Attock Petroleum Limited (PSX: APL) was Incorporated in 1998 as an oil marketing company It is part of the vertically integrated Attock Oil Group. While the FY23 shareholding pattern is not available yet, the FY22 annual report shows that its sponsor, Pharaon Investment Group Limited Holding s.a.l holds the largest shareholding at 34 percent, whereas other key shareholders include Attock Refinery, Pakistan Oilfields Limited, and Attock Oil Company as shown in the illustration. APL has a strong retail network with over 700 retail outlets nationwide and is engaged in the marketing and distribution of numerous petroleum products including High Speed Diesel, Premier Motor Gasoline, Furnace Oil, Bitumen, Kerosene, and Lubricants, etc. along with a range of automotive and industrial grades lubricants. APLin the recent past – operational and financial performance Being the oil marketing company (OMC), the revenues and earnings of the company in large part, are driven by the volumetric sales of petroleum products. In FY16, Attock Petroleum Limited’s overall volumes were adversely affected by the phasing out of furnace oil. As a result, APL lost market share in an attempt to reduce exposure in furnace oil due to unattractive margins. However, revenue growth for APL was strong in FY17 due to growth in volumes, which translated into a heavy bottom line. Overall, APL’s earnings were up by 38 percent year-on-year in FY17. Revenues continued to grow in FY18 as petroleum prices remained high and volumes grew as well. Increase in sales volume and inventory gains due to rising price trend of petroleum products during the year resulted in higher gross margins. However, APL’s profits grew meagerly by seven percent year-on-year due to the reversal of the provision of other charges and higher exchange losses due significant currency depreciation during the year. In FY19, volumetric growth slowed down due to falling crude oil prices and domestic currency nosediving. Moreover, the effects of monetary and fiscal tightening adversely affected the OMC sector in FY19. Where the falling crude oil prices resulted in significant inventory losses for the OMCs, the depreciating rupee brought in large exchange losses. APL’s topline grew by around 26 percent year-on-year, which was entirely due to higher petroleum product prices, because volumetric growth remained subdued during the year. APL’s volumes declined by 11 percent year-on-year led by furnace oil and high speed diesel sales while earnings were down by 30 percent. FY20 was a difficult year due to demand destruction brought by the COVID pandemic. APL’s earnings plummeted to only Rs1 billion. Weakness in earnings was due to inventory losses from lower prices of petroleum product in the country versus international prices, along with decline in volumes. During FY20, APL’s volumes sold registered a decline of around 11 percent year-on-year, which was highest for diesel followed by petrol and then furnace oil. Apart from the weakness in the topline and higher inventory losses, jump in finance cost amid high interest rates, relatively lower other income, decline in profits from associates further added to the bottomline decline. FY21 was a recovery year for APL as its bottom line jumped by 5 times and the 4QFY21 earnings surged by more than nine times. Though the overall topline growth remained subdued with a decline of 6 percent year-on-year, revenues for APL grew by 52 percent year-on-year in 4QFY21. The primary reason for the growth in revenues was 20 percent increase in volumes in 4QFY21 led by furnace oil recovery in the fuel mix. At the same time, the oil price recovery after the international price crash in 2020 supported the revenue growth for the quarter. APL’s gross margins grew astoundingly due to significant inventory gains against heavy inventory losses in the corresponding period. This was due to an increase in oil prices as well as a modification in the domestic petroleum pricing format to fortnightly basis that reduced the volatility from the lag. The operating and net profits got a further lift from net impairment reversals on financial assets in FY21 as well as a decline in finance cost. APL announced over 3.5 times increase in the bottom line for FY22. The growth in earnings during the fiscal year came from the top where the OMC’s revenues were seen posting a growth of 96 percent year-on-year. An increase in the supply of petroleum products to retail and industrial consumers due to increased economic activities led to growth in volumes sold. The sales volume increased 22 percent as compared to the 14 percent increase witnessed by the overall industry. Product–wise, HSD posted the highest rise of 36 percent year-on-year, followed by a 19 percent rise in motor gasoline and a 15 percent growth in furnace oil volumes. Besides the increase in sales volume, a 47 percent increase in average selling prices of products as compared to last year also led to an increase in sales revenue of the company. APL’s market share for FY22 stood at 10 percent versus 9.4 percent in FY21 with 63 newly commissioned retail outlets during the outgoing year. Earnings for the fiscal year were also supported massively by inventory gains, which is evident from 4 times jump in gross margins. APL also witnessed growth in finance income during the period due to higher interest rate. However, there was also significant growth in operating expenses and other charges. Exchange loss caused were by a massive 30 percent devaluation of PKR against the USD. After a good couple of years, FY23 was very weak for the oil marketing companies (OMCs). as the volumes declined due to a slowing economy, weak demand and rising prices. This came as a stark contrast to FY22. Oil sales by the OMC sector declined by 27 percent year-on-year in FY23, which was a record low since FY06 barring FY20 – the year of the global pandemic. However, prices of petroleum products saved the oil marketing companies, as their topline growth was completely due to the price factor and not the volumes. APL’s revenue growth stood at 28 percent year-on-year in FY23, led by an increase in average selling prices. However, volumetric sales were down by 24 percent year-on-year where the company’s sales volume of High-Speed Diesel (HSD) decreased by 27 percent year-on-year, while sales volume of Motor Spirit (MS) decreased by 14 percent year-on-year and the company’s sales volume of Furnace Oil (FO) decreased by 37 percent year-on-year. APL also announced a sharp decline in gross profits for FY23 due to significant inventory losses. Gross margins shrunk from 11 percent in FY22 to 5.5 percent in FY23. However, operating expenses fell in FY23 on account of lower exchange losses during the period. Yet a further dent to the OMC’s bottom line came from the finance cost that grew by 44 percent year-on-year due to increased interest rates and higher markup charged on late payments. APL’s earnings were down by 33 percent in FY23. The company announced a final cash dividend of Rs15 per share. APL in FY24 and beyond APL’s revenue grew by 10 percent year-on-year in 1QFY24, which was driven by a rise in the average selling prices and margins of petroleum products relative to the same period last year. The combination of higher average prices and increased margins contributed to the increase in gross profit. On the volumetric side, APL experienced a 2 percent year-on-year growth in the sales volume of High-Speed Diesel (HSD); the volumes of petrol were flat; and the sales volumes of furnace oil witnessed a 30 percent decline, while the sales volume of Bitumen surged by 13 percent year-on-year. The devaluation of PKR against USD continued in this quarter as well but its weakening was less as compared to the first quarter of the last year. This resulted in a reduction in exchange losses, leading to a decrease in operating expenses. Additionally, an increase in interest income made a healthy contribution to earnings. APL’s profits during 1QFY24 stood at 23 percent year-on-year. APL has been expanding its retail presence consistently since FY16. It has also been expanding and revamping product storage facilities at a similar pace. Furthermore, APL is relatively resilient to the volatile dynamics of the sector like foreign exchange charges and petroleum price changes. It is also among the OMCs that have strong balance sheets and cash flows as compared to its peers. And things have started to look better in terms of OMC sector volumetric sales in FY24. While the volumetric sales by the OMCs during the first 4 months of FY24 were still down by almost 17 percent year-on-year, the volumes are expected to recover during the rest of FY24 as prices have come down; there is a major crop season ahead; and interest rates are also expected to come down.

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