a comparative analysis on fuel-oil distribution companies of bangladesh€¦ · fuel-oil...

A fully owned subsidiary of

A Comparative Analysis on

Fuel-Oil Distribution

Companies of Bangladesh

EBL Securities Ltd. (EBLSL) is one of the fastest growing full service brokerage companies in Bangladesh and a fully owned subsidiary of Eastern Bank Limited. EBLSL is also one of the top ten leading stock brokerage houses of the country. EBL Securities Limited is the TREC holder of both exchanges of the country; DSE (TREC#026) and CSE (TREC#021)

Petroleum sector is considered the most

sensitive sector of economy. Macro-

economic indicators are highly sensitive to

the price of petroleum products. The

three oil distribution companies namely

Padma Oil Company Limited, Jamuna Oil

Company Limited, and Meghna Petroleum

Limited procure, store, and market

petroleum products all over the country

from their main installations. The price

and margin of the petroleum products is

fixed by the Government on the basis of

quantity sold. According to BPC, the

demand of petroleum products in our

country stood at 5.26 million MT in year

2015-16.

A Comparative Analysis on Fuel-Oil Distribution Companies of Bangladesh Date: October 5, 2017

1

EBL Securities Limited Research

Oil & Petroleum Industry Dynamics The oil and petroleum industry of Bangladesh is mostly under the control of Government. With a view to providing petroleum products to all consumers at equal price irrespective of transportation cost, the government established Bangladesh Petroleum Corporation (BPC) by a presidential Ordinance in 1976. Presently BPC is composed of three oil marketing companies, two blending plants, one LPG bottling company and a refinery as its subsidiaries.

The production, processing, refining and marketing of petroleum products in the country is vested exclusively with the Government of Bangladesh as per the Bangladesh Petroleum Act, 1974. The Petroleum Act also specifies the authorities, functions and responsibilities of BPC including establishment of plants & infrastructure, building necessary facilities and their extensions for marketing of petroleum products; monitoring coordination of the subsidiary companies of BPC and any other functions and responsibilities as directed by the government. Intense competition has been prevailing in the lubricant market due to the presence of more than 50 market players along with the brands marketed by three state owned oil marketing companies. Marketing of petroleum products is responsibility of three oil marketing companies namely Padma Oil Company Limited (POCL), Jamuna Oil Company Limited (JOCL), and Meghna Petroleum Limited (MPL).

At present only about 30% of the market demand of the lubricant products are served by the three oil marketing companies. It is notable here that BPC has no price control on the lubricants products. The pricing structure is settled by the Government at ex-refinery level, depots level, and also at consumer level in different distances. The commission at each level of suppliers namely oil marketing companies, agents, dealers are also fixed by the Government. As per the requirement of the state, the Government of Bangladesh imports crude oil and refined oil, then the crude oil is refined through Eastern Refinery Ltd. (ERL), another subsidiary of BPC and distributed through its oil marketing companies. There exists some special arrangement among the three oil marketing companies with a few direct customers. Among the direct customer groups, there are some Government organizations (PDB, Bangladesh Railway, and Defense Service), autonomous body (Chittagong Port Authority, BIWTA, Bangladesh Ordnance Factory) and nationalized industries etc. The oil marketing companies are engaged in marketing of oil products and the income it earns is termed as ‘Margin’ that is fixed by and determined by the Government. Sales net of cost of goods sold (net earnings from petroleum products) is recorded in the financial statements as a form of net revenue rather than gross revenue.

Price fall in world market decreased the oil price in Bangladesh The oil industry, with its history of booms and busts, has been in its deepest downturn in year 2015. Many of the companies have gone through bankruptcy as price of the oil came down more than 52.5% of 2013-14’s price within a short period of time. As Bangladesh is a net oil import country, decrease in oil price helped to control inflation and made a positive impact on overall economy. The price of the oil was USD 107.3 per barrel in 2012 which came down to USD 97.7 per barrel in 2014. In 2015 it sharply fell down to USD 51.7 per barrel because of over supply (one of the reasons) in world market by most of the oil producing countries. Bangladesh has taken this low price benefit and prices of diesel and kerosene have been brought down by BDT 3.0 a liter, octane and petrol by BDT 10.0 and furnace oil by BDT 18.0.

