S.S Oill Mills limited (PSX: SSOM) was incorporated in Pakistan as a public limited company in 1990. The principal activity of the company is solvent extraction (edible oil, meal). The company is engaged in the business of extraction, refining, processing and sale of semi-refined washed oil and meal.
Pattern of Shareholding
As of June 30, 2022, SSOM has a total of 5.66 million shares outstanding which are held by 948 shareholders. Directors, CEO, their spouse and minor children have the major stake of 52.72 percent in the company followed by local general public holding 29.58 percent of the outstanding shares of SSOM. Sikander Commodities (Private) Limited, the parent company of SSOM, accounts for 14.6 percent of its shares. Around 1.24 percent of the company’s shares are held by foreign companies while Modarabas and Mutual funds hold 1.07 percent. The remaining ownership is divided among Banks, DFIs, NBFIs and Joint stock companies.
Financial Performance (2018-23)
Since 2018, SSOM’s topline has followed an upward trajectory except for a massive fall in 2023. Its bottomline slid twice during this period i.e. in 2022 and 2023. Gross margin and operating margin have been ascending until 2021 and then fell in 2022 only to recover in the subsequent year. Conversely, net margin that stayed under 1 percent until 2020 posted a staggering rise in 2021 and then fell in the following years (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.
In 2019, SSOM’s topline grew by 12 percent year-on-year. The sales volume of washed oil was recorded at 11,337 M.tons while the sales volume of meal and soap stood at 42,257 M.tons, down 16.4 percent and 17.5 percent respectively. With a downtick in sales volume, increased net sales is indicative of upward price revision during the year. Sharp depreciation of Pak Rupee as well as elevated commodity prices in the international market drove the cost up by 10 percent in 2019, however, SSOM was able to improve its GP margin from 4.6 percent in 2018 to 5.9 percent in 2019 through price increase. Operating expense hiked by 15 percent year-on-year in 2019 due to high utility charges, travel & conveyance and higher freight charges on account of spike in the rate of POL products and electricity tariff. Operating profit picked up by 50 percent year-on-year, translating into an OP margin of 4.7 percent in 2019 versus 3.5 percent in 2018. Finance cost also escalated by 57 percent in 2019 on account of rate hike and increased borrowings to meet working capital requirements. This diluted the bottomline growth which was recorded at 6 percent in 2019. Net profit clocked in at Rs.13.14 million in 2019 with an EPS of Rs.2.32 versus Rs.2.18 in 2018. NP margin also posted a negligible downtick from 0.4 percent in 2018 to 0.3 percent in 2019.
In 2020, when many other industries were grappling against halted production and sales on account of lockdown imposed due to COVID-19, SSOM registered a healthy 29 percent year-on-year rise. While sales volume of washed oil slid by 1.8 percent year-on-year to clock in at 11,129 M.tons, the sales volume of meal and soap stood at 48,503 M.tons, up 14 percent year-on-year. The company operated its plant at 71 percent capacity in 2020, translating into a production volume of 63,909 M.Tons versus 64 percent capacity utilization in 2019. Cost of sales escalated by 28 percent year-on-year due to local currency depreciation. However, better sales volume of meal and soap and upward price revision translated into a GP margin of 6.4 percent in 2020. SSOM squeezed its operating expense by 3 percent year-on-year in 2020 due to massive drop in freight and forwarding charges. Operating profit boasted 48 percent growth in 2020 with OP margin climbing up to 5.4 percent. Finance cost magnified by 37 percent year-on-year in 2020 which was the consequence of increased short-term borrowings to meet working capital requirements. Nevertheless, bottomline registered a staggering 118 percent year-on-year growth in 2020 to clock in at Rs.28.63 million with an EPS of Rs.5.06 and NP margin of 0.6 percent.
