Being the 4th company which granted the marketing licence in Pakistan, Attock Petroleum Limited is the 3rd largest Oil Marketing Company of Pakistan with a present market share of 7%. The APL is part of the first fully integrated oil company of sub-continent.
Its sponsors are Pharaon Commercial Investment Group Limited (PCIGL) and the Attock Group of Companies. The Pharaon Group is internationally engaged in diversified entrepreneurial activities including hotels, oil exploration, production and refining, manufacturing of petroleum products, chemicals, cement manufacturing and trading, real estate etc.
On the other hand, the Attock Group consists of Attock Oil Company Limited (AOC), Pakistan Oilfields Limited (POL), Attock Refinery Limited (ARL), Attock Petroleum Limited (APL), Attock Information Technology Services (Pvt) Limited (AITSL), Attock Cement Pakistan Limited (ACPL) etc, thus the strong backward and forward linkages give APL a strong competitive advantage.
APL started exporting to Afghanistan in April 2003 and presently catering to the export of Naphtha to Middle East, Far East and South Asia. Presently, the products being exported include premier motor gasoline, superior kerosene oil, jet fuels, high speed diesel and bitumen.
The APL holds a significant local market share in petroleum products including furnace oil, light diesel oil, solvent oil, mineral turpentine oil, asphalt and jute batching oil to meet the demands of the industrial consumers. The company has maintained its upward thrust in export of petroleum products despite strikes and hostile environment.
To strengthen the network of its retail outlets, the APL extended its operations towards Karachi and rest of the Sindh. 13 new petrol pumps commissioned during the period under review thus bringing the total number of operating pumps to 190 as at December 31, 2007 in comparison to 157 in December 2006.
RECENT RESULTS - (H1FY08):
Higher international oil prices, improved product mix and effective inventory management resulted increase in gross sales revenue by 3% to Rs 25,607 million during the half year ended December 31, 2007 (2006: Rs 24,899 million). The other operating income also showed an increase of 115%, on account of commission and handling charges. The increased revenues resulted in net profit of Rs 1,075 million (2006: Rs 814 million) and earnings per share of Rs 22.39 (2006: Rs 16.97) for the half year ended December 31, 2007.
The petroleum sector inclusive of E&P, refineries and OMCs showed a strong growth in HY08, due to sustained demand in the country and rising international oil prices that gave an opportunity to OMCs to book handsome inventory gains. However, the reluctance of the government to pass on the burden to the consumers in aforementioned time period created misery for the OMCs in form of PDC. For APL, receivables from GoP under PDC increased in six months from Rs 289 million to Rs 1,204 million as at December 31, 2007. The steps have recently been taken by the government to alleviate the liquidity problems that OMCs are facing due to PDC issue.
In 2007, the OMCs witnessed volumetric growth of around 12% from last year mainly due to increase in demand of furnace oil because of scarcity of hydel power and gas. On the contrary, there was a reduction in OMCs' margins due to change in pricing formula of regulated products in 2006 affecting the profitability of the whole industry. However, the APL mitigated such negative impact through improved product mix leading to a rise in revenues of the company. The company also managed to retain its market share around 7% in 2007.
The Government of Pakistan continued to subsidise the oil prices during the year on the backdrop of steeply rising international oil prices. Many countries, which had subsidised the critical fuels such as diesel and gasoline, were forced to either reduce or completely withdraw the fuel subsidies during the year. The subsidies had become too expensive in an environment of rapidly rising international oil prices. The OMCs are carrying the burden of diesel subsidy through Price Differential Claim (PDC). The OMCs are facing liquidity problems due to piling up of its working capital on account of PDC.
Nevertheless, the APL is relatively less susceptible to volatile oil prices due to higher weightage of deregulated items in its product portfolio. With a diversified product mix and lower vulnerability to volatile oil prices, the APL is expected to increase its market share to 15% by 2010.
FINANCIAL REVIEW 06-07: APL posted net sales revenue of Rs 44,131 million, showing an increase of Rs 3,291 million (8%) from the last year. This increase in sales has supported in achieving gross profit of Rs 2,045 million showing an increase of Rs 233 million and profit after tax of Rs 1,729 million reflecting an increase of Rs 336 million.
This improved performance is attributable to an increase in sales volume and improved product mix. Other operating income increased from Rs 323 million to Rs 406 million, mainly due to the increase in the commission and handling of export related services.
