Sitara Petroleum Service Limited

CREDIT RATING REPORT | May-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
09-May-25 A- A2 Stable Maintain -
10-May-24 A- A2 Stable Maintain -
11-May-23 A- A2 Stable Maintain -
11-May-22 A- A2 Stable Maintain -
19-May-21 A- A2 Stable Maintain -
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Service Limited (‘Sitara Petroleum’ and ‘the Company’) is a public unlisted concern incorporated in Jul-12 under the repealed Companies Act 2017.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. ~90% of the Company's shareholding has been transitioned to the next generation, where M. Usman Javed, M. Hassan Javed, M. Ali, M. Siddique Javed, Huzaifa Bilal, and Hassan Bilal each hold an equal stake of ~14.96%. The remaining shares are distributed among various individuals. Mr. Azmat Saleem chairs the Board, while Mr. M. Umair Saghir heads the Company as the CEO. They are assisted by a team of experienced professionals.

Rating Rationale

Sitara Petroleum Service Limited ("Sitara Petroleum" or "the Company") benefits from its strategic affiliation with Gas & Oil Pakistan Limited (GO), along with a robust business profile. The Company's sponsors bring over three decades of experience in the petroleum sector, demonstrating strong business acumen and industry insight. 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 through a network of 60 fuel stations, predominantly located in Punjab (~93%), 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 intra-group business with GO. Overall, trading and distribution activities contribute ~90% of Sitara Petroleum’s total revenues. The Company reported consistent revenue growth reflecting increased activity in its core operations. Growth in the business margins and, in turn, profitability were backed by better procurement terms along with improved prices. On the financial risk front, working capital management presents a challenge, largely due to misalignment between receivable and payable cycles. Receivables—primarily from bulk POL sales and fleet services to the group company—follow a 30-day credit policy, with an average settlement period of 15 to 20 days. Conversely, payables, mainly for POL procurement from the Group company, are settled within a 7 to 14-day window. This mismatch pressures liquidity and necessitates reliance on short-term borrowings, which currently accounts for ~50% of the total debt. However, the Company's coverage ratios have improved, supported by a reduction in finance costs, and its leverage profile has normalized, aided by revaluation gains. These factors collectively contribute to enhanced financial stability.

Key Rating Drivers

The ratings are dependent on the management's ability to sustain its business volumes while holding the margins. Sustaining the business and financial profile, along with improvement in the governance framework, would be vital for the ratings. Meanwhile, financial transparency is considered paramount.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Sitara Petroleum Service Limited

rating analysis

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Profile
Legal Structure

Sitara Petroleum Service Limited ("Sitara Petroleum" or "the Company") is a public unlisted concern incorporated in Jul-12 under the repealed Companies Act 2017.


Background

Initially, two distinct entities, Lalpur Carriage, which was dedicated to supplying logistics services to Oil Marketing Companies (OMCs), and Sitara Petroleum, which specialized in wholesale and direct sales of petroleum, oil, and lubricants (POL) goods, were operating. Later, the management consolidated the two entities into Sitara Petroleum. This unified the Company's structure.


Operations

The Company primarily trades and distributes Diesel, Petrol, and Lubricants, while also offering fleet logistics services to Gas & Oil Pakistan Limited (GO). The Company is currently operating 52 fuel stations, with 8 under construction, and operates a fleet of 400 oil tankers with 10 leased oil tankers. The registered office is located in Gulberg-II, Lahore.


Ownership
Ownership Structure

The majority ownership of the Company (~90%) has been transitioned to the next generation with Muhammad Usman Javed, Muhammad Hassan Javed, Muhammad Ali, Muhammad Siddique Javed, Huzaifa Bilal and Hassan Bilal with each holding ~14.96%. The rest of the shares are distributed among various individuals.


Stability

The Sponsors are inducting the next generation gradually into business. The succession planning however is not formally documented but implied.


Business Acumen

The sponsor holds extensive experience and expertise in oil sector. Their strong business skills have helped the Company to achieve sustainable success over the years. Sponsors have Industry-specific working knowledge and strategic thinking capability.


Financial Strength

Sitara Petroleum is the sole cash producer entity for the Sponsors.


Governance
Board Structure

The Company has a seven-member Board (including the CEO). The Board comprises two Executives, two Independent and three Non-Executive Directors. 


Members’ Profile

Mr. Azmat Saleem chairs the Board since 2021 with an experience of above two decades. He is an expert industrialist and former President of the Sahiwal Chamber of Commerce and Industry. Mr. Rashid Ameer is an Independent Director and holds more than two decades of professional experience. All other Board members have significant knowledge and expertise to facilitate the decision making process.  


Board Effectiveness

The Board is assissted by (i) Audit Committee and (ii) Human Resource & Remuneration Committee. The Board meets quarterly, and meeting minutes are properly documented. 


