Pakistan State Oil (PSO) is the largest oil marketing company in Pakistan which is engaged in storage, distribution and marketing of various petroleum products such as motor gasoline, furnace, high speed diesel, kerosene, LPG, jet fuel, CNG, petrochemicals and lubricants. It has the largest network of retail outlets that serves the automotive sector and supplies fuel to the railways, aviation industry, armed forces, power projects and the agriculture sector.
PSO possesses the largest distribution network in the country comprising of 3,689 outlets, out of which 3,500 outlets serve the retail sector and 189 outlets serve bulk customers. It operates 31 Company-Owned and Company-Operated (Co-Co) sites serving the retail sector.
In addition to retail customers more than 2,000 industrial units, business houses, power plants and airlines are being fuelled by PSO. The firm has a market share of 64 percent amongst all other oil marketing companies in the country. It imports HSD, FO and motor gasoline in order to meet the supply deficit. Transport and aviation are the largest consumers of HSD and Mogas, while the IPPs and power plants use FO.
With 9 installations and 23 depots located across the country, PSO has a storage capacity of almost one million tonnes representing 74 percent of the total storage capacity owned by all the oil marketing companies. PSO also indulges in the lubricant business in order to cater to all kinds of lubricants customers, including automotive, hi-street and industrial consumers.
PSO SALES PERFORMANCE PSO continues to be the market leader in the black oil segment; however, its market share dipped to 75.5 percent in FY13 from over 78 percent last year. The core reason was restricted furnace oil supplies to the power plants on credit--as the receivables continued to mount, in the pre-circular debt resolution times.
The white oil segment recorded a decent 6.6 percent year-on-year growth but with a flat market share of 55 percent in comparison to the yesteryear. Mogas (Petrol) sales witnessed a sizeable jump with a 26 percent year-on-year increase. Higher number of automobiles on roads, heightened use of power generators due to power load shedding and the massive CNG load management all chipped in to boost PSO's share in Mogas category.
Despite an overall reduction of nearly 3 percent year on year in demand for High Speed Diesel, PSO managed to inch up its market share and recorded a 2 percent year-on-year growth in HSD sales. The giant's strong and well-extended distribution network coupled with focussed campaigns enabled it record impressive HSD sales growth.
FINANCIAL PERFORMANCE PSO's revenue grew strongly mainly on the back of impressive volumetric sales growth. The 8 percent year-on-year growth in sales revenue resulted in PSO recording its highest ever yearly revenues. Gross profit margins largely remained flattish, dropping by 80 bps over the previous year. Soft gross margins could be partially explained by insignificant movements in oil prices during the period, restricting the likely inventory gains that had boosted the margins in FY11 to over 3.5 percent.
Government's injection of nearly Rs 170 billion during FY13 eased the liquidity woes of PSO considerably. PSO had floated various options for partial resolution of circular debt earlier and the response from government came well in time. Improved liquidity resulted in reduced short-term financing requirements to maintain the working capital, as evident from a significant drop in short-term borrowing which more than halved during the period over the previous year.
The positive impact of government liquidity injection trickled down to the bottom line which grew by an impressive 39 percent year on year. The drop in other income on account of reduced penal income on receivables was more than offset by a sharp reduction in financial charges, owing to the above mentioned reasons.
Furthermore, the company took huge strides towards operating cost curtailment, resulting in a massive decline in other operating expenses. The single largest contributor to this account was a drastic reduction in exchange loss for the period, which less than halved supporting the bottom line massively.
OUTLOOK There appears to be no threat to PSO's market leader status in the foreseeable future as it is well on course to further cement its position backed by a strong distribution channel and ever growing business development initiatives. PSO, under the leadership of its previous Managing Director, had envisioned growing into a fully integrated energy company.
It is too early to call right now whether those plans still remain there or not, but, if the new management sticks to the ex-MD's vision, PSO would be moving ahead with transportation of furnace oil to Pakistan's shores in collaboration with PNSC, building a state of the art modern refinery in KPK with a capacity of 40,000 bpd, and its plans at Thar with ENGRO Corporation.
With oil prices expected to be range bound in the near future, PSO seems well poised for decent revenue growth. Continued load curtailment of CNG would also mean better Mogas sales.
That said PSO will have to look to improve its sales mix sooner than later, as overdependence on furnace oil may backfire going forward. With the government's intention to convert power plants to imported coal, Pakistan might be needing furnace oil in les quantum, for which PSO needs to be prepared beforehand.
The circular debt menace has cooled down for now, but there is no guarantee it will not resurface. In fact, the circular debt is believed to have started raising its ugly head once again, for which the PSO cannot rely on the government to bail it out yet again. The future seems bright should PSO stay abreast with changes in the market dynamics.
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PAKISTAN STATE OIL (PSO)
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FY11 FY12 FY13
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Profitability
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Gross margin % 3.5 2.9 2.8
Net margin % 1.5 0.8 1.0
ROE % 35.3 18.1 20.3
ROA % 5.6 2.6 4.5
ROCE % 66.2 47.2 40.7
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Asset utilisation
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Inventory turnover times 12.7 13.0 13.3
Debtor turnover times 8.0 7.0 8.8
Creditor turnover times 5.7 5.7 6.5
Total asset turnover times 4.2 3.9 4.1
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Leverage
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Interest Cover times 2.5 2.17 3.51
Current Ratio times 1.16 1.15 1.04
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Investment
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EPS (Rs/share) Rs/share 59.83 36.67 50.84
P/E times 3.07 4.47 6.30
Dividend Payout % 11.60 14.20 13.77
Dividend yield % 3.78 3.18 2.18
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Source: Company Accounts
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