Income on bank deposits and investments increased by Rs 234 million representing higher yield through better fund management and increase in average bank balances. The tax charge and the workers' profit participation fund have increased in line with increase in profitability.
Consequently, the earnings per share increased from Rs 34.82 to Rs 43.22 because of the aforementioned reasons. The cash generated from operations during the year was Rs 2,097 million (2006: Rs 1,725 million) against which cash used in various capital projects and payment of dividend amounts to Rs 144 million and Rs 319 million respectively.
APL performed reasonably better than its peers in terms of liquidity position. The expansion in storage capacity, strong backward integration with Attock Oil Company Limited (AOC) along with backing from Attock Group enabled the company to keep its liabilities near to the ground.
On account of this the company coped up reasonably well during oil price recession in 2H06. As evident from the graph, the company's current ratio is well above 1. In FY07, the cash and bank balances increased, leading to an increase in the current ratio.
However, the declining quick ratio trend is demonstration of the fact that APL has accumulated large amount of inventory, owing to high sales price, which has significantly diverted the interests of the consumers towards cheaper substitutes, not at all a healthy sign for the overall performance of the company in the long run.
Piling up of inventory owing to expansion in storage terminals, enhancement of infrastructure, retail outlets and petrol pumps all contributed towards higher inventory turnover ratio and consequently prolonged operating cycle.
Further, the expansion and up-gradation plans might pose a serious threat to the company in terms of assets efficiency owing to decreased consumption of POL products. But this threat is not very potent in light of the aggressive marketing and catering to the non-fuel segment efforts of the APL. Also, the increased storage capacity will enable the company to enjoy any favourable changes in the international oil prices.
It will not be out of place to mention the ongoing efforts of the company towards marketing and product diversification, which enabled the company to surpass other players of the industry. High amount of trade debt has resulted in high DSO, which means that APL is not proficient enough in converting its credit sales into cash sales.
While record sales/equity ratio was declared in FY06 on the back of higher sales volume in all major categories along with an increase in petroleum prices, APL is presently facing a totally opposite scenario due to an increase in equity through right issues and profit retention in order to meet its expansion requirements.
The asset management figures show a slight decline generally in FY07. This, however, is misleading as the inventory levels increased due to increased storage capacity, and asset base increased because of expansion in retail network plus investment in storage capacities etc.
Profitability trend of APL is not in line with the industry trend. Owing to company's entrance in the southern market and continuing strong international oil prices, the company was able to outshine other players of the industry in terms of net profit margin. In addition to this, zero interest expense on account of zero borrowings or loans contributed towards higher net income and thus higher net profit margin in FY06. The growth momentum in sales was both volumetric and price-led.
However, the profit margins increased marginally in FY06 on the back of lower vulnerability to decline in international oil prices, better product mix and exports. On the other hand, ROE has declined by a far greater extent, owing to greater reliance on equity financing and higher retained earnings, which are subsequently ploughed back into the company for future operations.
ROA on the other hand has declined only marginally but still signifies its asset utilization strength as compared to that of its peers. The APL is the only company in the sector with zero leverage. Moreover, its non-current liabilities do not include any loan or borrowing. In short, APL is not a debt-financed company; instead it relies on equity financing. This is evident from the company's declining long-term debt to equity ratio.
Moreover, due to its increasing current liabilities; debt-to-asset ratio has been increasing until a recent downturn. However, the trend in debt to asset ratio is still on a lower side as compared to that of other players.
EPS of the company has witnessed an increasing trend. This can be attributed to lower net income in absolute terms due to lower sales volume. Consequently, the DPS also decreased marginally. The book value per share however is increasing with shows that company has an increasingly high net worth for it shareholders. The closing market price as on 5th May 2008 was Rs 539.90.
FUTURE OUTLOOK: The management of the Attock Petroleum Limited is presently seeking to bolster its current market position by expanding its business horizons to new geographical areas by setting up new storage terminals besides enhancing the existing storage facility. Further, the company is actively pursuing the setting up of quality retail outlets throughout the country.
Although the structural shift towards cheaper sources of energy has already set in; product diversification, better marketing strategies, strong backward and forward linkages combined with the company's ability to export some of its products is expected to alleviate the impact of local change in consumption patterns. To dominate the down stream petroleum sector following projects are planned/under consideration:
-- In order to meet the fuel demands a terminal is under construction at Machike likely to be commissioned by mid 2008 at a total cost of Rs 300 million. The terminal will have a storage facility of HSD, PMG & SKO.