Financial Transparency

The Company has appointed M/s RSM Avais Hyder Liaquat Nauman Chartered Accountants. as its external auditor, listed in the "A" category on the State Bank of Pakistan's panel of auditors. The firm has expressed unqualified opinion on financial statements FY24.


Management
Organizational Structure

A simplified organizational structure exists at the Company. The business profile is segregated into four different departments, which are headed by their respective heads, resulting in effective control and management.: (i) Operations, (ii) Finance, (iii) Sales, and (iv) Transport. All the Heads report to the CEO.


Management Team

Mr. Muhammad Umair Saghir has been appointed as the CEO of the Company, a veteran with over 15 years of experience in business management in multiple sections, mainly petroleum. Mr. Ejaz Rasool, who serves as the CFO of the Company, brings to the role over 25 years of professional experience. Most of the senior management is associated with the Company for a long and has sufficient experience to make strategic decisions.


Effectiveness

The Company has constituted two committees comprising members of the management team namely (i) Procurement and (ii) Retail Development Committee. The purpose of the Procurement Committee is to streamline the procurement process, establish effective controls and ensure efficiency in procurement activities while the Retail Development Committee ensures ‘Retail Side’ of the business is pursuing growth and precise strategies are being devised in the right direction.


MIS

The Company has been using an ERP system based on Oracle RDBMS since Jan-12. It operates various modules and generates reports as needed. The IT infrastructure is effectively integrated with all departments, ensuring proper financial and operational control.


Control Environment

The Company has an effective in-house internal audit department which helps to improve risk management, control, and governance processes and brings improvement to business practices by forming SOPs.


Business Risk
Industry Dynamics

Pakistan heavily depends on imports for its energy requirements due to limited domestic PoL production. A substantial increase in PoL import costs was witnessed due to global challenges. This along with rupee depreciation further impacted the local overall cost structure. During FY24, the demand for POL products declined by ~9% due to macroeconomic pressures. Transportation and Power sectors remain the main consumers, accounting for ~89% of the total demand. Despite having fixed margins, OMCs bear the impact of high working capital costs, which have risen sharply due to the aforementioned factors. This requires vigilance over the short to medium term for the OMC sector.


Relative Position

During FY24, the Company had a significant market share in PMG and HSD in the Punjab area in the distribution and sale of POL goods.


Revenues

The Company primarily generates revenue from its dealership network, with carriage services acting as a secondary source. During FY24, total revenue fell by ~15.9%, reaching ~PKR 40.9bln (FY23: PKR 48.7bln), mainly due to a decline in volumetric sales due to supply disruption. The sale of oil and diesel accounted for ~95% of the revenue, with the remainder coming from carriage services. During the 6MFY25, the Company's revenue grew to ~PKR 54.3bln (6MFY24: ~PKR 31.2bln) due to volumetric growth from improving supply dynamics. Continued growth is anticipated in sales, driven by high POL prices and the Company's strategy to expand its network.


Margins

During FY24, the Company reported an improved gross margin of ~4.4% (FY23: ~3.2%) due to a significant decline in the cost of sales stemming from a decline in procurement lowering the freight charges to ~PKR 1.6bln (FY23: ~PKR 4.9bln). This improved gross margin yielded a trickle-down effect, raising the operating margin to ~4.0% (FY23: ~3.0%). On the other hand, the net margin declined to ~0.5% (FY23: ~1.4%) due to a significant increase in the finance costs of the Company (FY24: ~PKR 1.3bln, FY2: ~PKR 0.4bln) due to increased borrowings and interest rates. During 6MFY25, the Company reported a similar trend in its gross margin (6MFY25: ~4.1%, 6MFY24: ~3.5%) and operating margin (6MFY25: ~4.0%, 6MFY24: ~3.3%). On the other hand, the Company's net margin improved to ~2.2% (6MFY24: 1.5%) due to a trickle-down effect of improved gross and operating margins.


Sustainability

Going forward, the Company intends to increase its retail outlet presence all over the cities of Pakistan, as well as in remote areas, by installing more pumps. Additionally, the Company also aims to grow in the segment of Carriage Income by growing its number of fleets.


Financial Risk
Working capital

The Company's working capital requirements stem from financing its trade debts and stock in trade, typically covered through short-term borrowings. During FY24, short-term financing increased by ~120% (FY24: ~PKR 2.2bln, FY23: ~PKR 1bln). However, during 6MFY25, short-term financing increased by ~67%, reaching ~PKR 4.9bln (6MFY24: ~PKR 7.3bln). Net working capital days weakened (FY24: ~18 days, FY23: ~10 days) owing to an increase in trade receivable days (FY24: ~34 days, FY23: ~24 days), citing a longer time period taken by the Company in collecting its receivable. Stable payable days (FY24: ~15 days, FY23: ~14 days) continued to provide strength to the Company’s net working capital cycle. During 6MFY25, the Company reported improvements in its trade receivable days of ~6 days (6MFY25: ~18 days, 6MFY24: ~24 days) with the net working capital days improving to ~14 days in 6MFY25 (6MFY24: ~18 days). Going forward, working capital management is anticipated to improve.


