Pakistan Oxygen Limited (PSX: PAKOXY) was set up in 1949 as a private limited company and was later converted into a public limited company nearly a decade later in 1959. The company essentially manufactures industrial and medical gases, and welding electrodes. It also markets medical equipment.
Shareholding pattern
As at December 31, 2020, over 45 percent of the shares are with the associated companies, undertakings and related parties. Of this, 33 percent of the shares are held by M/s Adira Capital Holdings (Private) Limited (3 Folios) followed by 12 percent owned by M/s Soorty Enterprises (Pvt.) Ltd. Some 41 percent shares are with the local general public; the directors, CEO, their spouses and minor children own over 7 percent shares of which 7.2 percent are owned by Shahid Mehmood, a non-executive director. The remaining 7 percent shares are with the rest of the shareholder categories.
Historical operational performance
While topline has been fluctuating through the years, profit margins have relatively remained stable CY15 onwards.
In CY16, the company saw topline rising by a marginal 1 percent. This was driven by the gases segment that grew by 4 percent while the overall business was adversely impacted by the fire incident at Gaddani shipyard that brought to halt all steel cutting activities. This, in turn, resulted in a fall in demand in the shipbreaking and steel segments. Another challenge that the company faced was the availability of cheaper imported finished steel that kept prices competitive. On the other hand, there was a marginal decline in cost of production and operating costs that together raised net margin to 5.5 percent of the year. Most of this decline in costs were associated with fuel and power.
In CY17, the company was renamed to Pakistan Oxygen. It also saw one of the highest growth rates in revenue over 11 percent since CY12. This was contributed by nearly all the business segments; the healthcare segment registered a 25 percent growth; the welding and hard goods segment witnessed a 20 percent growth while the industrial sales segment declined by 4 percent. The latter was due to capacity constraints. With a very marginal change in cost of production, gross margin remained more or less flat at over 22 percent. With little changes in other elements of the financials statements, and slight reduction in finance cost, net margin also remained stable for the year at 5 percent.
Pakistan Oxygen continued on its growth trajectory during CY18 as revenue increased by 10 percent. The shipbreaking segment at Gaddani led to a halt in activities for several months due to safety concerns, that adversely affected sales for the company. The healthcare sector saw a 24 percent growth led by increase in demand for medical gases, engineering and installation services. This resulted in an improvement in gross margin to nearly 23 percent. With operating expenses also reducing as a percentage of revenue, due to tight controls, net margin was recorded at over 8 percent, whereas the bottomline was at its highest of Rs 300 million.
After rising continuously for four consecutive years, revenue for Pakistan Oxygen contracted by nearly 4 percent in CY19. The effect of the slowdown in the economy after the general elections with GDP growth at 3.3 percent, and LSM recording a decline of 3.4 percent, was evident in the company’s financials. However, it managed to maintain its cost of production that kept gross margin flat year on year. It was the rise in distribution and finance expense that reduced net margin. The increase in distribution expense as a share in revenue was mainly due to salaries expense while increase in finance expense was a result of rising interest rates. Thus, net margin fell to over 6 percent.
Recent results and future outlook
Growing by 18.8 percent, the company saw one of the highest revenue growth rates since CY12, with revenue crossing the Rs 5 billion mark in value terms. The healthcare segment was largely responsible for this growth as it witnessed an unprecedented rise of 69 percent. On the other hand, the industrial gases and welding segment declined due to the lockdown restrictions in the event of the outbreak of the Covid-19 pandemic. However, the higher revenue could not translate into higher profitability as cost of production rose to consume 80 percent of the revenue- a level last seen in CY13/CY14. Most of the incline in cost of production was related with fuel and power expense. This was due to the increase in electricity tariffs. With some support coming in the form of other income, the net margin was sustained at around 6 percent.
If quarterly breakdown is to be seen, the first two quarters of CY20 saw reduced business activity as this was the period when the pandemic entered the country and eventually a lock down was placed. By the third quarter, business activities returned to normalcy somewhat that is evident from the better topline at Rs 1.7 billion.
After more than a year into the pandemic and the process of vaccinations begun, there has been some positive notes for the economy. With the government’s announcement of the construction package, and better outlook for food processing and automobile industry on the back on investments in plant and machinery, there is some semblance of certainty and growth on the horizon.
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