-- Another terminal at Port Qasim is in designing phase. Material procurement is in the process and terminal is expected to be commissioned by end of 2009. This will help the company to import/export petroleum products at its ease and also to meet the demand of the southern region of the country.
-- Also, the company is actively considering installing storage terminals at other strategic locations of the country like Mehmood Kot (Multan) and Tarru Jabba (Peshawar). * Followed by significant enhancement of HSD storage at Rawalpindi Bulk Oil Terminal in the last two years, enhancement of storage of other products has been planned in the ensuing year. Further, the building of road network inside terminal and gantry expansion are also being carried out to ensure safe movement of POL products and handling the additional volume to meet the growing demand of feeding products to the upcoming retail outlets. Fire fighting network is also being upgraded to pledge safety measures.
-- A fuel supply agreement has been signed with Attock General Limited for supplying FO to upcoming 150MW FFO based power plant at Morgah, Rawalpindi. For this purpose, the necessary arrangements including the installation of piping system are being made. * In order to cater the growing demand of furnace oil in the country the company is planning to import furnace oil.
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ATTOCK PETROLEUM LIMITED-KEY FINANCIAL DATA
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Income Statement (Rs'000) Jun'04 Jun'05 Jun'06 Jun'07
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Total Revenue 7,586,203 9,909,682 40,839,299 44,130,536
Cost of Goods Sold 7,093,923 9,478,639 39,027,444 42,085,565
General & Administrative Expense 94,416 131,140 241,185 283,248
Other Operating Expenses 31,502 33,705
Operating Profit (EBIT) 533,564 559,872 1,894,131 2,167,941
Financial Charges - - - -
Net Income Before Taxes 533,564 559,872 1,945,606 2,435,606
Net Income After Taxes 335,764 460,449 1,392,606 1,728,606
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Balance Sheet (Rs'000) Jun'04 Jun'05 Jun'06 Jun'07
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Stores & Spares 235 601 1,839 3,163
Stock in Trade 21,457 110,076 74,220 341,702
Cash & Bank Balances 595,324 1,267,074 2,280,904 4,066,809
Total Current Assets 1,042,908 2,021,863 5,709,911 7,995,195
Total Non Current Assets 290,827 426,006 874,205 988,572
Total Assets 1,333,735 2,447,869 6,584,116 8,983,767
Total Current Liabilities 587,353 1,336,685 4,408,787 5,402,649
Long Term Liabilities 73,700 98,099 129,638 126,821
Total Liabilities 661,053 1,434,784 4,538,425 5,529,470
Paid Up Capital 300,000 400,000 400,000 400,000
Total Equity 672,682 1,013,085 2,045,691 3,454,297
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LIQUIDITY RATIO Jun'04 Jun'05 Jun'06 Jun'07
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Current Ratio 1.78 1.51 1.30 1.48
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ASSET MANAGEMENT Jun'04 Jun'05 Jun'06 Jun'07
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Inventory Turnover(Days) 0.91 3.56 0.59 2.49
Day Sales Outstanding (Days) 9.81 8.91 19.50 18.04
Operating Cycle (Days) 10.72 12.47 20.09 20.53
Total Asset turnover 6.42 4.57 7.02 5.56
Sales/Equity 12.72 11.05 22.59 14.46
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DEBT MANAGEMENT Jun'04 Jun'05 Jun'06 Jun'07
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Debt to Asset(%) 49.56 58.61 68.93 61.55
Debt/Equity (Times) 0.98 1.42 2.22 1.60
Times Interest Earned (Times) - - - -
Long Term Debt to Equity(%) 10.96 9.68 6.34 3.67
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PROFITABILITY (%) Jun'04 Jun'05 Jun'06 Jun'07
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Gross Profit Margin 5.75 3.85 3.92 4.09
Net Profit Margin 3.92 4.11 3.01 3.46
Return on Asset 25.17 18.81 21.15 19.24
Return on Common Equity 49.91 45.45 68.08 50.04
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PER SHARE Jun'04 Jun'05 Jun'06 Jun'07
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Earning per share 8.39 11.51 34.82 43.22
Price earning ratio 0.00 13.73 9.28 10.82
Dividend per share 3.21 3.00 8.95 14.00
Book value 22 25 51.14 86.36
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