Pakistan Oil Mills (Pvt.) Limited (‘Pakistan Oil Mills’ or ‘the Company’) was incorporated in April, 1960 as a Private Limited Company

Mr. Muhammad Ishaq and his son, Haji Muhammad Farooq, who had been involved in the furniture business set up an edible oil refinery in the 1960s with production capacity of 7 MT per day of vegetable oil/ghee, and laid the foundations for Pakistan Oil Mills. The Company has witnessed multiple business cycles since then and the production facility has been integrated over the years as Company was able to set up seed crushing unit in the 1980s. Currently, the Company’s production facility, located in Kotri, Sindh, currently has a seed crushing capacity of 400 MT per day and refining capacity of 333 MT of vegetable oil/ghee per day. The sponsors have also ventured in textiles, Fimco Tex Industries (Pvt.) Ltd.

Pakistan Oil Mills is primarily engaged in the process of seed filtering and crushing, refining of vegetable oil/ghee by mechanical and chemical processes. The Company primarily sells vegetable oil/ghee, canola meal, and other byproducts including laundry soap. During FY24, the Company produced 43,559 MT (FY23 49,785 MT) of vegetable oil/ghee resulting in capacity utilization of ~ 36.3%. The decrease was mainly due to reduced price and lower import volumes impacted by rupee depreciation Furthermore, the Company operates in branded edible oil segment, namely Naz cooking oil/ghee, Pak cooking oil/ghee, Sun cooking oil/ghee, and Pure cooking oil/ghee.

The Company’s major ownership resides with the family of Mr. Haji Muhammad Farooq. The major stake resides with his two sons Mr. Muhammad Masood Pervez (~ 64%) and Mr. Muhammad Usman (~ 33%). The remaining stake resides with Mr. Masood’s sons, Mr. Mohsin Masood (~ 2%) and Mr. Abu Bakr Masood (~ 1%)

The Company’s ownership is notably stable, supported by presence of its sponsoring family. This strong backing spans multiple economic sectors, including edible oil, textile, shipbreaking and automobile. Such a well-established foundation ensures the company’s continued growth and stability. Moreover, the Company’s succession plan is formally documented indicating the stability of the ownership structure.

The sponsors of the Company have involved in multiple businesses across several industries, including edible oil production, textiles, and automobiles. This extensive experience positions them as influential players in their respective sectors. Mr. Muhammad Masood Pervez, who serves as the CEO of Pakistan Oil Mills and Fimcotex Industries (Pvt.) Limited, brings over 30 years of expertise in the edible oil and textile segments. His extensive background in these industries has equipped him with a deep understanding of market dynamics, operational efficiencies, and strategic growth opportunities. Under his leadership, the Company has focused on innovation and quality, establishing a strong market presence and driving significant growth in its operations. Mr. Muhammad Usman, a key figure in the family business, he boasts over 30 years of experience. Together, Mr. Masood and Mr. Usman leverage their comprehensive industry knowledge and business acumen to guide the Company’s strategic direction, ensuring its continued success and adaptation in a competitive market.

The sponsors possess a sufficient net worth, which provides a significant financial cushion to support the Company during challenging times. This strong financial foundation enables the Company to navigate periods of economic distress or market fluctuations, ensuring operational continuity and stability. In addition to their individual financial strength, the sponsors benefit from their involvement in multiple ventures and companies across various sectors. This diversified portfolio not only enhances their financial resilience but also contributes substantial strength to the Company. Moreover, interest free loan from the director further adds the comfort to the financial strength.

The Company’s Board of Directors is comprised of three Executive Directors, all of whom are members of the sponsoring family. The lack of independent oversight can limit the diversity of perspectives and expertise that are crucial for effective decision-making

The Board of Directors is led by Mr. Masood Pervez, who serves as both the Chairman and the CEO of the Company. With an impressive tenure dating back to 1978, Mr. Masood has played a pivotal role in shaping the Company’s vision and strategic direction. His extensive experience is complemented by his past position as the President of the Hyderabad Chamber of Commerce, Trade & Industries, and his status as a life member of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI). Mr. Muhammad Usman has been associated with the Company for over 30 years. His long-standing involvement has contributed to the Company’s resilience and strategic development. Mr. Mohsin Masood joined the Company’s Board three years ago and represents the next generation of the sponsoring family. His addition to the Board reflects the family's commitment to succession planning and the integration of fresh perspectives into the Company’s governance.

