Growth in profitability for Hi-Tech Lubricant Limited (PSX: HTL) took a breather in FY18, as the firm’s earnings slipped despite higher revenues. Factors like high commodity prices, depreciating currency, as well as the company’s expansion and growth plans were blamed to pull down the profitability in FY18.

The down cycle continued in 1HFY19 for Hi-Tech Lubricants Limited where the firm incurred a loss after tax of Rs424 million versus PAT of Rs382 million in 1HFY18. However, this time, an added factor that led to negative earnings was a decline in HTL’s topline.

The decline in the firm’s revenues continued from 1QFY19, where the company highlighted seasonal weakness of lubricants industry in the first quarter of any financial year. Other factors that might have affected sales in 1HFY19 include increasing energy costs and sliding currency along with higher inflation. The company’s Director’s Report for 1QFY19 highlights that while over time lubricants demand has some elements of inelasticity, in the short term it can be impacted by consumer and retailer behavior in response to macroeconomic issues.

Higher distribution and marketing costs previously associated with the company’s ongoing expansions remained under control, but administration costs and finance costs increased, pulling down the earnings for the period.

HTL had initiated a two-phased expansion plan back 2016 after the IPO for HTL Express centers, HTL Stations, and HTL Mart. The first phase was the development of HTL state of the art retail outlets across Pakistan with multiple services and technical support. This phase of the expansion plan is well underway with retail outlets in Karachi and Lahore operational and running smoothly to contribute to the revenues. The firm is now looking to replicate the model in other parts of the country like Islamabad and Rawalpindi. The company is in discussions with corporates to introduce corporate customers of HTL Express centers to increase revenues.

Phase 2 of the expansion plan was about setting up an OMC and a network of fuel stations in different parts of Pakistan.

Under this, a total of 360 fuel stations are expected to be laid out across the country in the coming years. Construction of fuel depots has been planned in multiple parts of the country. As per the latest quarterly report available (1QFY19), the OMC is awaiting final approvals and is ready to begin supplying petrol and diesel to the dealers