Pakistan Oxygen Limited (PSX: PAKOXY) was incorporated in Pakistan as a private limited company in 1949 and was converted into a public limited company in 1958. The principal activity of the company is the manufacturing of industrial and medical gases and welding electrodes besides marketing of medical equipment.
Pattern of Shareholding
As of December 31, 2024, PAKOXY has a total of 87.124 million shares outstanding which are held by 1828 shareholders.
Sponsors, associated companies, undertakings and related parties are the largest shareholders of PAKOXY with a stake of 70.25 percent in the company. This category is largely dominated by M/s Adira Capital Holdings (Private) limited, holding 33.55 percent of the company’s shares. Local general public accounts for 18.18 percent of PAKOXY’s shares while Directors, CEO, their spouse and minor children hold 7.28 percent of the company’s shares. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-24)
Except for a marginal cut in 2019, PAKOXY’s topline has recorded growth in all the years under consideration. Conversely, its bottomline fell thrice – in 2019, 2022 and 2023. The margins depict anunstable pattern over the period. Gross margin stayed afloat in 2019 and then rode a downward trajectory thereafter.
Operating margin descended until 2022 and then posted an uptick in 2023. Net margin which had also been narrowing down since 2019 saw a marginal uptick in 2021 only to fall back in the two subsequent years. In 2024, all the margins posted a staggering rebound (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2019, PAKOXY’s topline posted 3.98 percent year-on-year slump to clock in at Rs.4,666.59 million. Policy measures to contain fiscal and current account deficits had pushed the GDP growth down to 3.3 percent with LSM also posting a decline. With major customer industries slowing down their activity and with the complete shutdown of the ship breaking sector, PAKOXY’s banked on the oil & gas and medical engineering sectors to soften its sales decline. Cost of sales slid by 4 percent year-on-year in 2019.
The in-house manufacturing of electrodes resulted in cost savings for the company which otherwise would be immense due to massive hike in electricity tariffs during the year. GP margin stayed intact at 22.84 percent in 2019.
Higher payroll expense of sales force as well as greater allowance booked for expected credit losses in 2019 resulted in 22.28 percent year-on-year spike in distribution expense in 2019. Administrative expense also escalated by 7.93 percent year-on-year in 2019. This culminated into 12.97 percent year-on-year drop in operating profit with OP margin sliding down from 13.47 percent in 2018 to 12.21 percent in 2019.
Finance cost multiplied by 48.77 percent year-on-year in 2019 not only because of higher discount rate but also because of the usage of additional credit facilities during the year particularly running finance facilities. Net sales slumped by 24.61 percent year-on-year in 2019 to clock in at Rs.300.59 million with NP margin of 6.44 percent versus NP margin of 8.20 percent recorded in 2018. EPS also dropped from Rs.12.25 in 2018 to Rs.7.70 in 2019.
PAKAOXY’s topline grew by 18.83 percent year-on-year to clock in at Rs. 5545.14 million in 2020. While all the sectors of the economy were under severe pressure due to sudden outbreak of the novel Coronavirus which not only hampered the demand across the board but also created widespread supply chain problems and immensely impacted the routine business activity.
In such uncertain scenario, PAKOXY took the apt decision and banked on the healthcare segment which grew by 69 percent during the year. In 2020, the company prioritized oxygen supplies to the healthcare segment and also enhanced its medical engineering portfolio through localization.
Cost of sales grew by 23.35 percent year-on-year in 2020 due to unprecedented increase in electricity tariffs and one-off arrear of Rs.45 million charged by K-Electric on the withdrawal of Industrial Support Package (ISPA) in 2020.
As a consequence, GP margin inched down to 19.90 percent in 2020. In absolute terms, gross profit posted a paltry growth of 3.55 percent in 2020. In the absence of allowance booked for ECL, distribution expense tumbled by 1.8 percent year-on-year in 2020. Conversely, administrative expense rose by 9.81 percent year-on-year in 2020.
Other income posteda hefty 131.22 percent growth in 2020 on account of insurance claims worth Rs.50 million due to failure of motor at one of the company’s ASU plants. Operating profit grew by 8.14 percent year-on-year in 2020, however, OP margin eroded to 11.1 percent. Finance cost shrank by 5.47 percent year-on-year in 2020 due to rate cuts and also because of better cash flow and liquidity management.
