A player in the downstream sector of the country, Byco Petroleum Pakistan Limited is relatively an emerging company in the industry. From oil refining, petroleum marketing and chemicals manufacturing to petroleum logistics, the group has diverse set of operations under its umbrella.
The ownership structure is such that from June 30, 2011, Byco Oil Pakistan Limited, a wholly owned subsidiary of an international joint venture, became the ultimate parent company for Byco Petroleum Pakistan Limited. BOPL now has 86.98 percent ownership in the company. Byco Petroleum has one wholly owned subsidiary, Byco Terminals Pakistan Limited.
Byco Petroleum Pakistan's operational refinery has the capacity of 35,000 barrels of crude oil per day to various petroleum products such as LPG, naphtha, motor gasoline, kerosene, jet fuel, HSD, furnace oil, HOBC.
FY11 HIGHLIGHTS Byco Petroleum (BPPL) primarily focuses its two-core activities of refining oil and marketing petroleum. FY11 was another year where the company was fraught with the energy sector woes. During the said period, the company's refinery throughput was down massively to only 30 percent compared to 54 percent in FY10 due to working capital hold-ups. This occurred because of the inherent volatility of the crude oil prices and the rupee-dollar exchange rates. As a result, the refinery operating days were axed down drastically, processing only 3.48 million barrels of crude oil compared to 5.38 million barrels in FY10.
The petroleum marketing business however, was the saviour for the company for FY11. The revamped identity from Bosicor to Byco has helped the company renew its presence in the petroleum marketing business. During FY11, the company was able to attract new clients from the shipping, E&P and mining sectors. The company was also able to exports high margin jet fuel.
PROFITABILITY DURING FY11 AND 1HFY12 It seems that suppressed margins have become a fate of the refining businesses in the country. This is the main cause behind the dwindling profitability of Byco Petroleum Pakistan Limited as well. During FY11, growth in revenues plunged as gross sales contracted by more than nine percent YoY due to declining throughput. The gross profit had remained flat during FY11 versus similar period FY10. However, a 37 percent and 54 percent increase in the administrative and selling and distribution expenses in FY11, respectively, weighed down the operational earnings by almost half, vis-à-vis FY10.
Overall the net earnings during FY11 dropped further into the red zone with loss per share of Rs 4.91 compared to Rs 4.12 during FY10. In the subsequent first half of FY12, the trend of shrinking refinery margins and falling throughput continued. The company continued to face significant working capital constrains, which resulted in limited supply and episodic business operations that affected not only the profitability of the refining business but also the petroleum marketing activities terribly.
Though finance charges eased to some extent during FY11 versus FY10, they remained a significant cost component during 1HFY12. As a consequence, the loss during 1HFY12 versus that of 1HFY11 increased two folds.
LEVERAGE AND FINANCIAL CONSTRAINTS During the fiscal year, the company continued to grapple with working capital requirements. Overall the refining operations had remained under-utilised due to cash flow problems, for which the company had been negotiating with various lenders.
The company has approached various lending institutes for a conversion of its existing short-term running finance into term financing for the import of crude oil and petroleum products for better utilisation of the refining capacity. Up till FY11, the company had been bearing the entire burden of the transportation cost which should otherwise have been reimbursed to the company from the inland freight equalisation margin (IFEM) pool or the government. But the recent decision by the Ministry of Petroleum and Natural Resources for the recovery of crude transportation cost through IFEM pool will bode well for the financial position of the company. Meanwhile, the receivables from KESC and PSO totalling Rs 6.8 billion as at December 30, 2011 continue to stress the financial position of the company, making payments by the refinery unpredictable, and many at times delayed.
OUTLOOK With ambitious goal to become the largest oil company in the country, the group has plans to list two more of its companies, Byco Oil Pakistan and Byco Terminal Pakistan, on KSE.
Besides setting up a petrochemical complex, the group has also embarked upon its plan to expand its production capacity through constructing what will be the single largest refinery in the country, being able to refine 120,000 barrels of oil per day. As for the overall environment of the refinery sector is concerned, declining trend in refinery production and margins have been seen lately, owing to the volatility in the international oil market. The main reason behind depressed capacity utilisation and liquidity problems by the refineries is the shrinking gross refining margins and the inter-corporate circular debt. This is also vivid from the rising imports of petroleum products.
As a result and owing to the southward trend in throughputs, market shares of many refineries during the current fiscal year FY12 have receded. According to analysts, Byco's capacity utilisation during the current fiscal year has gone down to half of what it was similar period last year, and it has lost its market share significantly too. The oil and gas sector is heavily regulated. What the industry is hoping now is the deregulation of petroleum products which will help them become more competitive and improve efficiency. However, the priority has to stay with the resolution of the non-ending inter corporate circular debt.
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BYCO PAKISTAN
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FY09 FY10 FY11
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Profitability
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Gross margin -8.8% 1.6% 1.7%
Operating margin -23.1% -3.6% -4.8%
Net margin -23.2% -3.9% -5.1%
ROE 398.7% 38.4% -102.5%
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Liquidity & Leverage
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Current Ratio 0.72 0.52 0.44
Quick/Acid Test 0.52 0.32 0.29
Interest Coverage -0.61 0.51 0.12
D/E (2.65) (1.30) 1.84
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Activity/Turnover
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Inventory turnover 9.94 8.34 9.47
Debtors turnover 4.91 5.99 5.85
Creditors turnover 2.38 1.82 1.45
Total Assets turnover 1.41 1.28 1.09
Fixed Assets turnover 3.00 2.22 1.68
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Market
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EPS ( Rs per share) -26.35 -4.12 -4.91
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