Among all the years under consideration, 2021 appears to outshine when it comes to topline growth. SSOM posted a splendid topline growth of 60 percent in 2021. The sales volume of washed oil and meal and soap showed a significant growth of 29 percent and 36 percent respectively. This translated into a sales volume of 14,371 M.Tons of washed oil and 66,084 M.Tons of meal and soap in 2021. SSOM operated its plant at 98 percent capacity to produce 88,026 M.tons of product. Cost of sales hiked by 58 percent year-on-year in 2021, yet company’s robust sales volume and pricing strategy yielded a stronger GP margin of 8 percent in 2021. Operating expense mounted by 13 percent year-on-year in 2021 which was mainly due higher communication expense, depreciation as well as sales commission. SSOM did massive provisioning for WWF and WPPF in 2021 which inflated its other expense by 415 percent to clock in at Rs.35.58 million. Operating profit multiplied by 106 percent in 2021 with OP margin jumping up to 7 percent. Finance cost which was on the rise in the yesteryears slumped by 38 percent in 2021 on account of monetary easing. SSOM incurred lower financing cost despite the fact that its long-term borrowings considerably hiked in 2021 for the purpose of importing Silos and Solar PV plant. SSOM’s net profit marvelously grew by 988 percent in 2021 to clock in at Rs.311.57 million. This translated into an EPS of Rs.55.06 and NP margin of 3.9 percent – the highest among all the years under consideration.
The uphill journey continued in 2022 with 31 percent improvement in net sales. The sales volume of washed oil improved by 19.42 percent to clock in at 17,162 M.Tons in 2022. Conversely, the sales volume of meal and soap was recorded at 57,784 in 2022, down 12.7 percent. Capacity utilization of plant dropped to 86 percent in 2022 translating into a production volume of 77.815 M. Tons. Steep depreciation in the value of Pak Rupee and global commodity super cycle on account of Russia-Ukraine crisis inflated the company’s cost of sales by 33 percent in 2022, which couldn’t be completely passed on to consumers due to their squeezed purchasing power. As a consequence GP margin fell plunged to 6.9 percent in 2022. Operating expense drastically surged by 35 percent in 2022 due to higher utility charges, vehicle running expense and freight & forwarding charges – all pointing towards elevated prices of POL products and electricity. Operating profit could only rise by 13 percent in 2022 with OP margin eroding to 6 percent. Finance cost elevated by 81 percent year-on-year in 2022 on account of monetary tightening and increased borrowings. This drove the net profit down by 29 percent year-on-year in 2022 to clock in at Rs.219.93 million with an EPS of Rs.38.87 and NP margin of 2.1 percent.
Recent Performance (2023)
Defying the uphill journey of the preceding years, SSOM’s net sales registered a 41 percent year-on-year slump in 2023. This was on account of a huge plunge of 67 percent and 64 percent in the sales volume of washed oil and meal and soap respectively. This translated into a sales volume of 5,628 M.Tons of washed soap and 20,656 M.tons of meal and soap in 2023. This was the consequence of a ban imposed on the import of GMO seeds as well as general import restrictions imposed by the SBP in the wake of diminishing foreign exchange reserves of the country. The company operated its plant at 31 percent capacity which is the lowest since 2018. This culminated into a production volume of 27,687 M.Tons in 2023. The company increased its prices in accordance with the cost hike. This resulted in an improved GP margin of 9.3 percent – the highest since 2018. SSOM also kept a check on its operating expense in 2023 which slid by 20 percent due to a significant drop in freight & forwarding and sales commission on account of thin sales volume. Operating profit tumbled by 18 percent year-on-year in 2023, yet OP margin posted its optimum value of 8.4 percent. Despite unprecedented level of discount rate, SSOM was ablel to curtail its finance cost by 22 percent in 2023 by significantly trimming down its short-term borrowings. However, lower finance cost didn’t help the bottomline much as it plummeted by 39 percent year-on-year to clock in at Rs.134.34 million. This translated into an EPS of Rs.23.74 and NP margin of 2.2 percent.
Future Outlook
With the lifting of import restrictions, the company may be in a better position to import soybean and continue its production to meet the growing demand. However, with the authorities’ inclination towards making the country GMO free, the company’s cost of production will rise as non-GMO seed varieties are relatively costly. This can take its toll on the margins and profitability of the company.
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