Punjab Oil Mills Limited (‘Punjab Oil Mills’ or ‘the Company’) is a public limited company and was incorporated in February, 1983

The Company began operations in 1984, initially focusing on the production of Banaspati and cooking oil at its facility in Islamabad. Over time, the Company has expanded its product portfolio through extensive research and development, enhancing its offerings. This diversification includes the introduction of specialty fats, laundry soaps, mushrooms, industrial gases, and coffee, reflecting its commitment to innovation and growth.

The Company is best known for its flagship brands Canolive and Zaiqa. Additional brands include Naturelle, Ella, King, and Olive oil. The company’s production facility is located in Islamabad and Head Office in Lahore. The Company employs an average of 273 employees and has the production capacity to process 18,000 M.T of Banaspati Ghee/Specialty fats and 24,000 M.T of Cooking Oil. During FY24, the actual production stood at 8,316 MT of Banaspati Ghee/ Specialty fats and 10,906 MT of cooking oil. The Company relies on a mix of imported (50%) and locally (50%) sourced raw materials for production.

Substantial shareholding is attributable to the Sponsoring family who collectively owns ~28%, Associated Company (7.7%), Modarbas (8%), NIT (10%), general public 44% and others (1.4%).

While the company benefits from a stable ownership structure, it's noteworthy that the sponsoring families, despite their significant collective shareholding, have not formalized their arrangements through a shareholding agreement.

The Company's sponsors bring a diverse and robust set of expertise to the table, with established backgrounds in key sectors. Their collective experience spans textiles, finance, and economics, providing valuable business acumen. Furthermore, their specific involvement in the edible oil industry offers direct and relevant knowledge of the Company's core operations.

The Company benefits from a strong financial foundation, primarily due to the backing of its affiliated group. This group has established and substantial business interests in the textile industry, providing a source of financial stability and potentially access to resources, expertise, and networks that contribute to the Company's overall financial health.

The Company's Board of Directors comprises eight members, ensuring a balanced and diverse leadership structure. This includes the Chairman, who leads the board, the Chief Executive Officer (CEO), responsible for the company's day-to-day operations, and an Executive Director. To provide external perspectives and oversight, the board also includes three Non-Executive Directors and two Independent Directors, further strengthening corporate governance practices.

The Company's Board of Directors, responsible for overseeing the strategic direction and governance of the organization, is comprised of seven members. This includes the Chairman, Mr. Tahir Jahangir, who brings extensive experience of over 40 years, including leadership roles such as President of the Towels Manufacturing Association and senior membership in the Lahore Chamber of Commerce and Industry. The Board also includes four Non-Executive Directors, one of whom is a nominee of NIT, ensuring representation of stakeholder interests. The remaining two members are Executive Directors, actively involved in the day-to-day management of the Company.

To facilitate effective governance and oversight, the Board has established three sub-committees: Audit Committee: This committee provides independent oversight of the Company's financial reporting process, internal controls, and risk management practices.

Human Resource and Remuneration Committee: This committee is responsible for developing and overseeing the Company's human resources policies, including compensation and benefits, talent management, and succession planning.

Management Committee: This committee assists the Board in overseeing the Company's operational performance and strategic initiatives.

The Company's financial statements for FY24 have been independently audited by Crowe Hussain Chaudhry & Co., a QCR-rated audit firm recognized by the State Bank of Pakistan (SBP) as an 'A' category firm. The auditors have issued an unqualified report, indicating that the financial statements are presented fairly, in all material respects, in accordance with applicable accounting standards.

The Company’s organizational structure is based on five main departments, namely, operations & technical, planning & development, internal audit, sale and marketing and finance. Functions relating to supply chain, production, information technology and administration come under the purview of Director Operations. Similarly, functions of sales and marketing, human resources and technical services are consolidated under the Director for Planning and Development. Both directors are supported by relevant department heads along with teams of individuals. Ultimate reporting lies with the Managing Director, with the exception of the internal audit department which functionally reports to the Audit Committee and administratively reports to the Managing Director.

The Company’s management comprises experienced individuals who possess significant market knowledge and technical know-how. Management comprises of experienced individuals. Mr. Ehtisham, the CEO, has recently taken over. He was working as a COO of Bisconni. He is a result-oriented Commercial Specialist with over 19 years of diverse experience in managing brands, businesses, and boards. Mr. Ehtisham demonstrates a proven track record of success in market development, new product launches, and portfolio management. Mr. Ehtishan is adept at both consumer and trade-driven brand management, with hands-on expertise in business strategy, route to market, revenue growth management, research, and consumer engagement

Management Committees do exist which include Audit Committee, Human Resource & Remuneration Committee, and Management Committee but lack formal presence. However, meetings among senior management are conducted daily to ensure operational efficiency.

The Company leverages Microsoft Dynamics as its Enterprise Resource Planning (ERP) system, a comprehensive software solution designed to integrate and streamline core business processes. This system is comprised of eleven fully integrated modules, meaning that data and information flow seamlessly between different departments and functions within the company. This interconnectedness facilitates improved efficiency, enhanced data visibility, and better decision-making across the organization. Essentially, the ERP system acts as a central nervous system, connecting and optimizing various aspects of the business.

To maintain and enhance operational efficiency, the Company has established a dedicated Internal Audit function. This function plays a crucial role in independently assessing and monitoring the effectiveness of the Company's internal controls and operational processes. Regular reviews are conducted by the Internal Audit department to identify areas for improvement, ensure compliance with policies and procedures, and provide recommendations to management for strengthening operational controls. This proactive approach helps mitigate risks, optimize resource utilization, and improve overall operational performance.