The result was 15.2 percent year-on-year improvement in PAKOXY’s net profit which clocked in at Rs.346.28 million in 2020 with NP margin of 6.24 percent and EPS of Rs.7.39. EPS dropped by 4 percent despite bottomline growth due to the issuance of 20 percent bonus shares in 2020.
In 2021, PAKOXY’s net sales grew by 26.34 percent year-on-year to clock in at Rs.7005.45 million. This was backed by robust growth across all the segments i.e. industrial and medical segments, welding portfolio and medical engineering.
However, healthcare segment proved to be the major growth driver during the year as COVID-19 wasn’t completely subsided and the company kept providing oxygen to hospitals across the country on priority basis. To make sure that none of its clients runs short of oxygen at any point in time, the company introduced an “Emergency Response Center” – an automated stock monitoring and delivery system.
The medical engineering segment also continued to impress in 2021 with the creation of 2700 new beds with Oxygen supply system for the treatment of COVID-19 patients. Cost of sales grew by 27 percent year-on-year in 2021. Gross profit grew by 23.28 percent year-on-year in 2021, however, GP margin slightly inched down to 19.42 percent. Distribution and administrative expenses grew by 21.28 percent and 7.87 percent year-on-year respectively primarily on account of higher sales volume and induction of new employees respectively during the year.
Operating profit posted 22.15 percent jump, however, OP margin contracted to clock in at 10.75 percent in 2021. Finance cost dropped by 27 percent year-on-year in 2021 on account of low discount rate and better working capital management.
Net profit grew by 30.27 percent year-on-year to clock in at Rs.451.10 million with NP margin of 6.44 percent, slightly higher than last year. EPS grew to Rs.7.70 in 2021, signifying 4 percent growth due to the issuance of 20 percent bonus shares in 2021.
2022 didn’t fare well for Pakistan’s economy as rising economic and political turmoil took a heavy toll on the business activity. PAKOXY’s sales registered a skimpy 4.15 percent year-on-year growth to clock in at Rs.7296.37 million in 2022. This was mainly driven by Hardgoods and medical engineering services and as well as sales of Carbon dioxide to food and beverages segment. 5.79 percent rise in cost of sales was driven by higher raw materials prices particularly energy and fuel charges as well as Pak Rupee depreciation. This squeezed the gross profit by 2.65 percent year-on-year.
GP margin contracted to 18.15 percent in 2022. Distribution and administrative expense grew by 8.86 percent and 11.53 percent respectively in 2022, which was well below the inflation level. Operating profit recorded 9 percent plunge in 2022 with OP margin marching down to 9.38 percent.
Finance cost grew by a massive 75.20 percent year-on-year in 2022 due to policy rate hikes during the year. The result was 6.88 percent downtick in bottomline to clock in at Rs.420.05 million. This translated into NP margin of 5.76 percent and EPS of Rs.5.74.
In 2023, PAKOXY’s topline strengthened by 17.72 percent year-on-year to clock in at Rs.8589 million. During the year, the company successfully commissioned Pakistan’s largest Air Separation Unit at its Port Qasim plant which doubled its production capacity. This enabled the company to maintain its position as a leading supplier of industrial gases.
While demand from ship-breaking, glass and steel sectors was weak during the year, healthcare, hard goods and nitrogen gas segments came to rescue the company’s topline in 2023. Gross profit enhanced by 17.83 percent year-on-year in 2023 with GP margin staying intact at 18.17 percent.
The company was able to maintain its gross profit despite inflationary pressure, Pak Rupee depreciation, soaring raw material prices and elevated energy tariff by revising its prices and attaining operational efficiency through the installation of Air Separation Unit.
Distribution expense grew by 11.34 percent in 2023 which was mainly due to increase in salaries, benefits and allowances. 8.64 percent year-on-year increase in administrative expense in 2023 was also the result of an escalation in payroll expense due to inflationary pressure. Other expense slid by 35 percent in 2023 on the back of lower profit related provisioning.
Conversely, insurance claim worth Rs.21.874 million enabled PAKOXY to record 30.52 percent increase in its other income in 2023. Operating profit improved by 30.38 percent in 2023 with OP margin rising up to 10.39 percent. Finance cost surged by 228.57 percent in 2023 due to unprecedented level of discount rate and increase in external borrowings.