Bangladesh Petroleum Corporation (BPC)

Marketing Companies

POCL

JOCL

MPL

Petroleum Refinary

Eastern Refinery Ltd

Lubricant Blending

Eastern Lubricants

Blending Ltd

Standard Asiatic Oil Co.

Ltd

LP Gas Bottling

LP Gas Ltd.

Source: Bangladesh Petroleum Corporation (BPC)

Source: InvestmentMine

4.3% 6.1%17.5%

25.7%

46.5%

Industry Domestic & Others Agriculture Power Transport

Percentage of Sector-wise Fuel Consumption

Source: Bangladesh Petroleum Corporation (BPC) based on 2015-16 data

54.064.9

71.8

98.3

62.1

79.5

106.5 107.3 106.097.7

51.7 54.5 50.4

30.0

50.0

70.0

90.0

110.0

130.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Crude Oil Price in USD Per Barrel


2


Transportation, power and agriculture sectors drive the fuel demand in Bangladesh

Petroleum is considered as the energy driver of an economy. It has great influence directly or indirectly in all economic sectors. It is the fundamental input of production and constitutes a significant portion of production cost in every sector of the economy. Fuel is used intensively in every sector including irrigation of agriculture sector, transportation sector and power production. The use of petroleum products in the country is varied. Petrol and diesel are the major fuels for transportation. Diesel is also widely used by farmers for irrigation, while kerosene is mostly used for lighting, especially by rural households without electricity. As a result an increase in petroleum price directly influence the inflation and GDP of the economy. Transportation, power and agriculture sectors are the main fuel-demand driver of Bangladesh. According to BPC, the demand of petroleum products in our country stood at 5.26 million MT in year 2015-16. The consumption of petroleum products in Bangladesh decreased by 1.23% in 2015-16 compared to the previous year. High Speed Diesel (HSD) and Furnace Oil (FOSH) drive 82.2% of total petroleum demand. A whole import dependency of fuel requires huge foreign exchanges that have a major impact on country’s macro economy.

SALE OF PETROLEUM PRODUCTS DURING LAST FIVE YEARS (Quantity in million MT)

PRODUCT 2012-13 2013-14 2014-15 2015-16 % of

Total July’16 –

Dec’16 % of

Total

JET A-1 (Jet Fuel) 318,423 323,327 338,829 347,323 6.6% 190,065 6.8% HOBC (High Octane Blending Component) 110,850 117,452 126,114 147,557 2.8% 86,381 3.1% MS (Motor Spirit) 169,710 178,674 166,823 137,360 2.6% 95,673 3.4% SKO (Superior Kerosene Oil) 314,876 289,871 263,029 213,685 4.1% 87,472 3.1% HSD (High Speed Diesel) 2,964,604 3,242,554 3,396,061 3,606,404 68.6% 1,842,824 66.0% LDO (Light Diesel Oil) 1,092 1,064 2,666 2,758 0.1% 538 0.0% JBO (Jute Batching Oil) 25,841 23,538 18,729 16,859 0.3% 7,904 0.3% FOHS (Furnace Oil) 1,076,423 1,202,505 906,771 711,889 13.5% 443,118 15.9% LUBE (Lube Oil) 15,908 17,823 17,869 17,445 0.3% 9,396 0.3% SBP (Special Boiling Point) 800 368 234 207 0.0% 89 0.0% MTT (Mineral Turpentine) 9,875 7,821 7,038 2,037 0.0% 2,147 0.1% LPG (Liquid Petroleum Gas) 19,671 17,529 17,424 16,050 0.3% 8,027 0.3% BITUMEN 58,396 62,440 59,836 36,446 0.7% 18,056 0.6% TOTAL 5,086,469 5,484,966 5,321,423 5,256,020 100.0% 2,791,690 100.0% INC / (DEC) -127,177 398,497 -163,543 -65,403 - - - % of INC/DEC from Previous Year -2.44 7.83 -2.98 -1.23 - - -

Source: Bangladesh Petroleum Corporation (BPC)

Government supplies almost all of the petroleum demand through import from various countries to support the energy need in transportation, power generation, agricultural activities and others. Import of petroleum has been increased in year 2016. Improvement in generation has a big impact on diesel consumption by the irrigation pump. Now a huge number of pumps operate with electricity which earlier used to consume diesel. In upcoming year we can expect increase in petroleum import as government has issued permission for setting up power plants where most of them will be furnace oil based.

