Research Analyst

Oct 27 - Nov 02, 2008

Attock Petroleum Ltd (APL) is engaged in procurement, storage and marketing of petroleum and related products. The Company generates revenues through the marketing of petroleum products, including furnace oil, asphalt, lube base oil, light diesel oil, solvent oil, mineral turpentine tar and jute batching oil. In September, 2007, the number of commissioned outlets reached at 180 with the total sales volume of 41,980 metric tons. Pharaon Investment Group Ltd holds 34.38% shares of the Company.


The Financial year 2007-08 was a tough year for the industry due to the fact that international crude oil prices rose from USD 67/bbl in June 2007 to USD 128/bbl in June 2008 while the Government continued to subsidize the oil prices during the year. The Oil Marketing Companies (OMCs) carried the burden of diesel subsidy through Price Differential Claim (PDC) on High Speed Diesel which increased from Rs 5.21 per liter in June 2007 to Rs 35.03 per liter in June 2008. As a consequence, the companies faced liquidity problems due to piling up of its working capital on account of PDC receivable from the Government of Pakistan (GOP). The year under review witnessed volumetric growth of around 7% from last year in total industrial trade mainly on account of increase in consumption of white oil. Despite stiff competition, the Company managed to increase its market share in white oil from 2.11% during last year to 2.57% during the year and resultantly the year ended with best ever financial results. Subsequent to the year end, the Government has squeezed OMC's margin on regulated products which will affect the profitability of the OMCs and investment plans. Further Inland Freight Equalization Margin, which used to be self managed by the industry, has been handed over to Oil and Gas Regulatory Authority (OGRA) with depots reduced from 29 to 13. Recently, the Government has demonstrated a strong commitment and taken a number of steps to deregulate the Oil & Gas sector in line with the overall vision of a liberalized economy. Lately, the oil sector has been the focus of deregulatory reforms that have been undertaken by the Government which inturn lined the way for fierce competition compelling OMCs to adopt better marketing practices so as to retain market share. In the long term, market based mechanism is likely to intensify the competition among the existing & upcoming OMCs which may have an adverse impact on the Company.


During the year 2007-08, the net sales revenue jumped to Rs 53,242 million compared to Rs 44,131 million in the previous year reflecting an increase of Rs 9,111 million by 21%. The increase in sales revenue has supported in achieving profit after tax of Rs 2,642 million showing an increase of Rs 913 million, therefore, the profitability of the company before tax and after tax increased by 45% and 53% respectively. This improved performance is attributable to higher international oil prices, improved product mix and effective inventory management. Consequently, earnings per share increased from Rs 36.01 to Rs 55.03 i.e. by 53%. The cash generated from operations during the year was Rs 2,989 million as compared to Rs 2,097 million in 2007, against which net cash used in various investing and financing activities amounted to Rs 386 million and Rs 552 million respectively.





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Source: APL


The Company contributed Rs 8,406 million towards national ex-chequer in the form of taxes and levies and earned precious foreign exchange of US$ 122 million through export of products and commission on related services. The Company is providing premier quality petroleum products even in remote areas particularly the Northern Areas and interior Sindh through its network of retail outlets and distributors contributing for the development of the local labor force, thus promoting employment, technical know-how and improving the earning capacities of the residents.


The operations of the Company are dependent on timely availability of the POL products provided by the refineries. Refineries, in turn, are dependent upon the availability of crude oil from the gulf region, except for ARL, which uses indigenous crude oil. There is a risk that due to political instability in the region there may be a disruption in the supply thereby affecting negatively in the operations of the Company. However, acquisition of NRL by Attock Group will boost the company. Furthermore, the Company enjoys the support of refineries under proper agreements thereby ensuring smooth supply of POL products for the Company. Similarly, imposition and enhancement of duties, taxes, other levies and revision in pricing formula of regulated products remain a possibility. The Company continues to focus on a product mix of deregulated products generating growth and higher margins. Currently, there has been a huge reduction in the international oil prices as the prices have gone down to less than 70 USD per bbl for the first time in 14 months. Despite of such high reduction, the Government has not allowed oil prices to fall down locally in order to wipe out the subsidy provided by the Govt previously. This will boost the performance of OMCs and we can expect APL to gain further profits in the future.