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Hamza Asif

Ma’am Atifa Arif Dar

Applied Financial Analysis

26th April 2023

Attock Petroleum Limited

Profile:

Background: 

Attock Petroleum Limited (APL) was founded as a Public Limited Company in Pakistan on
December 03, 1995, and became the 4th Oil Marketing Company to receive a marketing
license. It began operating in February 1998 and was listed on the Pakistan Stock Exchange
(formerly known as Karachi Stock Exchange) on March 07, 2005. In a short span of time,
APL has become a reputable and progressive organization, committed to providing quality
petroleum products and services in Pakistan and abroad, with a focus on meeting all safety
and environmental standards.

APL is Pakistan's second-largest Oil marketing Company with a 10% market share for the
financial year 2021-22. Our growing market share and customer confidence are testament to
our successful policies, proactive efforts, and visionary approach. As of June 30, 2019, the
company has a retail network of 731 pumps throughout the country. As part of a fully
integrated oil group based in Pakistan, the company deals with the marketing and distribution
of a wide range of petroleum products and serves both local and international clients. APL
supplies fuels to retail outlets, industries, armed forces, power producers, government/semi-
government entities, the developmental sector, agricultural customers, among others.

The late Dr. Ghaith R. Pharaon, a well-known businessman and investor with various
business interests in Pakistan and other parts of the world, established the Attock Group. He
made substantial investments in multiple sectors, including cement, oil, power production,
chemicals, and real estate development, significantly influencing the world economy. Dr.
Pharaon was a strong supporter of Pakistan and was instrumental in launching several
investment projects there that helped the country's economic growth. His active management
style and financial expertise helped the Attock Group become one of Pakistan's most
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prosperous international corporate enterprises. His legacy continues to inspire other aspiring
entrepreneurs and manufacturers worldwide.

Operations

APL is mainly involved in the distribution and marketing of several petroleum products such
as Bitumen, Kerosene, Furnace Oil, Lubricants, Premier Motor Gasoline, and High Speed
Diesel, among others. It also offers a variety of automotive and industrial-grade lubricants.
Naphtha and LBO marketing are among the other areas in which APL is involved.

In addition to creating shareholder wealth, APL takes an active role in benefiting society and
the environment by being a responsible corporate citizen. APL has always maintained its
reputation for fulfilling its corporate social responsibilities. Moving forward, I have faith in
the Board and management to shape the Company in a manner that takes advantage of
potential opportunities and leads to our success.

Ownership

Ownership Structure:

The majority ownership and management control of APL is held by the Attock Group, which
has a stake of approximately 34.38% through Pharaon Investment Group Limited (Holding),
as well as Attock Refinery Limited (~21.88%), Attock Petroleum Limited Employees
Welfare Trust (~7.04%), Pakistan Oilfields Limited (~7.02%), and The Attock Oil Company
Limited (~2.2%). Other significant shareholders include a) Mr. Shuaib A. Malik (~6.67%), b)
other local and foreign individuals (~8%), and c) banks and other financial institutions
(~12.82%).

Stability

The Attock Group, recognized as a reputable entity in the industry, has been in charge of
directing and supervising the operations, showcasing a significant element of durability.

Business Acumen
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Attock Petroleum Limited, also known as APL, is a significant component of the popular
Attock Group of Companies. This fully integrated group covers all aspects of the oil and gas
industry, from exploration and production to refining and marketing a diverse range of
petroleum products. The Attock Group is also heavily involved in cement production,
distribution, and trade, as well as the provision of information technology services.

The Attock Group is notable for the extensive industrial expertise of its sponsors and their
ability to think strategically, enabling them to stay ahead of the curve and approach issues
with innovative solutions. The sector knowledge and expertise of The Attock Group
guarantees the stability and expansion of all of its businesses, including APL.

Financial Strength

The Attock Group, a global conglomerate with diversified business interests, has the Pharaon
Group as its major shareholder. They are involved in various industries, including hospitality,
real estate development, chemicals, and cement production. With extensive experience in
these industries, the Attock Group holds a strong position in the international market. The
ultimate owner of the Attock Group is M/s Coral Holding Limited.

Governance:
Board Structure:
The Board of Directors of APL is composed of a total of nine individuals, with a majority of
five being non-executive members, two serving as executive directors, and the remaining two
being independent non-executive directors.

Member’s profile:

The Attock Group is chaired by Laith G. Pharaon, a renowned businessman and global
investor with diverse interests in several industries, including cement, power production,
chemicals, real estate, and petroleum, both in Pakistan and internationally. He is the eldest
son of the group's founder and holds a graduate degree from the University of Southern
California.
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Under Laith G. Pharaon's capable leadership, the Attock Group has become a well-
established and thriving global corporate enterprise. Thanks to his vast experience and
expertise, Mr. Pharaon has been instrumental in leading the company towards excellence,
making strategic decisions that have helped it maintain its position as a dominant force in the
markets it serves. His bold leadership and sound business judgement have been crucial in the
group's success.

