ATTOCK Petroleum Limited, a Pharaon Group entity, was one of four companies that were granted the oil marketing license in 1998.

Although dwarfed by the giant Pakistan State Oil, APL has made its way to be the third biggest oil marketing company in the country, with a market share of around 10pc, ahead of its peer Chevron Pakistan Limited.

The company’s sponsors include the Pharaon Investment Group Limited, which holds 29m shares, equivalent to 34.9pc of the 83m outstanding stock. The Pharaon Group is engaged internationally in diversified entrepreneurial activities.

The oil marketing company was able to outpace the industry’s growth of 8pc due to aggressive retail expansion, but inventory losses in the fourth quarter ate into its earnings

The Attock Group of Companies, which also sponsors the company, is the only fully vertically integrated group covering all aspects of the oil and gas sectors in the country, from exploration, production, refining to marketing of a wide range of petroleum products.

APL has a network of petrol pumps in Khyber Pakhtunkhwa and Punjab, and the company is strengthening its presence in major urban centres. An industry source said the company also has two petrol stations in Jalalabad, making it the first OMC to carve out inroads into Afghan terrain.

The company’s chairman, Dr Ghaith R. Pharaon, who signed the annual report for the financial year 2014 on August 14 in Beirut, remarked: “As part of a fully integrated energy group with no gearing and strong cash flows, we have the financial strength to weather economic crises”.

The company’s CEO Shuaib A. Malik says “APL markets and supplies fuel to the manufacturing industry, armed forces, power producers, government and semi-government entities, agricultural customers and retail outlets. The company also offers a range of lubricants, including both automotive and industrial grades, blended with base oils and additives”.

The report for the quarter ending March quotes the CEO as saying: “The company is operating in a competitive environment and although market conditions are getting tough, the company has geared up for the challenge. As part of the retail development plan, the management is setting up company financed sites across all major urban centres. During the period under review, 35 new retail outlets were established to take the total outlets to 449”. The company’s outlets had risen to 468 by end-June.

Mr Malik also asserted that the construction of the bulk oil terminal at Mehmoodkot has progressed. “This infrastructural development would be a huge milestone, as it would not only increase storage capacity, ensuring product availability, but also [lead to] community involvement and creation of jobs in the remote area of Muzaffargarh.”

Listed at the stock exchanges on March 7, 2005, the company’s paid-up capital stands at Rs829m, with a big retained ‘unappropriated profit’ of Rs12bn. That is not to say that the company denies its shareholders their due. Cash dividend amounting to Rs47.50 per share was paid in the financial year 2013-14. And the company also contributed a hefty sum of Rs48bn to the national exchequer in taxes and levies. Yet, the APL share is expensive. On Thursday, the stock closed at Rs575 per share, against its par value of Rs10. The company maintains free float of 20pc and carries a market capitalisation of Rs51bn.

Despite all that, the shareholders had little to cheer about the firm’s results for the year ending June 30. The company earned an unimpressive profit-after-tax of Rs4bn on net sales of Rs205bn.

Global Securities analyst Sharoz Hameed stated that “The earnings for FY14 were up 11pc primarily due to 18pc growth in sales volumes of major petroleum products (high speed diesel, motor gasoline and furnace oil)”. He asserted that despite an impressive yearly volumetric growth of 17pc during the fourth quarter (4QFY14), the company witnessed a decline in earnings due to inventory losses as a result of the decrease in petroleum prices.

Yet, the company was able to outpace the industry’s growth of 8pc due to aggressive retail expansion. Regardless of volumetric growth, the company witnessed a decline in gross margins in 4QFY14 due to inventory losses. “During the fourth quarter, HSD, Mogas and FO prices declined by 6pc, 2pc and 4pc, respectively,” the analyst noted.

Meanwhile, Taurus Securities analyst Hassan Raza observed that “despite a 20pc overall volumetric growth in fuel products during FY14 (mogas up 31pc; HSD higher by 20pc and FO rising by 16pc) on yearly basis — which led to 25pc rise in net revenue — gross profit and after-tax earnings of the company grew by only 15pc and 11pc respectively”.

The analyst added that fourth quarter earnings contracted by 30pc from the previous year, mainly due to significant inventory losses caused by downward price revision of retail fuel, especially diesel, owing to softer crude oil prices and appreciation of the rupee against the dollar. Estimates suggested inventory loses to be between Rs500m to Rs550m in the quarter alone.

Ali Hasan, an analyst at Foundation Securities, pointed out that “APL managed to increase its market share by 80bps to 9.4pc primarily through a higher market share in diesel”. He believed that the company could improve its overall market share to 10.5pc in FY15.

Published in Dawn, Economic & Business, September 8th, 2014