S. S. Oil Mills Limited (PSX: SSOM) was established as a public limited company in 1990. The company’s primary business is Solvent Extraction (Edible Oil, Meal); therefore, it extracts, refines, processes, and sells semi refined washed oil and meal. The company has an annual capacity of processing 90,000 M. tons of oilseeds. Its products include canola oil, sunflower oil, soybean oil, canola meal, sunflower meal, and soybean meal.
S. S. Oil Mills is primarily held by its directors, CEO, their spouses, and minor children with nearly 43 percent shares held under this category. Within this, Mr. Nawabzada Shahzad Ali Khan, the CEO of the company holds majority of the shares at almost 21 percent. Around 34 percent shares are with the local general public followed by 14.6 percent held by the associated companies, undertaking and related parties; the latter solely includes Sikandar Commodities (Private) Limited. The remaining about 8 percent shares are distributed with the rest of the categories.
Historical operational performance
For the last four years, topline of S.S. Oil Mills has been on the rise, with gross and operating profit margins also following a similar pattern. However, net margin seems to be flat at an average of less than 1 percent.
During FY16, the company saw a close to 23 percent decline in its revenue. While production and sales in volumetric terms were both lower than that seen in last year, there was also a significant decrease in oil prices in the local market, whereas the slump in crude oil in the international market also affected sales of the company. Despite this, the company managed to earn one of its highest gross margins at 7 percent and net margin of 0.8 percent. This was due to a relatively large closing stock of finished goods that brought total cost of production down.
In FY17 topline for the company nearly doubled due to a new plant operation. The increase in sales was mostly seen in the refined oil segment. However, the higher revenue came with a more than corresponding increase in cost of production that consumed 95 percent of the revenue. This was driven by an increase in raw material prices. Therefore, gross margin lowered to almost 5 percent whereas net margin that increased marginally, was supported by a decline in finance cost as a percentage of revenue, rather it nearly halved year on year.
Although FY18 was the year leading up to and ending with general elections and the resultant uncertainty, the company managed to increase its sales to 30 percent, crossing the Rs 3 billion mark. However, cost of production remained persistent at 95 percent of revenue, keeping gross margins largely unchanged. Operating margin improved slightly in the near absence of distribution expenses, whereas net margin took a hit due to escalation in finance costs. This was due to the company using short term financing to import raw material as well as an increase in the markup rate. Thus, net margin fell lower to 0.3 percent.
Despite the political uncertainty with regards to the general elections that were held at the start of FY19, the company managed to grow its topline by almost 12 percent. In volumetric terms, there was a decline in both production as well as sales, therefore it can be presumed that the increase in topline was a function of price. With a slight decline in cost of production to 94 percent of revenue, gross margins improved. However, net margin continued to remain at a stable level of around 0.3 percent due to a rise in finance expense as the company was dependent on imported raw material that was financed through short term financing.
When the start of FY20 saw some economic recovery and stabilization, the second half saw the beginning of a pandemic outbreak that led to several businesses being shut down. Yet, the company grew its topline by nearly 29 percent. Although production was higher than that in last year, sales volumes were lower indicating a price increase. Cost of production, on the other hand, was slightly lower at 93.6 percent that helped to improve gross margins. The effect of this trickled down to the bottomline resulting in a slightly improved net margin of 0.6 percent.
Recent results and future outlook
The 80 percent year on year rise in topline for 1QFY21 could possibly be a result of recovery after subdued business activity and demand and supply in the last quarter of FY20. However, cost of production saw a more than corresponding rise bringing gross margins lower. But the reduction in finance cost allowed net margin to improve. This may be a result of lowering of discount rates by the government in order to support the economy.
The company has fared decently during the period of tough economic measures taken by the government as well as the period of pandemic, however, with the onset of a second wave of coronavirus, the future does seem challenging.