Mr. Shuaib A. Malik

Mr. Shuaib A. Malik has been an important member of The Attock Group of Companies
since his appointment as Executive Officer of The Attock Oil Company Limited in July 1977.
Throughout his tenure, he has held several leadership positions within the organisation,
overseeing the operations and business affairs of numerous enterprises under its umbrella.
With his extensive knowledge of the upstream, midstream, and downstream petroleum
industries, Mr. Malik has been instrumental in the growth and success of The Attock Group.

Mr. Malik received his undergraduate degree from Punjab University and has participated in
various international leadership programs, seminars, and conferences, including two at the
prestigious British Institute of Management in the UK and the Harvard Business School in
the USA. He also holds key positions in Attock Refinery Limited, National Refinery Limited,
and Pakistan Oilfields Limited, serving as Chairman, Director, and CEO, respectively.
Additionally, he holds the positions of Group CEO and Director of Attock Oil Company
Limited, Director of Attock Cement Pakistan Limited, and Director of Attock Gen Limited.
He also acts as a resident representative for Pharaon Investment Group Limited (Holding)
s.a.l.

As CEO, Mr. Malik has played a crucial role in overseeing the daily operations of The Attock
Group, bringing his vast expertise in operations, management, and finance to bear on the
company's success. His leadership has been instrumental in executing various strategic
initiatives that have strengthened the company's market position and driven growth.

Mr. Wael G. Pharaon

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Mr. Wael G. Pharaon, a holder of a postgraduate degree, is a Non-Executive Director with a

broad range of financial and commercial interests in various industries, including petroleum,
power generation, chemicals, real estate, and cement, both in Pakistan and other parts of the
world. He is a Board Director for a number of companies under the umbrella of the Attock
Group of Companies, and as the founder's son, he brings a wealth of knowledge and
experience to the business.

Mr. Abdus Sattar

Mr. Abdus Sattar has more than 35 years of experience in financial management and has held
various positions of responsibility in different government organizations, ministries, and
commercial entities. He has focused on cost control, consumer protection, minimizing
government subsidies, increasing government revenues, eliminating wasteful expenses, and
fixing gas and petroleum prices. He served as Financial Advisor to the Ministry of Petroleum
& Natural Resources and was also a Financial Advisor for Mari Gas Company Limited for
around eight years, six of which he spent as a Director on the Board. He was nominated as a
council member of the Institute of Cost and Management Accountant of Pakistan (ICMAP)
for three years by the Government of Pakistan. He has attended many advanced financial
management courses and programs in institutions of international repute in Pakistan and
abroad.

Mr. Babar

Mr. Babar is a Non-Executive Director with more than 30 years of experience in the Attock
Group of Companies. He has held various positions in Finance, Personnel, Marketing, and
General Management before becoming the Chief Executive of Attock Cement Pakistan
Limited in 2002. Mr. Bashir holds a Master’s degree in Business Administration from Quaid-
e-Azam University in Islamabad and is also a Director on the Board of all the listed
companies of the Group in Pakistan. He has attended various courses, workshops, and
seminars in Pakistan and abroad on business management and has substantial knowledge of
the cement industry in Pakistan. He is also a member of the Management Committee of the
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Overseas Investors Chamber of Commerce and Industry and the All Pakistan Cement
Manufacturing Association.

Lt General Javed Alam Khan

Lt General Javed Alam Khan is an Independent Non-Executive Director commissioned in the

Pakistan Army in April 1971. He has held various command, staff, and instructional
appointments throughout his nearly 35-year military career. After his retirement from the
Pakistan Army, he served as CEO/MD of Fauji Kabirwala Power Company Limited and
Fauji Cement Company Limited.

Mr. Mohammad Raziuddin

Mr. Mohammad Raziuddin is an Independent Non-Executive Director with over 30 years of

experience in the energy sector. He holds a Master’s Degree in Engineering from the
University of Detroit and an MBA from Syracuse University in the USA. During his career,
he has held top-level advisory positions in various organizations within the country and also
served as Technical Advisor in Saudi Arabia, Pakistan, and Bangladesh. He has extensive
knowledge and vast experience in energy consultancy, oil refining, exploration and
production, petroleum marketing, and more.