IMPORTED PETROLEUM PRODUCTS (Quantity in MT)

YEAR/PRODUCT GAS OIL JET A-1 MOGAS SKO HSFO LUBE ALC MURBAN Total 2009 2,243,758 256,576 98,064 141,103 - 7,248 612,913 425,614 3,785,276 2010 2,186,597 339,998 90,197 107,758 - 4,745 620,238 654,832 4,004,365 2011 2,955,798 318,202 95,824 153,598 665,260 4,980 627,535 583,960 5,405,157 2012 2,618,685 339,699 95,824 20,380 670,899 4,852 682,039 583,494 5,015,872 2013 2,608,746 310,884 97,641 28,376 1,005,104 - 592,054 591,091 5,233,896 2014 2,903,928 334,079 35,596 - 869,124 - 592,865 714,746 5,450,338 2015 2,974,749 338,315 33,842 - 414,451 - 697,667 395,006 4,854,030 2016 3,130,052 354,430 150,601 - 481,673 - 728,307 579,848 5,424,911

2017 (Up to June) 1,854,103 178,124 16,463 - 176,802 - 289,736 380,839 670,575 Source: Bangladesh Petroleum Corporation (BPC)

The major portion of imported petroleum is crude oil. Crude oil is refined through Eastern Refinery Ltd. (ERL), another subsidiary of BPC and distributed through its oil marketing companies namely Meghna Petroleum Ltd. (MPL), Padma Oil Company Ltd. (POCL) and Jamuna Oil Company Ltd. (JOCL). Right now total industry storage capacity is 1,189,172 MT. ERL has the highest storage capacity (42.5% of total) as crude oil is refined through it followed by three distribution companies POCL (20.6%), MPL (18.1%) and JOCL (15.5%).


3


PRODUCT-WISE STORAGE CAPACITY (Quantity in MT)

Product/Location ERL POCL JOCL MPL LPGL SAOCL ELBL TOTAL CRUDE OIL 225,800 225,800 LPGL 1,200 540 1,740 NAPTHA 27,300 27,300 MS 4,500 6,865 8,077 7,510 26,952 HOBC 23,800 5,215 6,199 6,236 41,450 SKO 6,000 14,616 14,087 20,065 54,768 HSD 75,750 138,761 129,984 163,090 10,845 518,430 FOHS 63,900 19,934 23,009 16,957 9,260 133,060 JET A-1 1,500 56,785 56,251 SBP 191 191 MTT 1,831 1,831 LDO 110 110 JBO 1,600 2,729 3,001 1,855 9,185 LUBE OIL 8,990 9,464 18,454 BITUMEN 3,500 3,500 RCO (ABP+VB) 44,000 44,000 CONDENSET 19,000 19,000 OTHERS 7,150 7,150 Total 505,000 247,033 184,357 215,713 540 29,095 9,464 1,191,206 As % of BPC’s Total storage capacity

42.4% 20.7% 15.5% 18.1% 0.0% 2.4% 0.8% 100.0% Source: Bangladesh Petroleum Corporation (BPC)

Capacity In terms of Capacity, Padma Oil Company Limited holds the highest position with a total capacity of 247,033 MT whereas Meghna Petroleum Limited has a total capacity of 215,713 MT and Jamuna Oil Company Limited has the highest capacity of 184,357 MT. The three oil marketing companies have the highest capacity for High Speed Diesel since demand for High Speed Diesel is the highest among all the petroleum products.

