APL – gaining market share

It hasn’t been a smooth ride for the oil marketing companies in 1HFY19. Petroleum product volumes are on a down cycle, and the outlook for petroleum product sales is not as robust as it was in the last couple of years; especially with the government on an austerity drive; and with attempts to phase out furnace oil, the demand growth is curtailed.

Amid these challenges, Attock Petroleum Limited (PSX: APL) announced a 25 percent year-on-year decrease in profits for 1HFY19, and over 62 percent year-on-year decrease in the earnings for 2QFY19 last week. There has been a significant fall in not only the net margins, but also the gross margins of the OMC. Decline in profits was witnessed despite a healthy increase in the company’s topline.

APL’s net revenues for 2QFY19 and 1HFY19 were up by more than 50 percent, year-on-year. This was largely due to higher petroleum product prices. According to APL’s 1QFY19 financial statements, the volume of the products sold decreased by 5 percent year-on-year in the quarter, which was in line with industry volumes’ steep decline due to the anticipated changes in pricing and taxation structure of petroleum products as well as slow upliftment. Slowdown in volumes continued for the OMC sector at the same pace in the second quarter of FY19.

Earnings for APL however, fell on account of a higher than proportionate increase in the cost of sales. This came from higher inventory losses incurred. Also the earnings were axed by higher operating expenses most likely from exchange losses.

Despite the challenges, Attock Petroleum Limited has been the most favored stock of the brokerage industry from the OMC space for its stable market share compared to the other downstream players; its lower exposure to the circular debt; and its relatively stable procurement of petroleum products via Attock Refinery particularly that of furnace oil. APL has been aggressively moving into the retail space; its latest quarterly report highlights that the company improved its market share in 1QFY19 from 9.0 percent to 11.6 percent despite the contracting volumes and other challenges that the industry faced. Its volume based market share for 2018 stood at around 10 percent, versus 8 percent in 2017.