Mr. Iqbal Ahmad Khwaja

Mr. Iqbal Ahmad Khwaja is an alternate Director to Mr Laith G. Pharaon, who is a Bachelor
of Commerce from Karachi University and a Chartered Accountant from England and Wales.
He has served with the Attock Group of Companies for nearly 30 years in various capacities,
including Chief Financial Officer and Corporate Secretary of Pakistan Oilfields Limited
(POL), Deputy Chief Executive of POL, CEO of POL’s subsidiary Attock Chemicals (Pvt)
Limited, and CAPGAS (Pvt) Limited. He attended many national and international courses
and seminars during his tenure with the Group.

Mr. Rehmat Ullah Bardaie

Mr. Rehmat Ullah Bardaie is an alternate director to Mr Wael G. Pharaon and has been
associated with the Attock Group of Companies since June 1997. He is currently holding the
charge of General Manager (Finance and Accounts) and Company Secretary. He has attended
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various financial management courses, training programs, seminars, and conferences in

Pakistan and abroad. He is a fellow member of The Institute of Chartered Accountants of
Pakistan, The Institute of Cost and Management Accountants of Pakistan, and Association of
Chartered Certified Accountants (UK).

Board’s Effectiveness:

The Board of Directors of APL held five meetings in the fiscal year 2022 to approve financial
results and review the annual budget. Despite fierce competition from other oil marketing
companies and the challenging economic climate, the Board's performance remained
resilient. Each Board member contributed a fine balance of experience and skills, effectively
guiding the Company's strategic affairs. The Board also played an important role in
overseeing the management's performance, focusing on key risk areas, and being fully
involved in the budgeting and strategic planning processes.

The members' participation in board meetings was satisfactory. To ensure effective oversight
and efficient functioning, the Board established three committees: the Audit Committee, the
Share Transfer Committee, and the HR & Remuneration Committee.

Financial Transparency:
The company's financial transparency is considered strong due to its listing status, and A. F.
Ferguson & Co. Chartered Accountants, the auditor of the company, expressed an unqualified
opinion on ARL's financial statements for FY22, complying with the disclosure requirements
of regulators.

Management:
Organizational Structure
ARL's organizational structure is based on the efficient functioning of twelve key
departments, each headed by a competent executive who reports directly to the CEO. These
departments include Administration and Management, Finance and Accounts, Engineering
and Projects, Consumer Sales, Lubricants, Aviation, Retail Sales, Retail Development,
Supply Chain, Terminal Operations, Procurement, and Management Information Systems
(MIS).
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Management Team
Mr. Shuaib A. Malik, the CEO of the company, has an extensive 45-year tenure with the
organization and has garnered a wealth of experience in the oil industry. The CFO, Mr.
Rehmat Ullah Bardaie, is also a seasoned professional and a fellow chartered accountant with
25 years of experience at the company. The leadership team is composed of highly skilled
and experienced individuals who have demonstrated consistent performance over time. Many
of the top management members have been associated with the organization for a long period
of time.
Effectiveness
ARL's leadership has consistently demonstrated competence and contributed to the
organization's growth and stability, even in times of economic uncertainty. The leadership's
prudent decision-making has resulted in efficient processes, and the company's control
system is deemed strong and reliable.

Business Risk:
Industry Dynamics:
Pakistan's dependence on imported POL products continues to grow, with 19.8 million MT of
POL products being consumed in FY21, up from 17.1 million MT in FY20. Domestic oil
supplies are dwindling and fresh discoveries are limited, leading to an increase in reliance on
foreign POL products. The Oil & Gas Regulatory Authority (OGRA) regulates the industry,
setting the pricing of two key products, MOGAS and Diesel, every two weeks. There are 35
OMCs operating in Pakistan, with 4 listed on the stock exchange. Despite the challenging
environment, OMCs contributed 5.3% of GDP in FY21, generating total revenues of PKR
2,528 billion, a YoY growth of 13.6% due to increased consumption and rising POL prices.

Relative Position:
APL holds considerable strategic importance in the oil industry and is the second-largest
player in the OMC sector, with a market share of around 50.6% after PSO, which is a
government-owned and supported entity. During the fiscal year 2022, APL managed to
capture a significant market share of almost 10% in both MOGAS and HSD.

Revenues:
Despite facing risks related to regulatory changes and fluctuations in the stock market, Attock
Petroleum Limited's (APL) significant marketing efforts have resulted in consistent profits. In
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FY22, the company demonstrated significant growth, with its revenue increasing by 97% to
PKR 370,074 million compared to PKR 188,645 million in FY21, representing a 22%
increase in quantity.