75.6%

7.9%

3.5%

2.9%

10.1%

MPL: Storage Capacity - 215,713 MT

HSD Furnace Oil Motor Spirit HOBC Others

70.0%

13.0%

7.6%

4.4%

3.4%

1.6%

JOCL: Sotrage Capacity - 184,357 MT

HSD Furnace Oil SKO Motor Spirit HOBC JBO

56.60%22.30%

8.10%

6.00%

2.80%

2.10%

2.10%

POCL: Storage Capacity - 247,033 MT

HSD JET A-1 Furnace Oil SKO Motor Spirit HOBC Others


4


Company Overview

Jamuna Oil Company Limited (JAMUNAOIL) Jamuna Oil Company Limited (JOCL) is a petroleum marketing company which has been serving the nation for last five decades. It was established in 1964 with the name ‘Pakistan National Oil Limited’ and after independence the company was renamed as Bangladesh National Oils Limited. Jamuna Oil Company Ltd. was formed as a private limited company on 12 March, 1975 under the Companies Act 1913 with the objective to take over all the properties, rights, interests and assets of Bangladesh National Oils Limited (ex-Pakistan National Oils Limited). The ownership of the company was vested with Bangladesh Petroleum Corporation (BPC) through the agreement entered into between the company and BPC. JOCL also acquired all the properties, rights, interests and assets of Indo-Burmah Petroleum Company Limited. The company was converted into public limited company on 25 June 2007. Due to decrease in sales of some of the petroleum products around the country, the company has posed negative growth in terms of profitability in the FY 2015-16. Furthermore, fall of margin earned because of direct product purchase by BPC from Government and private fractionation plants has caused its net earnings to fall. Financial performance

2012-13 2013-14 2014-15 2015-16 2016-17 (9m,An)

Financial Information (BDT mn): Net Earnings 1,404 1,471 1,733 872 1,160 EBITDA 1,166 1,174 1,240 419 430 Operating Profit 1,116 1,112 1,167 330 331 Other Income 1,798 2,121 1,990 2,408 2,891 Profit After Tax 1,990 2,317 2,253 1,959 2,301 Assets 20,724 31,359 41,452 53,855 65,683 Equity 6,575 11,898 15,100 15,839 17,546 Retained Earnings 1,200 1,254 2,503 1,858 2,480 Cash & Cash Eqiv. 3,809 10,205 15,227 23,643 26,025 Enterprise Value 13,297 11,147 6,482 -3,568 -3,156 Dividend (C/B)% 90/10 90/10 100/0 100/0 N/A Margin: EBITDA 83.10% 79.80% 71.60% 48.00% 37.10% Operating Profit 79.50% 75.60% 67.30% 37.90% 28.50% Pretax Profit 187.90% 208.80% 173.10% 298.30% 263.80% Net Profit 141.80% 157.50% 130.00% 224.70% 198.40% Growth (YoY): Net Earnings -32.40% 4.80% 17.80% -49.70% 33.00% Operating Profit -26.90% -0.40% 4.90% -71.70% 0.10% Pre Tax Profit -4.30% 16.50% -2.40% -13.30% 17.60% Net Profit -4.30% 16.40% -2.70% -13.10% 17.50% Profitability: ROA 9.73% 8.90% 6.19% 4.11% 3.85% ROE 34.70% 25.10% 16.70% 12.70% 13.80% Non-operating Income/PBT 68.20% 69.10% 66.40% 92.60% 94.50% Valuation: Price/Earnings 8.59 9.22 9.64 10.25 9.94 Price/BV 2.6 1.63 1.19 1.27 1.3 EPS (BDT) 21.81 23.08 20.4 17.74 20.84 DPS (BDT) 9.00 9.00 10.00 10.00 N/A NAV per share (BDT) 72.05 130.38 165.46 143.44 158.9 Z-Score 1.14 0.97 0.77 0.32 0.28

**Net earnings from petroleum products has been treated as revenue for oil marketing companies as per their accounting procedure Source: Website of Jamuna Oil Company Limited and EBLSL Research

Particular Facts & Figures

Current Price 205.1 Paid-up Capital (BDT mn) 1,104.2 Total No. of Securities (mn) 110.4 Market Capitalization (BDT mn) 22,648.1 3 month Average Daily Turnover (BDT mn) 26.4 52 Week Price Range (BDT) 178.90 – 227.00 DSE Code JAMUNAOIL Listing year 2007 Category A

