APL – return to normal?

FY21 financial performance has mostly been about quarterly improvement with 4QFY21 for many companies being a shot to boost growth to the overall profitability due weak bases of 4QFY20 when Covid-19 lockdown was imposed in the country. The same trend was witnessed in Attock Petroleum Limited’s (PSX: APL) recently announced performance for FY21.

After wreaking havoc in FY20 and thrashing earnings to levels not seen in at least a decade, APL’s bottomline jumped by 4.9 times in FY21 where 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, which was also a 16 percent quarter-on-quarter improvement. The primary reason for 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 accentuated the revenue growth for the quarter.

The actual growth in earnings however came from inventory gains. APL’s gross margins grew staggeringly due to significant inventory gains in FY21 and 4QFY21 against heavy inventory losses in the corresponding period. This was due to increase in oil prices as well as due to change in the domestic petroleum pricing format to fortnightly basis that reduced the volatility from the lag. The operating and net profits got a further boost from net impairment reversals on financial assets in FY21 verses losses in FY20 as well as a decline in finance cost.

Even though inventory gain resulted in hefty growth in earnings, one concern for APL is the falling market share. In FY21, despite increase in the company’s furnace oil volumes by 32 percent year-on-year, APL’s market share stood at 9 percent compared to 10 percent in FY20 – led by a decline in market share of all the three key fuels: FO, HSD and MS. Factors like smuggling, weaker demand and small players grabbing market share have been behind the decline. However, the last quarter of FY21 as well as July 2021 has seen revival in volumes for the OMC sector including APL with a rebound in economic activity including car sales, industrial activity, agriculture output, along with continued restrictions on cross-border smuggling. Additionally, APL has also pivoted its strategy towards expansion into storage and retail network, which will open growth potential and help it regain lost market share.