PAKOXY’s gearing ratio climbed up from 45.98 percent in 2022 to 46.48 percent in 2023. Higher finance cost resulted in 65.54 percent contraction in the company’s bottomline which stood at its lowest level of Rs.144.74 million in 2023 with EPS of Rs.1.66 and NP margin of 1.69 percent.
In 2024, PAKOXY’s topline posted a phenomenal year-on-year growth of 32 percent to clock in at Rs.11,345.10 million. Healthcare and medical engineering segments posted year-on-year growth of 60 percent an 20 percent respectively in 2024.Nitrogen gas also posted significant growth of 62 percent in revenue in 2024. Conversely, welding and industrial gases segments registered decline in 2024.
Cost of sales surged by 17.88 percent in 2024 due to efficient cost control measures put in place by the company. The commissioning of air separation units and a tighter control on overheads resulted in 96 percent stronger gross profit registered in 2024. GP margin also attained its highest level of 26.97 percent in 2024.
Distribution expense mounted by 49.81 percent in 2024 primarily on account of higher salaries of sales force and allowance for doubtful debts booked during the year. Administrative expense ticked up by 6.75 percent in 2024 due to inflationary pressure. This was despite the fact that the company streamlined its workforce from 142 employees in 2023 to 132 employees in 2024.
Other expense escalated by 253.60 percent in 2024 due to massive spike in provisioning for WWF and WPPF as well as legal & professional charges incurred during the year. Other expense was completely offset by 62.67 percent higher other income and gain on disposal of non-current assets classified as held-for-sale recorded during the year. PAKOXY sold its CO² 23 TPD plant located at Port Qasim.
Operating profit improved by 143.85 percent in 2024 with OP margin climbing up to 19.18 percent. Finance cost surged by 45.46 percent in 2024 due to higher discount rate. This was despite lower outstanding borrowings recorded in 2024. Net profit mounted by 391.76 percent to clock in at Rs.711.76 million in 2024. This translated into EPS of Rs.8.17 and NP margin of 6.27 percent.
Recent Performance (1QCY25)
During the first quarter of the ongoing calendar year, PAKOXY’s topline posted year-on-year growth of 8.13 percent to clock in at Rs.2,948.46 million.
The growth was mainly driven by higher demand of medical gases and other healthcare services. Welding products also posted reasonable demand during the period on the back of robust demand from key electrode brands. Higher volumes coupled with improved pricing and better sales mix resulted in 40.84 percent year-on-year improvement in gross profit in 1QCY25 with GP margin clocking in at 33.77 percent versus GP margin of 25.93 percent posted in 1QCY24.
Distribution expense slid by 25.69 percent in 1QCY25 seemingly because the company had booked higher allowance for ECL in the previous year. Administrative expense surged by 18.57 percent in 1QCY25 due to inflationary pressure. Higher provisioning done for WWF and WPPF resulted in 52.42 percent elevated other expense in 1QCY25.
Other income drastically fell by 83.94 percent in 1QCY25due to high-base effect as the company recognized gain on disposal of non-current assets in the previous year when it sold its CO² 23 TPD plant located at Port Qasim.
PAKOXY’s operating profit improved by 38.23 percent in 1QCY25 with OP margin clocking in at 26.66 percent versus OP margin of 20.86 percent recorded in 1QCY24. Finance cost dwindled by 47.38 percent in 1QCY25 due to monetary easing.
The company posted 119.44 percent stronger bottomline to the tune of Rs.391.46 million in 1QCY25. This translated into EPS of Rs.4.49 and NP margin of 13.28 percent in 1QCY25 versus EPS of Rs.2.05 and NP margin of 6.54 percent posted in 1QCY24.
Future Outlook
Lower demand from the industrial sectors is being offset by a stronger foothold in the healthcare segment and nitrogen gas market. The shift in the sales mix of PAKOXY is not only keeping its topline energetic but is also buttressing its margins. The installation of ASU is further helping the company to attain high margins by controlling its cost.
The company has recently announced its decision to invest Rs.1.3 billion to establish hydrogen production facility at Port Qasim which will meet the rising demand of hydrogen from its key customers.
Copyright Business Recorder, 2025
Comments
Comments are closed for this article.