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 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 hand, the price of palm oil stood at 873 USD/MT in Jun-24 and 816 USD/MT in Jun-23, which is forecasted to ease further. Comparatively reductions in selling prices have impacted the revenues substantially for 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 cottonseed production, Total oilseed production in 2024/25 is projected to decrease marginally to 3.43 million tons, due to an expected minor decline in cottonseed production, and no growth in rapeseed and sunflower seed output. The industry's future outlook is developing due to price volatility and PKR depreciation.

Punjab Oil Mills Limited has a nominal share. Punjab Oil Mills Limited experienced a decline in market share, coinciding with the losses incurred during FY24. The Company, lacking its own crushing facilities, procures oil for refining. Price fluctuations in the oil market compelled the Company to reduce its sales volume, as it faced limitations in passing increased costs on to consumers.

Company generates revenue from seven different products, namely, cooking oil, specialty fats, vanaspati ghee, soap, coffee and mushrooms. The Company’s top three products, Canolive, Zaiqa Ghee and Zaiqa Oil, represent ~94% of total revenue. The Company mainly sells its products in the domestic market with exports (mainly comprising of cooking oil) having an insignificant share The Company posted topline of PKR 8bln during FY24 (FY23: PKR 9bln). This decrease in sales due to the demand factor and decrease in the purchasing power capacity of consumers. The revenue streams of the Company consists on Vanaspati Ghee (37%), Cooking oil (615) and fats (1%). The Company, lacking its own crushing facilities, procures oil for refining. Price fluctuations in the oil market compelled the Company to reduce its sales volume, as it faced limitations in passing increased costs on to consumers.

The Company's margins experienced significant fluctuations during FY24. The gross profit margin increased to 12% (FY23: 9%), driven by a reduction in the Cost of Goods Sold (CGS). This decrease in CGS resulted primarily from lower sales volumes, coupled with effective CGS management. Operating profit margins of the Company showed a slight improvement and stood at 3.4% during FY24 (FY23: 2.7%) due to a slight improvement in operating profits (FY24: PKR 271mln, FY23: PKR 262mln). This indicates that while revenue generation may have been challenged, the Company managed to control operating expenses effectively. Despite improvements in gross and operating profit margins, the Company reported a net loss for FY24, registering -0.5% compared to a net profit of 0.4% in FY23. This downturn in net profitability is primarily attributed to two key factors: increased finance costs, likely due to higher interest rates or increased debt levels, and shifting customer preferences in response to inflationary pressures. The latter suggests that rising inflation may be impacting consumer spending habits, leading them to favor different products or brands. This underscores the challenges the Company faces in navigating the current economic environment.

Future outlook look of the industry is developing due to price volatility, PKR depreciation and latest hike in the policy rate. Looking forward the Company is waiting for matters to settle down before they look towards any expansion.

Working capital is essential for a company's short-term operational health, representing the resources available to meet immediate obligations and support day-to-day activities. A key component of working capital is current assets, particularly inventory. While the Company's inventory days improved, decreasing from 30 days in FY23 to 27 days in FY24, this improvement is a consequence of reduced inventory turnover due to lower demand, rather than increased sales efficiency. This suggests a contraction in business activity.   A concerning trend is the deterioration of trade receivable days, which increased from 35 days in FY23 to 45 days in FY24. This indicates a slowdown in customer payments, tying up cash and increasing the risk of bad debts. This deterioration is a significant negative and requires management attention.   Consequently, the Company's gross working capital days increased from 65 days in FY23 to 72 days in FY24. This lengthening cycle, driven primarily by the slower collection of receivables, implies that more cash is tied up in operations, reducing the company's financial flexibility. The combined effect of lower inventory turnover (due to lower sales) and slower collections paints a picture of weakening sales performance and potential cash flow challenges. Management should prioritize addressing the collection issues and carefully monitor inventory levels to ensure they align with the reduced demand.   The Company's trade payable days improved, decreasing to 14 days in FY24 from 18 days in FY23. This indicates that the Company is paying its suppliers more quickly as the demand has also decreased. A shorter payable period can be a sign of strong liquidity and good supplier relationships. While this improves the payable days metric, it again reflects reduced business activity rather than necessarily strong cash management. The net working capital cycle has lengthened. This is the combined effect of the inventory and receivables changes outweighing the payable improvement. A longer working capital cycle means the company has more cash tied up in its operations, which can restrict its financial flexibility. This increase, driven by slower sales and slower collections.

The Debt Coverage Ratio analysis provides valuable insight into the company’s capacity to meet its debt obligations through its Free Cash Flow to Operations (FCFO), reflecting its financial stability and creditworthiness. FCFO of the Company stood at PKR 206mln during FY24 (FY23:PKR 180mln). Finance cost of the Company stood at PKR 164mln during FY24 (FY23: PKR 123mln). As the result of increased finance cost coverages of the Company decreased and stood at 1.3x during FY24 (FY32: 1.5x). This decline indicates a weakening in the Company's ability to cover its debt obligations with its operating cash flow. This situation could impact the company's creditworthiness and its ability to secure future financing.

The Capitalization Ratio provides a crucial understanding of a company's long-term financial leverage and risk profile by examining the proportion of its capital structure financed by debt. In FY24, the Company's total debt reached PKR 833 million, a significant increase from PKR 691 million in FY23. Notably, 98% of this debt is classified as short-term, indicating a reliance on short-term financing instruments. This high proportion of short-term debt can create refinancing risk, as the company will need to regularly roll over these obligations, potentially at fluctuating interest rates. The Company's leverage ratio (calculated as total debt divided by total assets) increased to 24% due to the increased borrowings. While a 24% leverage ratio might not be inherently alarming, the composition of the debt (predominantly short-term) raises concerns. This reliance on short-term debt exposes the company to interest rate volatility and refinancing risk.