PACRA Upgrades Entity Ratings of Sitara Petroleum Service Limited

Sitara Petroleum Service Limited ("Sitara Petroleum" or "the Company") benefits from its strategic affiliation with Gas & Oil Pakistan Limited (GO), which is backed by Aramco, along with a solid business profile. The Company's sponsors bring over three decades of experience in the POL sector, demonstrating strong business acumen. Sitara Petroleum operates primarily in two core segments: Trading and Distribution of POL Products, and Fleet Logistics Services for various Oil Marketing Companies (OMCs). Within the trading segment, the Company operates both retail and bulk sale units. The retail arm operates a network of ~60 fuel stations, mainly located in Punjab (~95%), serving customers via cash and fuel cards. In contrast, the bulk segment caters to corporate clients, offering POL products on credit. This segment represents the majority of the Company's total sales. The logistics segment is supported by a fleet of ~400 lorries, with ~95% of the fleet revenue generated through intragroup business with GO. Overall, trading and distribution activities contribute ~90% of the Company’s total revenue. Substantial revenue growth of ~197% reported in the Company's revenue reflected a massive uptick in its core activities. Moreover, considerable growth in the business margins and, in turn, profitability (net profit: FY25: ~PKR 3.3bln, FY24: ~PKR 221mln) was backed by better procurement terms available from GO. This, along with better POL prices, benefited the Company's performance. On the financial risk front, working capital management has been streamlined. Sitara Petroleum now holds a substantial borrowing cushion on its balance sheet. While the reliance on short-term borrowings, which currently constitutes ~20% of total debt, has also been marginalized. This has strengthened the liquidity profile of the Company. Coverages have also improved in FY25. Leveraging remains stable, aided by revaluation gains. These factors indicate enhanced financial flexibility and better management of short-term obligations, supported by efficient cash recovery and disciplined credit control. Sitara Petroleum plans to strengthen its governance and operations by pursuing an Initial Public Offering (IPO), involving ~20% equity dilution. The IPO proceeds will fund expansions, including ~ 35 new retail outlets, the acquisition of 50 oil lorries, and the construction of 40,000 MT of storage capacity. The remaining will be met using internal cash flows and long-term debt, ensuring the debt level remain below ~40% of the total requirement. If executed effectively, these initiatives, supported by continued operational and logistical assistance from GO, are expected to significantly enhance the Company's financial performance and solidify its position in the OMC supply chain. Furthermore, the Company is taking concrete steps to streamline its governance structure through the establishment of Board-level committees and strengthened managerial oversight.
The ratings are dependent on the management's ability to improve its business volumes and overall business margins. Continuous improvement in the overall business and financial profile of the Company, along with improved governance framework is vital to the ratings. Meanwhile, financial transparency is considered paramount.

About the Entity
Sitara Petroleum Service Limited (‘Sitara Petroleum’ and ‘the Company’) is a public unlisted concern incorporated in Jul-12 under the repealed Companies Act 2017. Sitara Petroleum primarily trades and distributes Diesel, Petrol, and Lubricants, and also offers fleet logistics services. The Company's major shareholding (~90%) has been transitioned to the next generation, whereby Mr. Javed Iqbal’s sons (M. Usman Javed, M. Hassan Javed, M. Siddique Javed) and Mr. Tahir Iqbal’s sons (Muhammad Ali, Huzaifa Bilal, and Hassan Bilal) hold an equal stake of ~14.96% in the Company. The remaining shares are distributed among various individuals. Mr. Zafar Iqbal Ch. chairs the Board. Lately, Mr. Zaheer Baig has been appointed to head the Company as the CEO. He holds more than three decades of professional experience in the energy supply chain. The management team comprises experienced professionals.