The Board lacks formal sub-committees. However, during FY24, the Board of Directors held 4 meetings, all of which saw full attendance from all members. These meetings primarily focused on discussing annual audit affairs. The minutes of Board meetings are adequately documented.

Lately, the Company has appointed Rehman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants as its external auditors . The firm is QCR rated and in SBP’s panel of auditors in the “A ‘category and have expressed unqualified opinion on the financial statements as of Jun-24.

The Company’s organizational structure is designed with clear reporting lines, divided into four functions:- Production, Finance, Sales & Marketing, and Procurement. Each function is overseen by its respective director or department head, who reports directly to the CEO. This structure ensures effective oversight and accountability across all areas of the company.

Mr. Masood Pervez, the CEO of the Company and Fimcotex Industries (Pvt.) Limited, brings an impressive 40 years of experience in the edible oil and textile sectors. His extensive industry knowledge and deep understanding of market dynamics have been instrumental in driving the Company’s growth and operational success. Mr. Masood is supported by a dedicated team of experienced professionals who bring a wealth of expertise and diverse backgrounds to the organization. Mr. Nadeem Afzal Khan is the Director finance having an experience of over 35 years. His extensive career includes significant expertise in banking sector.

There are no management committees in place. Management meets on need basis to ensure efficiency of the Company’s operations.

The Company utilizes Oracle ERP software tailored to meet its specific operational needs, enabling efficient management of various business processes. The software is regularly monitored by an inhouse IT function. Reports are prepared on need-basis for the management and Directors. This advanced solution ensures seamless integration and optimization of all business processes, driving operational efficiency and supporting informed decision-making across the organization.

To ensure operational efficiency, the Company has setup an internal audit function, which implements and monitors the policies and procedures of the Company

Pakistan's edible oil industry is heavily reliant on imports since oilseeds and edible oil account for ~80% of the cost of production. Edible oil is one of the highest imported commodities in Pakistan. During the year, 2.717 million tonnes of edible oil (including oil extracted from imported oilseed) of value Rs 794 billion (US $ 2.809 billion) was imported. Local edible oil production remains at 0.471 million tonnes. In line with population growth, edible oil demand is forecast to grow about 5% and palm oil imports grew accordingly, reaching 3.6mln tons in FY24. The price of Soybean oilseed stood at 479 USD/MT in Jun-24 as compared to 591 USD/MT in the comparative year, showcasing a decrease of ~18%. On the other side, the price of Palm Oil stood at 873 USD/MT in Jun-24 and 816 USD/MT in Jun-23, forecasted to ease further. In comparison, the significant reductions in selling prices have greatly affected the revenues of the refineries. Due to the rise in input costs, especially raw material cost, many companies have experienced a reduction in their profit margins and faced working capital shortages. With expectations for better cotton seed production, total oilseed production in FY24 is projected to increase to 2.95 million tons, 24% above that of FY23. The future outlook of the industry is developing due to price volatility and PKR depreciation.

Based on the total revenue generated by the tech industry, Pakistan Oil Mills commands a market share of slightly over ~1%. This positioning reflects the Company’s presence and competitive stance within edible oil sector. By leveraging its diverse revenue streams and strategic initiatives, the Company can enhance its market share and strengthen its relative position in the industry.

The Company diversified its revenue streams across multiple segments, significantly contributing to its overall financial stability. In FY24, the total revenue amounted to ~PKR 20 billion. However, the Company experienced a decline in its topline, reporting a decrease of ~13% compared to FY23, (PKR 23 billion) This decline can be attributed to a combination of volumetric reductions and lower market prices for edible oil, reflecting the broader challenges faced within the industry. The breakdown of this revenue is as follows:- Vegetable oil and ghee together accounted for ~81.32% of total revenue, with ghee contributing ~58% and vegetable oil comprising ~42%. Canola meal represented the remaining ~18.2% of total revenue, highlighting the Company’s strategic focus on various product offerings. A notable aspect of the Company’s clientele includes major clients such as the Navy and Army, which collectively contribute ~30% of total revenue representing strong concentration. This strong relationship with institutional clients underscores the Company’s reputation for providing high-quality products and reinforces its position in the market. .

