Attock Petroleum Limited: Tactical alignment in response to new oil dynamics – By Foundation Research

 

We see APL’s loss of market share as a tactical ploy to realign its product mix in response to new oil market dynamics, ensuing fall in international oil prices. Where the company has preserved its market share in the retail segment, it has deliberately forgone its share in the FO segment as margins become unattractive. Moreover, Attock Petroleum Limited is the only listed OMC to benefit from booming infrastructure spending given its commanding position in Asphalt segment. We reaffirm our positive outlook for the company, despite 9% downward revision in our June-16 TP to Rs509.8/share.

APL reducing its exposure in FO as margins become unattractive: Oil price slump has squeezed FO margins in absolute terms (Rs613/ton currently vs. Rs2,273/ton avg in FY14) that have reduced the segment’s attractiveness for APL, in our view. Subsequently, the company has intentionally lost its market share in the hpw FO segment that is currently standing at 7.8% (FO volumes down by 37% YoY in 8MFY16) which was 9.5% /9.6% in FY13/14.

Higher margins retail segment: On the flip side, the company has been able to sustain its footprint in the retail segment as the margins become increasingly attractive; currently stand around 8% vs sub 3% in FY14. To highlight, company is to sustain volumetric growth in retail segment by constantly expanding its retail network (537 outlets as of December- 2015) across the country. Our calculation suggests, FO contribution to gross margins is only to stands around 10% in FY16 vs 32% contribution in the product mix, whereas contribution of the retail segment stands around ~58% vs 55% in product mix.

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By: Foundation Securities (Pvt.) Limited

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APL 17-03-2016

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