S.S Oil 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, 2024, SSOM has a total of 5.658 million shares outstanding which are held by 971 shareholders. Directors, CEO, their spouses, and minor children have the majority stake of 52.72 percent in the company followed by the local general public holding 28.99 percent of the outstanding shares of SSOM. Sikander Commodities (Private) Limited, the parent company of SSOM, accounts for 14.606 percent of its shares. Around 1.214 percent of the company’s shares are held by foreign companies while Modarabas and Mutual funds hold 1.07 percent. Joint stock companies also hold 1.07 percent shares of SSOM. The remaining 0.3216 percent of shares are held by Banks, DFIs, and NBFIs.
Financial Performance (2019-24)
SSOM’s topline has followed an upward trajectory until 2022 followed by a drastic fall in 2023 and 2024. Its bottom line started shrinking in 2022 and ended up posting a net loss in 2024. Gross margin and operating margin have been ascending until 2021 followed by a plunge in 2022. In 2023, gross and operating margins considerably picked up, however, fell again in 2024. Conversely, net margin which stayed range-bound posted a staggering rise in 2021 and then fell in the following years (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.
In 2019, SSOM’s topline grew by 11.79 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 are indicative of upward price revision during the year. Sharp depreciation of the Pak Rupee as well as elevated commodity prices in the international market drove the cost up by 10.33 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 the price increase. In absolute terms, gross profit improved by 41.94 percent in 2019. Operating expenses hiked by 15.46 percent year-on-year in 2019 due to high utility charges, travel & conveyance, and higher freight charges on account of a spike in the rate of POL products and electricity tariff. Operating profit picked up by 49.87 percent year-on-year, translating into an OP margin of 4.7 percent in 2019 versus an OP margin of 3.5 percent recorded in 2018. Finance costs also escalated by 57.33 percent in 2019 on account of rate hikes and increased borrowings to meet working capital requirements. This diluted the bottomline growth which was recorded at 6.30 percent in 2019. Net profit clocked in at Rs.13.14 million in 2019 with EPS of Rs.2.32 versus EPS of Rs. 2.18 posted 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 with halted production and sales on account of the lockdown imposed due to COVID-19, SSOM registered a healthy 28.83 percent year-on-year rise in its topline. While the 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 posted in 2019. Cost of sales escalated by 28.21 percent year-on-year in 2020 due to local currency depreciation. However, the 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 2.96 percent year-on-year in 2020 due to a massive drop in freight and forwarding charges. Operating profit boasted 47.97 percent growth in 2020 with OP margin climbing up to 5.4 percent. Finance cost magnified by 36.84 percent year-on-year in 2020 which was the consequence of increased short-term borrowings to meet working capital requirements. Nevertheless, the bottom line registered a staggering 117.94 percent year-on-year growth in 2020 to clock in at Rs.28.63 million with 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 60.38 percent in 2021. The sales volume of washed oil meal and soap showed 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 57.61 percent year-on-year in 2021, yet the company’s robust sales volume and pricing strategy yielded a stronger GP margin of 8 percent in 2021. Operating expenses mounted by 12.92 percent year-on-year in 2021 which was mainly due to higher communication expenses, depreciation as well as sales commission. SSOM did massive provisioning for WWF and WPPF in 2021 which inflated its other expenses by 415.26 percent to clock in at Rs.35.58 million. Operating profit multiplied by 105.93 percent in 2021 with OP margin jumping up to 7 percent. Finance cost which was on the rise in the yesteryears slumped by 38.16 percent in 2021 on account of monetary easing. SSOM incurred lower financing costs despite the fact that its long-term borrowings considerably hiked in 2021 for the purpose of importing Silos and Solar PV plants. SSOM’s net profit marvelously grew by 988.43 percent in 2021 to clock in at Rs.311.57 million. This translated into 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 a 31.41 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 the Pak Rupee and the global commodity super cycle on account of the 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, the GP margin fell plunged to 6.9 percent in 2022. In absolute terms, gross profit posted a 13.15 percent uptick in 2022. Operating expenses drastically surged by 35.21 percent in 2022 due to higher utility charges, vehicle running expenses, and freight & forwarding charges – all pointing towards elevated prices of POL products and electricity. Operating profit could only rise by 13.23 percent in 2022 with OP margin eroding to 6 percent. Finance costs elevated by 81.18 percent year-on-year in 2022 on account of monetary tightening and increased borrowings. This drove the net profit down by 29.41 percent year-on-year in 2022 to clock in at Rs.219.93 million with EPS of Rs.38.87 and NP margin of 2.1 percent.
