Hi-Tech Lubricants Limited (PSX: HTL) has been marketing lubricants in Pakistan for the last 20 years. The firm has been involved in the sale of imported lubricants, greases, specialty oils etc manufactured by S.K. Lubricants, Korea under the brand name ZIC Lubricants. S.K. Lubricants of South Korea owns the world's largest petrochemical complex according to the company. HTL has been focusing its marketing efforts mainly in the retail markets. Its brand ZIC is available in more than seventy-two cities across Pakistan through a wide network of distributors.
HTL's key feature has been to offer high-end synthetic products in a price conscious market looking for quality. The firm has been able to gain competitive edge over other players in the market due to its availability of imported lubricants with a wide-spread channel. In 2011, Hi-Tech Lubricants partnership (AOP) was bought over by Hi-Tech (PVT) Limited and converted into a Public Unlisted corporate. Earlier this year in January, the company went public for forward integration.
For forward integration, the firm needed fund, and decided go public where its retail brand Zinc will have its own service centres across the country. The firm is aiming around 37 outlets in FY16 across the country, which will be one-stop-shops with services like car wash, oil changing, realignment, rebalancing, availability of accessories etc. These investments worth Rs 1.25 billion are the rationale for public listings, and the firm expects IPO proceeds to fund this plan; the remaining will likely be financed through internally generated resources.
Blending plant
Hi-Tech Lubricants Limited has recently ventured in lubricant blending with the plant starting commercial production in 2016. The idea for a state of the art blending plant was conceived by the group back in 2013. The rationale for setting this plant in Pakistan was backward integration to reduce the cost of lubricants to end customer and create different avenues for marketing. It is an integrated unit producing International Standard Specifications Lubricants in HDPE bottles, filling, capping & labelling of finished products on an automated high accuracy filling line. The firm plans to continue importing some of its high-end products, whereas it will be importing base oil and blending in Pakistan.
Recent financial performance
The performance of HTL has been impressive with the jump in revenues in FY16 of almost 28 percent as compared to the previous year. In addition the gross profit also increased by a whopping 53 percent during the period. The growth involves volume growth of 30% with overall prices decreased. The gross margin during the year shows improvement of five percent.
This was due to reduction in custom duties on non-synthetic products along with freight charges. The effective rate of tax has increased by 7% as the company moves from normal tax regime to final tax regime following Finance Act 2015. The company's flagship range of ZIC has achieved net sales of Rs 5,407 million during 2016 as compared to Rs 4,385 million of 2015 representing sales growth of 23 percent.
During the quarter ended June, 2016 the company achieved net sales of Rs 1,569 million against net sales of Rs 1,407 million of corresponding period of last year representing sales growth of 11.50%. The net margins decreased by almost 2.2% due to increase in cost of lubricant products internationally. The profit after tax shows a decrease of Rs 5 million mainly due to increase in Income taxes where after promulgation of Finance Act 2015, the company moves to final tax regime.
While talking to BR Research last year, Chairman HTL had said, "In the next two years, we are looking at earnings of Rs 5 per share; we see an increase in our margins with the completion of our plant, which is our fully owned subsidiary, due to increased capacity. There are a lot of areas where we cannot sell right now, but with local manufacturing and filling we will be able to cater to them in different packaging." And it looks like the management was on the mark as the EPS for the FY16 is Rs 5.43 with the company still growing at a fast pace.
Stock performance
Since its IPO the stock struggled a bit against the benchmark KSE-100 index till July 2016 but performed extremely well subsequently. HTL has seen an impressive surge in its stock price recently and has consistently been outperforming the benchmark KSE-100 index since August 2016. This can be attributed to the robust financial performance of the company recently.
Outlook
The growth in the automobile sector both via import and local manufacturing has resulted in an increase in the demand for the lubricants. Thus the potential for HTL is huge as the firm has invested in establishment of Hi-Tech blending and bottling plant to cater to this vital segment of the market and economy. The firm has also applied for OMC license amid plans to diversify operations within the oil industry.
As far as the retail presence is concerned, planning and design phase of the development of HTL's state of the art retail outlets across Pakistan with has already been completed, and several suitable locations have been locked in Lahore, Karachi and Islamabad. The firm is also undertaking plans to open 300 petrol pumps nation-wide making its future even more promising.
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