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Hi-Tech Lubricants Limited (PSX: HTL) is incorporated in Pakistan as a public limited company. The company is engaged in the procurement and distribution of lubricants and petroleum products. In 2017, the company was granted a license by OGRA to establish an OMC and in 2019, the company received permission to operate new storage facility at Sahiwal and to distribute petroleum products in the province of Punjab under the brand name of HTL fuel stations. HTL products are largely sold under the brand name “ZIC” which are available at over 20,000 retail outlets and wash stations across the country. In 2017, the company stepped into retail industry and established HTL Express Centers which provide one-stop vehicle maintenance solution. Later, HTL adopted franchise model for its Express Centers.

Pattern of Shareholding

As of June 30, 2023, HTL has a total of 139.205 million shares outstanding which are held by 6068 shareholders. Directors, their spouse and minor children have the majority stake of 70.54 percent in the company followed by local general public holding 19.4 percent shares of HTL. Associated companies, undertakings and related parties account for 5.90 percent of the outstanding shares of HTL. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-23)

Except for a drop in 2020 and 2023, the sales of HTL have witnessed growth over the period under consideration. Conversely, the company posted net losses in 2019, 2020 and 2023. The gross margin of the company after experiencing a dip in 2019, recovered in 2020 however started tapering off in the subsequent years to clock in at its lowest level in 2023. Conversely, operating margin and net profit margin of HTL posted a plunge in 2019 then took a flight until 2022 followed by a drastic fall in 2023. The detailed performance review of each of the period consideration is given below.

In 2019, HTL’s topline posted a marginal year-on-year growth of 1.92 percent which was on the back of price increase while sales volume was down by 4 percent year-on-year. Low demand in 2019 was on account of high inflation and discount rate which not only pushed up the cost of doing business for the companies but also restricted the consumers from spending on vehicle-related products and services. This halted the sales of lubricants as well as HTL Express Centers in 2019. Cost of sales grew by 11 percent year-on-year in 2019 on account of Pak Rupee depreciation as well as import overhead cost, translating into 32.88 percent year-on-year decline in gross profit with GP margin radically plunging to 13.7 percent in 2019 from 20.8 percent in 2018. Distribution expense grew by 31.21 percent year-on-year which mainly came on account of increase in advertisement and sales promotion in 2019 coupled with high payroll expense. Administrative expense also inched up by 14.22 percent year-on-year in 2019, reflecting high inflation. Higher exchange loss on account of Pak Rupee depreciation, massive jump in allowance for expected credit losses, slow-moving and damaged inventory items as well as doubtful advances to suppliers translated into a 64.21 percent year-on-year rise in other expenses. Other income posted a meager 5 percent year-on-year growth which came primarily on the back of higher profit on bank deposits, credit balances written back as well as scrap sales. Operating profit shrank by 96 percent year-on-year in 2019 with OP margin sliding down to 0.4 percent in 2019 from 10.4 percent in 2018. Finance cost magnified by 184.79 percent year-on-year in 2019 due to high discount rate and also because of a substantial rise in borrowings in 2019. HTL’s debt-to-equity ratio rose from 18.14 percent in 2018 to 39.13 percent in 2019. High finance cost resulted in a negative bottomline of Rs.434.81 million in 2019 with loss per share of Rs.3.75 as against the net profit of Rs.554.43 million and an EPS of Rs.4.78 in 2018.

In 2020, HTL’s topline slumped by 40.32 percent year-on-year. The year began with low GDP growth and ended with COVID-19 pandemic bringing the economic activities at a standstill. While sales revenue from lubricants dropped in 2020, sales revenue from spare parts sales, services at HTL Express Centers, dispensing pumps and petroleum products performed well in 2020. Lower sales volume resulted in lower production which pushed the cost of sales down by 44.65 percent year-on-year in 2020. GP margin improved to 20 percent due to better prices and sales mix. Lower freight charges as well as curtailment in advertising and promotion expense trimmed the distribution cost down by 14.47 percent year-on-year in 2020. Administrative expense also inched down by 11.88 percent year-on-year mainly on account of low payroll expense as the company reduced its permanent employees from 366 in 2019 to 335 in 2020. Other expense posted a nosedive of 76.36 percent year-on-year in 2020 particularly as the company didn’t book any allowance for expected credit losses in 2020 and also because the company didn’t incur any exchange loss unlike the previous year. Other income grew by 13.85 percent year-on-year in 2020 due to reversals booked against expected credit losses, higher dividend income and profit on bank deposits as well as exchange gain earned in 2020. All these factors resulted in 258.31 percent year-on-year rise in operating profit while OP margin jumped up to 2.4 percent in 2020. Although finance cost dwindled by 20.74 percent year-on-year in 2020 due to significant reduction in HTL’s short-term loans, yet finance cost of Rs.186.33 million was huge enough to produce a net loss of Rs. 40.12 million and loss per share of Rs.0.35. HTL’s net loss shrank by 90.77 percent year-on-year in 2020.