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 massive 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 was the lowest since 2018. This culminated in 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 in 2021– the highest since 2018. SSOM also kept a check on its operating expense in 2023 which slid by 20.14 percent due to a significant drop in freight & forwarding and sales commission on account of thin sales volume. Operating profit tumbled by 17.89 percent year-on-year in 2023, yet OP margin posted its optimum value of 8.4 percent. Despite the unprecedented level of discount rate, SSOM was able to curtail its finance cost by 22.50 percent in 2023 by significantly trimming down its short-term borrowings. However, lower finance costs didn’t help the bottom line much as it plummeted by 38.92 percent year-on-year to clock in at Rs.134.34 million in 2023. This translated into EPS of Rs.23.74 and an NP margin of 2.2 percent.
SSOM’s topline continued to slide in 2024 to the tune of 27.52 percent. Sales volume of washed oil was recorded at 6491 M tons, up 15.33 percent year-on-year. Conversely, the sales volume of meal & soap clocked in at 12,859 M tons, down 37.75 percent year-on-year. The company operated at 23 percent capacity to produce 20,649 M tons of products. This was on account of a ban imposed on the import of GMO seeds and general import restrictions by the SBP. The cost of sales went down by a lower magnitude of 24.22 percent during the year due to higher prices of raw materials. The company couldn’t pass on the impact of higher costs due to thin demand. This translated into a 59.75 percent dip in gross profit with GP margin falling down to 5.2 percent. Operating expenses surged by 9.72 percent in 2024. While freight & forwarding charges as well as sales commission considerably declined during the year due to petite sales volume, higher operating expenses were due to elevated payroll expenses, utility expenses as well as vehicle running expenses incurred during the year. Operating profit eroded by 64.23 percent in 2024 with OP margin sinking to 4.1 percent. Finance costs mounted by 67 percent in 2024 due to a higher discount rate and a significant surge in running finance obtained during the year. SSOM recorded a net loss of Rs.147.84 million in 2024 with a loss per share of Rs. 26.13.
Recent Performance (1QFY25)
SSOM kicked off FY25 on a robust note and recorded 273.97 percent year-on-year growth in its net sales in 1QFY25. This was the result of a combination of increased sales volume and price hikes. Stability in the prices of palm oil in the international market coupled with a steadiness shown by the Pak Rupee late resulted in a 703.88 percent improvement in gross profit in 1QFY25 with GP margin jumping up to 7.92 percent versus GP margin of 3.68 percent recorded in 1QFY24. Operating expense multiplied by 37.87 percent in 1QFY25 due to higher payroll expense, utility expense, and vehicle running charges incurred during the year. The company might also have induced new employees to meet the rising demand. Operating profit strengthened by a massive 2207.93 percent in 1QFY25 with OP margin recorded at 6.9 percent versus OP margin of 1.1 percent registered during the same period last year. Finance costs grew by 32.27 percent during the period under consideration as the impact of monetary easing hasn’t started materializing. SSOM was able to pull its bottom line out of the negative zone and posted a net profit of Rs.28.41 million in 1QFY25 versus a net loss of Rs.33.28 million posted in 1QFY2. EPS clocked in at Rs.5.02 in 1QFY25 versus a loss per share of Rs.5.88 posted in 1QFY2. SSOM registered an NP margin of 2 percent in 1QFY25.
Future Outlook
With the lifting of import restrictions in general and GMO soybean import in specific, the company is expected to be in a better position to import soybeans and continue its production to meet the growing demand. The demand is expected to further rise in the upcoming quarter due to the seasonal impact of Ramadan and Eid-ul-fitr. The stability of international palm oil prices coupled with a stronger Pak Rupee may also result in a lowering of prices of cooking oil.