With 3,514 outlets across Pakistan, PSO has the largest distribution network through which it serves both retail and bulk customers. More than half of these retail and over 160 consumer business outlets have been upgraded with the state-of-the-art modern-day facilities in accordance with the company's New Vision Retail Initiative. With 9 installations and 23 depots located across the country, PSO's storage capacity is the largest in the country and is approximately a million metric tons, representing 68 percent of the total storage capacity owned by all the OMCs.
In the last few year, the oil marketing companies have seen a significant change in their revenue mix, primarily due to shifting stance on furnace oil. Where rising furnace oil volumes have been seen shrinking, retail fuels like diesel and petrol took a robust flight as demand for them grew. At the same time, LNG has been replacing FO in the power sector. In the same vein, PSO, the largest player in the industry has too seen its black oil market shrinking, and white oil market growing. However, recently due to the rise in competition and increased prices, lower demand and depreciating currency, the boom in retail fuels has now hit a snag, and volumes of all players depict this slowdown.
Shareholding and strategic investments
Government of Pakistan holds around 22.47 percent shares of PSO; NBP Trustee Department has 14.88 percent shareholding. A breakup of the shareholding at PSO is shown in the table. The firm has strategic investments including 12 percent in Parco's White Oil Pipeline Project; 22.5 percent in PRL; 22 percent in Pak Grease Manufacturing Company Limited; 49 percent in Asia Petroleum Limited; and 62 percent investment in Joint Installation of Marketing Companies, and 50 percent in new Islamabad airport fuel farm as per the company's latest annual report.
Recent past at PSO
PSO introduced the higher grade RON environment-friendly gasoline brands Altron Premium and Altron X High Performance in FY17 for the first time the company also introduced Action+ Diesel, a superior quality and environment friendly Euro-II compliant diesel. This was followed by other OMCs also introducing their upgraded versions of the fuel.
In terms of volumes, PSO witnessed a growth of 8 percent in FY17 on a year-on-year basis, compared to a growth ranging between -9 percent to 4 percent in the previous six fiscal years. Rise in volumes along with higher prices and the RLNG business led to 30 percent year-on-year surge in the firm's sales revenues.
During the year, PSO continued to lead with overall 54.8 percent market share. PSO's market share of black oil that comprises of furnace oil rose to 73 percent from 70.5 percent in FY16 where PSO achieved 12.5 percent increase in FO sales to the power sector on a year-on-year basis. Its market share in white oil (Mogas, HSD, SKO, and Jet Fuel) stood at 43.9 percent in FY17 versus 46.8 percent in FY16. Its LNG business continued with 58 LNG vessels supplied during the year carrying 186,672,980 MMBTU. Rise in PSO's net revenues led to 77 percent increase in its bottom-line for FY17. Other factor that lifted the bottom-line was the reduction in the finance cost.
On the liquidity side, the OMC giant continued to struggle. Its cash to current liabilities deteriorated by 25 percent mainly due to increase in current liabilities on account of higher short term borrowings. The firm's inventory turnover ratio decreased by 7 percent in FY17 due to increase in stock in trade by 30 percent, which was partly offset by increase in sales by 21 percent.
In FY18, PSO's overall market share around 50 percent, and it witnessed growth in the white oil segment, especially motor spirit and HSD. Product wise, it portrayed strong growth of 10.1 percent in MOGAS, 2.4 percent in HSD and 9.1 percent in JP-1 sales volumes even though the retail segment faced stiff competition from new entrants, and substantial discounts offered by competitors and the influx of smuggled products like diesel from Iran.
However, its black oil segment saw a significant slide primarily owing to industry dynamics. i.e. government's strategy of switching priority (merit order) of existing power plants to RLNG/natural gas from FO. PSO's fuel oil volume declined by 29.6 percent year-on-year in FY18. However, good news flew I from the lubricant side as it recorded an increase of 4.4 percent year-on-year in the fiscal year.
In FY18, PSO's gross revenues increased by 19 percent, year-on-year, while profit after tax went down by 15.2 percent year-on-year primarily on account of one-time reversal of deferred tax asset; decrease in other income by 32.7 percent year-on-year; and increase in other expenses by over 40 percent due to higher exchange losses on account of significant currency depreciation. However, increase in gross profits despite decline in furnace oil sales was because of increase in margins of petrol and jet fuel due to higher international prices. Bottom-line decrease was also reduced somewhat because of a decline in finance cost in FY18.
On the liquidity side, the company's cash to current liabilities improved in FY18 primarily due to decline in short term borrowings by 31.2 percent. Its inventory turnover decreased in FY18 because of increase in inventory due to increase in international oil prices.
9MFY19 and beyond
The OMC sector volumes have been witnessing consolidating retail volumes for some time along with staggering decline in FO. In 9MFY19, PSO's earnings continued to slide. Profits for 9MFY19 came down by 55 percent year-on-year. While the revenues increased by 10 percent, year-on-year for PSO, the volumetric sales for the firm has been a challenge lately; volumetric sales of not only furnace oil, but also retail fuels saw a decline during the period under review. Furnace oil has seen significant contraction since it is being replaced by RLNG in the power sector, and recently a complete ban on the import of the fuel has taken volumes to minimal. On the other hand, the diesel volume have suffered due to illicit trade and smuggling via porous borders.
Besides weak volumetric sales, PSO has been suffering from heavy inventor losses that adversely affected the company's gross profits. The 9-month period also saw PSO's finance cost increase significantly in the rising interest rate environment. Plus, PSO's short term borrowings continue to rise even after the partial circular debt clearance. The OMC also was hit adversely by exchange losses, which also lifted the finance costs.
The OMC has been focusing on the retail side and its RLNG business. However, headwinds for the sector are omnipresent circular debt, and PSO continues to face liquidity issues due to the circular debt and the resultant power sector receivables. Recently the government has lifted the ban on furnace oil ahead of peak summer season, which is likely to improve its volumes in the coming months.
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PSO-Pattern of Shareholding as at June 30, 2018
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Categories of Shareholders' %
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Members-Board of Management, Chief Executive Officer and their spouse and minor children 0.01
Associated Companies, Undertakings and related parties
Government of Pakistan 22.47
GOP's Indirect Holding:-PSOCL Employee Empowerment Trust 3.04
NIT and ICP 0.09
Banks, Development Financial Institutions, Non-Banking Financial Institutions 5.28
Insurance Companies 9.33
Modarabas and Mutual Funds 15.62
Shareholders holding 10% or more:
NBP, Trustee Department 14.88
General Public:
Resident 14.27
Non-resident 0.39
Others:
Non-Resident Companies 6.85
Public Sector Companies & Corporations and Joint Stock Companies 6.67
Employee Trusts/Funds etc. 1.1
100
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Source: Company accounts
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PAKISTAN STATE OIL
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Rs (mn) 9MFY19 9MFY18 YoY
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Net sales 818,508 744,639 10%
Cost of products sold 794,624 715,727 11%
Gross profit 23,884 28,912 -17%
Other Income 3,592 5,081 -29%
Operating costs 10.089 10.140 -1%
Profit from operations 17,387 23,853 -27%
Finance Cost 6,776 3,686 84%
Share of Profit/ (loss) of asso 82 266 -69%
Profit before tax 10,693 20,433 -48%
Taxation 4,767 7,209 -34%
Profit after tax 5,926 13,224 -55%
Earnings per share [Rs) 15.15 33.80 -55%
Gross margin 2.92% 3.88%
Operating margin 2.12% 3.20%
Net margin 0.72% 1.78%
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Source: PSX