Coverages

As of FY24, the Company reported an FCFO of ~PKR 1.6bln, up by ~14% (FY23: PKR ~1.4bln) due to the increased impact of finance costs. Interest cover (FCFO / Finance Cost) was down, owing to higher finance costs, to ~1.2x from ~3.4x in FY23. In 6MCY25, the Company managed its debt cover considerably well, improving it to ~3.6x (6MFY24: ~2.2x) due to rising profits. Going forward, coverage improvements are anticipated to be supported by lower interest rates, resulting in reduced finance costs.


Capitalization

The Company maintains a high-leveraged capital structure, reporting debt to asset ratio of ~44% in FY24 (FY23: ~46%). Total borrowings of the Company stood at ~PKR 4.2bln witnessing a substantial increase (FY23: ~PKR 3.1bln). The equity rose to ~PKR 5.4bln (FY23: ~PKR 3.7bln), primarily owing to a revaluation gain of ~PKR 1.5bln. During 6MCY25, leveraging improved to ~59% (6MFY24: 69%) primarily due to profit accumulation and previous revaluation gain of ~PKR 1.5bln. Going forward, the Company's capital structure is expected to remain strong.
 
 

May-25

www.pacra.com

Sitara Petroleum Service Limited

financial summary

(PKR mln)

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Dec-24
6M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 5,630 5,027 3,541 3,490
2. Investments 0 0 0 0
3. Related Party Exposure 19 8 7 0
4. Current Assets 11,953 6,797 5,661 4,850
a. Inventories 3,808 1,892 1,249 1,024
b. Trade Receivables 6,622 4,042 3,515 2,999
5. Total Assets 17,603 11,833 9,208 8,340
6. Current Liabilities 1,371 2,095 2,181 2,751
a. Trade Payables 748 1,695 1,734 2,000
7. Borrowings 9,474 4,171 3,134 2,393
8. Related Party Exposure 0 0 0 0
9. Non-Current Liabilities 155 155 172 154
10. Net Assets 6,603 5,411 3,722 3,042
11. Shareholders' Equity 6,603 5,411 3,722 3,042
B. INCOME STATEMENT
1. Sales 54,269 40,931 48,695 41,503
a. Cost of Good Sold (52,024) (39,145) (47,126) (40,017)
2. Gross Profit 2,246 1,786 1,569 1,487
a. Operating Expenses (85) (146) (127) (115)
3. Operating Profit 2,161 1,639 1,442 1,371
a. Non Operating Income or (Expense) (15) 143 3 1
4. Profit or (Loss) before Interest and Tax 2,146 1,783 1,445 1,372
a. Total Finance Cost (513) (1,315) (401) (291)
b. Taxation (441) (247) (368) (342)
6. Net Income Or (Loss) 1,192 221 676 740
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 1,819 1,630 1,359 1,319
b. Net Cash from Operating Activities before Working Capital Changes 1,819 1,630 973 1,044
c. Changes in Working Capital (5,868) (1,236) (1,354) 3,398
1. Net Cash provided by Operating Activities (4,048) 394 (381) 4,441
2. Net Cash (Used in) or Available From Investing Activities (717) (108) (347) (335)
3. Net Cash (Used in) or Available From Financing Activities 4,790 (204) 818 (4,100)
4. Net Cash generated or (Used) during the period 24 81 90 6
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 165.2% -15.9% 17.3% 27.4%
b. Gross Profit Margin 4.1% 4.4% 3.2% 3.6%
c. Net Profit Margin 2.2% 0.5% 1.4% 1.8%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) -7.5% 1.0% 0.0% 11.4%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 39.7% 4.8% 20.0% 21.9%
2. Working Capital Management
a. Gross Working Capital (Average Days) 18 34 24 33
b. Net Working Capital (Average Days) 14 18 10 16
c. Current Ratio (Current Assets / Current Liabilities) 8.7 3.2 2.6 1.8
3. Coverages
a. EBITDA / Finance Cost 4.4 1.4 4.2 5.8
b. FCFO / Finance Cost+CMLTB+Excess STB 1.5 0.8 1.5 2.1
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 1.8 6.1 2.2 0.9
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 58.9% 43.5% 45.7% 44.0%
b. Interest or Markup Payable (Days) 72.8 28.9 28.7 21.2
c. Entity Average Borrowing Rate 13.3% 23.5% 15.3% 8.5%

May-25

www.pacra.com

Sitara Petroleum Service Limited

rating scale

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May-25

www.pacra.com

Sitara Petroleum Service Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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May-25

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