity of 30,000 barrels of oil per day as Hub Balochistan, and began commercial production of liquefied petroleum gas, light naphtha, heavy naphtha, high-octane blending component, motor gasoline, kerosene, jet fuels, high speed diesel, and furnace oil. This was increased by 5,000 barrels per day to 35,000 in 2010.

The firm enjoys presence in both mid-stream and downstream sector of the oil business. The company ventured into the petroleum marketing business in 2008, setting up its first retail outlet. The company now has more than 360 outlets nationwide.

Another refinery with a production capacity of 120,000 barrels per day was decided to be set up to expand existing production. It was completed and commissioned in December 2012 taking Byco's total refining capacity to 155,000 bpd, making Byco the largest refinery in the country in terms of capacity.

The same year, Byco also commissioned Pakistan's first and only Single Point Mooring (SPM). This floating port is located 13 km offshore in the Arabian Sea near Charna Island. Byco's SPM has the capacity to handle very large petroleum cargo vessels (VLCC's), and gives Byco a distinctive competitive strategic advantage in Pakistan's petroleum industry.

Shareholding at Byco Petroleum

Byco Industries Incorporated (BII), Mauritius is the ultimate parent company, and Byco Petroleum Pakistan Limited (BPPL) is the 100 percent subsidiary. All Byco companies that existed previously have been merged into BPPL after the High Court of Sindh in January, 2017 approved the merger of Byco Oil Pakistan Limited and Byco Terminals Pakistan Limited with and into Byco Petroleum Pakistan Limited.

As a result, around 93 percent of Byco Petroleum Pakistan Limited is held by Byco Industries Incorporated, Mauritius whereas banks and financial institutions hold around 3.5 percent. The illustration shows the complete breakup of the shareholding.

Byco Isomerisation Pakistan (Private) Limited (BIPPL), which is a wholly owned subsidiary of Byco Petroleum Pakistan Limited, was completed in 2018. The isomerisation plant has a capacity of processing 12,500 barrels per day. Located in Balochistan, the plant is used for converting light naphtha into premium motor spirit.

Past performance Byco Petroleum Pakistan's financial performance improved in FY15 - moving from continuous losses to profits. Margins have come out into the profitable zone since 2015 and the marked improvement in its earnings has come largely from its expansion and up gradation strategies.

Four years have from FY15-FY18 been lucrative for Byco Petroleum; Even though FY15 was extremely challenging for the entire oil sector and especially for the refineries that witnessed a sharp decline in crude and product prices, Byco was able to post profits for a financial year. During the year, Byco Petroleum Pakistan Limited witnessed increased volumes, but revenues suffered at the expense of low oil prices. Improvement in gross profit however, came from increase in sales volume coupled with increased level of production that resulted in high absorption rate of manufacturing overheads and improved marketing margins. Moreover, an effective supply chain management coupled with a lower inventory holding period allowed the company to curtail its inventory losses. The company enhanced its oil marketing business by expanding its retail outreach.

FY16 was another challenging year for the oil sector as declining price trend continued to persist. Byco witnessed a fall in revenues by 16 percent year-on-year. However, volumes continued to move up, High sales volume, import of products at competitive pricing and improved marketing margins lifted the earnings to its highest.

The company continued on growth trajectory in FY17 as well where earnings went up by over 50 percent, year-on-year. The year also marked the bringing back of the 120,000 bpd refinery into operations. After four years, oil prices started to rebound in FY17, which along with higher sales volumes, especially those of motor spirit, were the growth factors for Byco. Also better refining and marketing margins and import of products at competitive pricing helped the company. The firm continued to increase its penetration in retail sector, and it was the same year when Byco Petroleum Pakistan Limited also for the first time in Pakistan, brought crude vessel of over 102,000 metric tons at its SPM facility - largest crude vessel ever berth in any port of Pakistan.

FY18 was a yet another sanguine year in terms of company profitability; Byco Petroleum witnessed a staggering growth of 130 percent in its earnings where net sales climbed by around 88 percent, year-on-year. Apart from increasing oil prices, volumes continued to play a role in the company's profitability.

The firm's annual report for FY18 highlights that the key factor for growth in earnings in FY18 came from the successful commissioning of the second refinery (ORC-II) in August, 2017, and the successful startup of Byco's catalytic reformer of ORC-II in February, 2018, which enables Byco to convert up to 24,000 barrels of heavy naphtha into motor spirit per day. In July 2018, Byco Isomerisation Pakistan (Private) Limited successfully commissioned the Isomerisation unit that converts naphtha into premium petrol.

Byco in FY19 That was the end of good times for Byco as FY19 spelled havoc on the company's profitability. Byco Petroleum Pakistan Limited saw its financial performance deteriorated due to the challenges faced by the downstream oil and gas sector. The company's earnings turned negative once again after four years in FY19.