Margins:
In FY22, Attock Petroleum Limited (APL) experienced a significant increase in its gross
profit margin, which doubled compared to the previous year. The net profit margin of the
organization also grew from 2.61% to 5.01% in FY22, which is attributed to efficient cost
management, increased revenues, and effective management of operations. The EBITDA
margin to sales ratio also improved from 4.54% in FY21 to 8.81% in FY22, indicating the
efficient use of resources.
Sustainability:
Attock Petroleum Limited (APL) is continuously improving the user experience. Although
the Company did not open any new retail locations in the current financial year, it has
prioritized the development of its Non-Fuel Retail (NFR) business unit to identify fresh
business prospects and add to its revenue stream. The Company has already signed contracts
with leading international fast-food chains to open their outlets on its premises, and once
these food outlets are operational, the Company plans to expand its offerings by establishing
restaurant franchises at additional retail locations. A pilot project was initiated earlier by
setting up an electric car charging station at one of the retail locations in Islamabad, and the
Company plans to install EV charging stations at 05 more selected retail locations along the
motorways.

Financial Risk:

Working Capital:

Sanctions imposed on Russian exports due to the war between Russia and Ukraine resulted in
unusually high oil prices worldwide, leading to cash flow constraints for the Company during
the latter half of the year. Additionally, the unprecedented depreciation of the PKR against
the USD caused the Company to incur higher costs for purchasing goods. The government's
announcement of a subsidy on petroleum products further worsened the situation and
impacted the Company's cash operating cycle, as it accumulated a significant amount of
accounts receivable in the form of Price Differential Claim (PDC) from the government.
Nevertheless, Attock Petroleum Limited (APL) possesses robust financial flexibility and can
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borrow money from other group companies at favourable rates to meet its working capital
needs. The Company has sufficient borrowing power to fulfil its future obligations and
growth objectives. Moreover, it has standby agreements with lenders to ensure uninterrupted
operations and access to funds to meet working capital requirements. To address this working
capital issue, the Company obtains short-term loans from other group-owned enterprises such
as National Refinery Limited and Attock Refinery Limited. As a result of the aforementioned
working capital crisis, the Company's trade and other payables increased by 53% in FY22
(from PKR 47,614 million to PKR 72,910 million).

Coverages:

In FY22, the organization faced challenges due to high prices of POL and a significant
depreciation of the PKR against the USD, which led to increased import costs and resulted in
a negative free cash flow of PKR -2,913 million compared to the previous year's positive
cash flows of PKR 3,076 million. However, the interest coverage ratio improved from 5183x
in FY21 to 881x in FY22. This was mainly due to the company's decision to maintain an
equity-based capital structure and avoid using debt, utilizing its own or a group of investors'
funds for business expansion. This prudent approach resulted in a high-interest cover ratio,
providing a cushion against any interest payments in case of a decline in earnings.

Capitalization:

APL has a 100% equity-based capital structure, indicating that the company does not carry
any debt on its books. As of the end of FY22, the organization's total equity had increased
significantly from PKR 22,720 million at the end of FY21 to PKR 37,319 million. This
indicates that APL has been successful in raising equity for its shareholders, thereby
strengthening its capital base.

Credit Risk

APL faces credit risk in case of bankruptcies. To mitigate this risk, the company has
implemented a credit policy that assesses the creditworthiness of each new commercial and
retail client on an individual basis before engaging in any business transaction. The company
conducts identity checks, requires minimal security deposits, and may ask for bank
guarantees or references as part of their assessment process. These measures help to reduce
the likelihood of potential losses due to default on payments by clients.
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Currency Risk

As the organization makes import transactions in US dollars, it is vulnerable to exchange rate

fluctuations. The parity between the Rupee and Dollar has shown considerable instability in
the 2021-2022 period. Financial liabilities amounting to Rs 9,119,264 (compared to Rs
6,834,736 in 2021) and financial assets amounting to Rs 36,209 (compared to Rs 27,777 in
2021) are both exposed to currency risk.

Rating

My AAA rating would be given to Attock Petroleum Limited (APL) due to its plans to
expand into non-petroleum areas, as well as being the largest multinational oil marketing
company (OMC) in Pakistan. APL is the second largest and highly technologically advanced
OMC in Pakistan and plays a crucial strategic role in the local energy industry. This also
provides a strong foundation for APL to work closely with regulators to improve the entire
downstream oil marketing industry structure. Their strategy is smart and well-thought-out,
positioning them for long-term sustainable growth. With supportive and helpful sponsors,
APL maintains a stable supply position, as they are always willing to invest whenever the
company faces a financial issue. This enables APL to keep its capital structure at 100%
equity, ensuring predictable cash flows despite fluctuations in foreign market prices and other
ongoing risks. APL aims to increase and maintain its customer base by focusing on the
concept of a "service station" rather than just a "petrol pump", cultivating brand loyalty
beyond transactional behavior.