After two successive years of lackluster sales and net losses, HTL’s topline grew by a massive 88.29 percent year-on-year in 2021. This came on account of resurfacing of the demand that was restricted during the COVID period. The sale revenue from petroleum products posted an impressive growth of 6.5 times in 2021. The revenue from lubricants almost doubled during 2021. Conversely, services at HTL Express Centers and sale of dispensing pumps weren’t encouraging in 2021. Cost of sales grew by 95.45 percent year-on-year. While gross profit surged by 59.63 percent in 2021, GP margin climbed down to 16.9 percent. Distribution and administrative cost grew by 13.86 percent and 23.15 percent year-on-year respectively in 2021 mainly on account of rise in revenue line and higher payroll expense as number of employees grew to 383 in 2021 from 335 in 2020. Other expense grew by 68.56 percent year-on-year on account of higher charities and donations, receivables written off during the year as well as allowance booked for expected credit losses. Other income slid by 13.21 percent year-on-year as lower discount rate trimmed down HTL’s profit on bank deposits. Operating profit grew by 332.60 percent in 2021 with OP margin climbing up to 5.5 percent. Significantly lower short-term borrowings during the year coupled with monetary easing resulted in 56 percent year-on-year drop in finance cost. HTL was able to post net profit of Rs.361.32 million in 2021 with NP margin of 3.4 percent. EPS clocked in at Rs.2.6 in 2021.

In 2022, HTL mustered 67.38 percent year-on-year growth in the net sales as the company expanded its distribution channels and invested in its brands. Sales revenue from lubricants, petroleum products, dispensing pumps as well as franchise and joining fee increased during the year. Cost of sales grew by 70.62 percent year-on-year on the back of inflation and Pak Rupee depreciation. This drove GP margin down to 15.3 percent in 2022 despite 51.47 percent year-on-year growth in gross profit in 2022. Higher salaries, freight expense, advertising expense as well as utilities expense pushed up the distribution and administrative expense by 34.41 percent and 20 percent respectively in 2022. Other expense grew by an exorbitant 471.92 percent in 2022 due to massive exchange loss borne by the company during the year coupled with higher provisioning for WWF and WPPF. However, other expense was offset by 240.15 percent year-on-year rise in other income due to handsome dividend income from the subsidiary company, Hi-Tech Blending (Private) Limited. This resulted in 106.96 percent year-on-year rise in operating profit with OP margin climbing up to 6.8 percent in 2022. Finance cost mounted by 140.94 percent year-on-year in 2022 due to high discount rate coupled with high short-term loans obtained during the year. This coupled with the imposition of super tax and recognition of deferred tax liabilities diluted the growth of bottomline. Yet, net profit rose by 104.23 percent year-on-year in 2022 to clock in at Rs.737.92 million with NP margin of 4.2 percent. EPS grew to Rs. 5.3 in 2022.

During 2020, HTL’s topline went down by 12.44 percent. This was on account of a decline in sales revenue from lubricants and petroleum products. Lackluster sales performance of the key products of HTL counterbalanced higher sales revenue from dispensing pumps, high franchising and joining fee earned during the year and the sale of packing materials, spare parts and base oil to Hi-Tech Blending (Private) Limited, a subsidiary company of HTL.Pak Rupee depreciation as well as rise in the commodity prices due to the Russia-Ukraine crisis didn’t allow the cost to drop by the same proportion, resulting in 41.66 percent lower gross profit with GP margin falling down to 10.2 percent. Distribution expense inched down by 4.48 percent year-on-year in 2023 due to considerably lower freight, sales promotion, and advertising expense incurred during the year. Administrative expense expanded by 27.55 percent during 2023 due to higher payroll expense despite the fact that the company streamlined its workforce to include 478 employees, down from 530 employees in 2022. Other expense shrank by 84.69 percent in 2023 due to considerably lower exchange loss incurred during the year coupled with no provisioning made for WWF, WPPF and doubtful advances to suppliers. Other income strengthened by 31.95 percent in 2023 due to higher dividend income from which primarily includes dividend received from Hi-Tech Blending (Private) Limited. Interest on short-term loan to subsidiary, credit balances written back and income from storage & handling services also buttressed other income in 2023. Operating profit slid by 75.76 percent in 2023, translating into OP margin of 1.9 percent. Finance cost mounted by 142.75 percent in 2023 due to high discount rate and increased borrowings which culminated into gearing ratio of 34.43 percent in 2023 versus 28.71 percent in 2022. HTL ended up making net loss of Rs.93.41 million in 2023 with loss per share of Rs.0.67.

Recent Performance (9MFY24)

HTL’s net sales grew by 36.37 percent in 9MFY24 emanating from favorable sales mix as well as price management initiatives which buttressed the demand of company’s products. However, high cost of sales due to Pak Rupee depreciation and fluctuating in the prices of international commodities pushed gross profit down by 29.22 percent in 9MFY24 with GP margin falling down to 5.59 percent from 10.78 percent in 9MFY23. Distribution expense and administrative expense ticked up by 5.54 percent and 6.55 percent respectively during the period. Other expense contracted by 66.31 percent during 9MFY24 supposedly due to lower provisioning while other income magnified by 114.73 percent during the period probably due to higher dividend income and interest income. HTL registered 20.93 percent higher operating profit in 9MFY24 with OP margin of 3.38 percent, down from 3.81 percent during the same period last year. The company considerably reduced its debt profile during the period, however, higher discount rate resulted in 29.9 percent higher finance cost in 9MFY24. Higher tax expense incurred during the period also proved to be the off-putting factor, resulting in 51.48 percent decline in net profit of HTL during 9MFY24. HTL’s net profit stood at Rs.58.928 million with EPS of Rs.0.42 versus EPS of Rs.0.87 recorded in 9MFY23. NP margin also slumped from 1.05 percent in 9MFY23 to 0.38 percent in 9MFY24.

Future Outlook

The excess funds raised in IPO amounting to Rs.282.3 million as of March 31, 2024, are invested by HTL as bank deposits, TDRs, and mutual funds which will yield returns and increase the “other income” of the company. The company can utilize these funds for expansion of its OMC projects.


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