A key challenge that has hampered refinery segment's earning growth has been low to nil off take of furnace oil by the power generation sector due to the replacement of FO with Liquefied Natural Gas (LNG) and coal for power generation. This resulted in reduced throughput for refineries and reduced sales volume. During FY19, BYCO's net revenues were seen climbing by 19 percent year-on-year. However, volumetric growth component was likely subdued. Moreover, FY19 saw staggeringly high currency depreciation, which took a toll on BYCO's earnings as well. Higher cost of sales and increase in exchange losses resulted in lower gross refining margins and net margins. What further affected the earnings for FY19 was higher selling and distribution expenses and lower other income. Overall, the company's unconsolidated earnings fell from a profit of over Rs5 billion in FY18 to a loss of over Rs1.6 billion.

Outlook The refining segment has performed poorly in FY19. And apart from their concerns over the decline in furnace oil off take by the power sector, the sector has not met up gradation targets and have stalled up gradation plans and capacity additions needed to match rising demand (largely met through imports currently) and increasing fuel specifications as per global standards. Byco's profitability has also suffered as it gets lower price for its diesel as per the pricing criteria approved by the Government, as the company has still not install Diesel Hydro Desulphurisation unit (DHDS).

1QFY20 has lifted some hopes as the company earned a profit that more than doubled in comparison to 1QFY19. While it is too early to predict a turnaround in Byco's fortunes as the general environment and the sector dynamics remain the same, the ill-effects of exchange rate are over. There stability in PKR has been a key factor in the company's improved bottom-line during the period. Growth in net profits for BYCO in 1QFY20 came not only from lower cost of sales and lower exchange related costs, but also lower selling and distribution costs and administrative expenses. Also reported the settling of a loan of Rs17 billion by the company during the period, which has helped its liquidity position.

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Byco -Financial Ratios -10 Year Summary
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                                        FY15     FY16    FY17    FY13    FY19
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Profitability Ratios
Gross Profit                     %      5.13     5.51    4.78    5.51    0.99
Net Profit                       %      0.08     1.76    2.47    3.02   -0.85
EBITDA Margin to sales           %      4.44     5.73    7.12    6.78    2.14
Return on equity                 %      1.39    20.86    9.95   16.61   -5.97
Liquidity Ratios
Current Ratio                  Times    0.52     0.53    0.38    0.56    0.56
Quick Mcid Test Ratio          Times    0.39     0.34    0.16    0.15    0.17
Activity Ratios
Inventory turnover             Times   13.19    12.04    8.46    7.49    6.68
Debtors turnover               Times    9.68     8.81   13.45   32.22   36.63
Creditors turnover             Times    3.05     2.58    2.48    3.14    3.69
Total assets turnover ratio    Times    1.71     1.39    0.78    1.28    1.52
Fixed assets turnover ratio    Times    6.91     6.18    1.28    2.42    2.86
Capital Ratios
Interest coverage ratio        Times    1.06     1.41    1.58    2.87    0.27
Debt to equity ratio           Times    3.44     3.39    1.96    1.25    1.78
Earnings per share               Rs     0.07      1.4    0.41    0.94   -0.32
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Source: Company Accounts

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Byco Petroleum Pakistan Limited
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BYCO-Pattern of Shareholding (as of 30th June, 2019)
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Shareholders Category                                        %
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Associated Companies, Undertakings and                   91.83
Related Parties-(Byco Industries Incorporated)
NIT and ICP                                                  -
Directors, CEO and their spouse and minor                 0.00
children
Banks, Development Financial Institutions, Non            3.46
Banking Finance Institutions
Modarabas and Mutual Funds                                0.03
Insurance Companies                                       0.01
Others                                                    0.23
General Public                                            4.43
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Total                                                      100
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Source: Company accounts

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Byco Petroleum Pakistan Limited - Unconsolidated
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Rs(mn}                          1QFY20      1QFY19       YoY
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Turnover-net                    49,071      53,714       -9%
Cost of sales                   46,985      52,033      -10%
Gross profit                     2,086       1,681       24%
Administrative expenses            230         232       -1%
Selling and Dist. Expenses         104         130      -19%
Other expenses                     313         180       74%
Other income                       349         207       69%
Operating profit                 1,788       1,346       33%
Finance costs                      917         820       12%
Profit before tax                  871         526       65%
Tax                                  0         130     -100%
Profit aftertax                    871         397      120%
EPS                               0.16        0.07      129%
Gross margin                     4.25%       3.13%
Operating margin                 3.64%       2.51%
Net margin                       1.77%       0.74%
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Source: FSX