The Pakistan Credit Rating Agency Limited
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Hamza Ghalib

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PACRA Assigns Initial Entity Ratings to Sitara Petroleum Service (Pvt.) Limited

Rating Type Entity
(16-May-19 )
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch -

The ratings reflect the strong business profile of Sitara Petroleum Service (Private) Limited. Sponsors have been engaged in the business for over three decades and reflect grips on the dynamics of the industry. The company is primarily engaged in two business segments namely i) Trading and distribution of diesel, petrol, related products. This segment is further split into retail and bulk units. Under the retail side, the company operates a network of ~27 retail stations which is mainly spread out in the Punjab region whereas, under the bulk segment the company provides PoL product directly to customers ii) Furnishing fleet logistic services (Carriage income) to various OMCs. The sponsor’s long association with these business lines is being considered positive. Company’s prime profits are being generated from the fleet logistic business. It carries ~70% share in the gross profit, followed by retail (~21%) and bulk business segments (~9%). Over the years share of profit from the fleet logistic division is soaring while retail and bulk segments are also supplementing the profitability. In most segments, Sitara’s margins are regulated not negotiated. Company’s fleet logistic revenue is primarily (~90%) coming from Gas and Oil Company (GO) which is a group company. This is considered a plus. The Company’s financial risk profile is characterized by adequate leveraged capital structure. This along with improved cashflows help manage the financial risk. Adequate coverages lend support to financial profile. Management, being cognizant of the current industry situation, is embarking on functionalizing an Oil Marketing company to augment and diversify its revenue stream. The company is planning a debt instrument in a bid to build a depot at Port Qasim, Karachi; this, in turn, may lead to upping in the leverage capital structure, which remains aligned with the assigned rating. The CAPEX will be cushioned by internal cash generation. Of late, the company has refined its control and governance structure. ‘Category A’ auditor - on the panel of auditors maintained by SECP - has been appointed. The finance team has been strengthened. The overall governance framework is also being augmented.
The ratings are dependent on the management's ability to sustain its business volumes while holding the margins. With the new debt to be acquired, maintenance of coverages would remain important. Sustaining the business and financial profile along with effective changes in governance framework would be beneficial for the ratings. Meanwhile, financial transparency is considered important.

About the Entity
Sitara petroleum Service Private Limited was incorporated in Jul’12. The company is 94% owned by Mr. Tahir Iqbal, who is a chairman and CEO of the company. Mr. Tahir Iqbal has done bachelors in Civil Engineering from University of Engineering & Technology Lahore. He is a veteran of the retail & oil transportation sector with rich experience in the field spanning for more than 30 years. Mr. Tahir is supported by a team of experienced personnel.

The company has a four-member board (including CEO). Board comprises two executives and two independent directors. The board has formulated two committees, i) Board Audit Committee and ii) Board Human Resource & Remuneration Committee.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.