The Company is exposed to foreign currency risk as oilseeds are imported from Singapore and RBD palm olein is imported from Malaysia. The import price has volatility depending on the demand and supply mechanics. During FY24, The Company has demonstrated a marginal decline in its financial margins. The gross profit margin decreased to ~8.7% during FY24, compared to ~9.1% in FY23. The decline is attributed to the Company’s inefficiency in handling the cost of production mainly due to an increase in the cost of fuel and power. Moreover, the rupee devaluation had also an impact. This similar trend is mirrored in the operating margin, which decreased to ~6.4% from ~7.3% over the same period. Consequently, the net margin has also followed this downward trajectory of ~2.6% (~3.1%) followed by a dip in net income. Overall, the margins shrink due to the prevailing country situation faced by many edible oil players

The Company has currently a project of installation of flour mill in the pipeline which will be operational by this year end Recognizing the rising demand for skilled resources. Importantly, the company has no plans to increase its debt exposure in the long term, reflecting a prudent approach to financial management and a commitment to maintaining a strong balance sheet. This strategic focus on exports and resource optimization, coupled with a conservative debt strategy, positions the company well for sustainable growth and financial stability.

The Company has experienced a slight deterioration in its working capital cycle, which increased to 41 days during FY24, up from 36 days in FY23. This change is primarily attributable to an increase in inventory levels. The number of days inventory is held has risen to 40 days in FY24, compared to 34 days in FY23. This increase indicates that the Company is holding inventory for a longer period, which can impact liquidity. Notably, the inventory of finished goods has decreased, with finished goods inventory days declining to 6 days from 9 days. Additionally, work-in-process inventory is recorded at 1 day, indicating efficient management of production stage. On a positive note, trade receivable days have improved significantly, decreasing to 4 days in FY24 from 6 days in FY23. This reduction reflects enhanced efficiency in managing receivables and a more effective credit control process, allowing the Company to collect payments from customers more rapidly. Trade payable days have remained stable at 3 days in FY24, which indicates consistent practices in managing payables and maintaining good relationships with suppliers.

The Company experienced a significant decline in Free Cash Flow from Operations (FCFO), which decreased by ~48.7% in FY24. This substantial drop reflects challenges in cash flow generation from core operational activities and reduction in the net income. As a result of this decline, the FCFO coverage of finance costs also diminished but remains strong, falling to 2.4x in FY24, down from 3.3x in FY23. This reduction indicates that the Company’s operational cash flow is now less capable of covering its finance costs, indicating increased risk in meeting financial obligations. The debt coverage ratio also declined to 2.4x in FY24 from 3.3x in FY23. This decline highlights added strain on cash flow adequacy for debt servicing, raising concerns about the Company’s ability to manage its debt levels effectively in the current financial environment. The debt payback period remains relatively short, standing at 0.2x in FY24. This indicates that, in terms of cash flow, the Company is positioned to repay its borrowings more quickly.

The Company maintains a low-leverage capital structure, with a leverage ratio of ~28.7% as of FY24. This reflects a prudent approach to borrowing, allowing the Company to retain a strong equity base while minimizing reliance on debt financing. As of FY24, the Company’s total borrowings are entirely in the form of short-term debt , which has been availed specifically for working capital management. The facility carries markup at the rate 3-Month KIBOR + 0.5% spread and is secured against pledge of stock. The total borrowings increased slightly to PKR 1.9 billion in FY24, up from PKR 1.6 billion in FY23. This rise is primarily due to higher short-term borrowing requirements to support operational needs, such as inventory management and receivables. Despite this increase in short-term borrowings, the Company’s capital structure remains relatively balanced, with a solid equity base of PKR 5.1 billion in FY24, compared to PKR 4.6 billion in FY23. This growth in equity further strengthens the Company’s financial position, providing a cushion against financial risks and reinforcing its ability to service debt.