Source: DSE & EBLSL Research


5


Padma Oil Company Limited (PADMAOIL) Padma Oil Company Limited (POCL) is the biggest and also the oldest petroleum marketing company among the subsidiaries of BPC. Prior to the partition of the sub-continent in 1947, mainly two oil marketing companies namely Burmah Oil Company (BOC) and Burmah Shell Oil Storage and Distribution Company (BSOC) were operating Petroleum Business in the area what now comprise Bangladesh. In the year 1985, BOC transferred its entire property in Bangladesh in favor of BPC, which is renamed as ‘Padma Oil Company Limited’ in the year 1988. The company has posted negative growth in terms of profitability in the FY 2015-16 due to fall in non-operating income which has been caused by gradual reduction of bank interest rate. The total sales of petroleum has also experienced a nosedive. Private power plants have received license to import furnace oil which has caused threat for local oil marketing companies as reflected in the financial performance during FY 2015-16. Furthermore, due to marketing of gas field products through BPC from January 2015, a significant profit on the gas field products has been decreased. Financial performance

2012-13 2013-14 2014-15 2015-16 2016-17 (9m,An)

Financial Information (BDT mn):

Gross Profit 1,503 1,838 1,810 1,869 1,956

EBITDA 780 804 1,256 1,284 1,138

Operating Profit 714 706 1,130 1,137 987

Non-Operating Income 2,400 2,286 1,587 1,498 1,669

Profit After Tax 2,067 2,127 1,928 1,874 1,872

Assets 79,185 90,223 96,215 113,639 132,043

Equity 5,967 7,291 8,237 9,128 9,549

Retained Earnings 5,074 6,309 7,254 8,146 8,567

Cash & Cash Eqiv. 20,641 25,602 16,732 18,313 20,682

Enterprise Value -3,022 3,117 7,266 122 4,456

Dividend (C/B)% 90/10 100/0 100/0 100/0 N/A

Margin:

EBITDA 51.90% 43.80% 69.40% 68.70% 58.20%

Operating Profit 47.50% 38.40% 62.40% 60.80% 50.50%

Pretax Profit 196.70% 154.60% 142.60% 133.90% 129.00%

Net Profit 137.50% 115.70% 106.50% 100.20% 95.70%

Growth (YoY):

Net Earnings -1.50% 22.30% -1.60% 3.30% 4.60%

Operating Profit -3.20% -1.10% 60.10% 0.60% -13.20%

Pre Tax Profit 36.20% -3.90% -9.20% -3.00% 0.80%

Net Profit 41.30% 2.90% -9.40% -2.80% -0.10%

Profitability:

ROA 2.71% 2.51% 2.07% 1.79% 1.52%

ROE 40.10% 32.10% 24.80% 21.60% 20.00%

Non-Operating Income/PBT 81.10% 80.40% 61.50% 59.80% 66.10%

Valuation:

Price/Earnings 11.51 14.85 12.45 9.74 13.43

Price/BV 3.99 4.33 2.91 2 2.63

EPS (BDT) 23.15 21.66 19.63 19.07 19.05

DPS (BDT) 9.00 10.00 10.00 10.00 N/A

NAV per share (BDT) 66.82 74.22 83.85 92.92 97.21

Z-Score 0.36 0.43 0.41 0.33 0.33 **Net earnings from petroleum products has been treated as revenue for oil marketing companies as per their accounting procedure Source: Website of Jamuna Oil Company Limited and EBLSL Research

Particular Facts & Figures Current Price 244.1 Paid-up Capital (BDT mn) 982.3 Total No. of Securities (mn) 98.2 Market Capitalization (BDT mn) 23,978.6 3 month Average Daily Turnover (BDT mn) 13.0 52 Week Price Range (BDT) 175.70 – 269.00 DSE Code PADMAOIL Listing year 1976 Category A



6


Meghna Petroleum Limited (MPETROLEUM) Meghna Petroleum Limited (MPL) is one of the largest companies operating its oil business in Bangladesh. It’s working alone with other seven operating companies under Bangladesh Petroleum Corporation to mitigate huge gap between demand and supply. It was setup on 27 December, 1977 as a private limited company with the objective of taking over the physical possession of all the fixed assets of the erstwhile Meghna Petroleum Marketing Company Limited (MPMCL) and Padma Petroleum Limited (PPL) as on March 31, 1978. Meghna Petroleum Marketing Company Limited was created after acquiring the operation of the then ESSO Eastern Inc. (1962) of America in 1975 and Padma Petroleum Limited was created in 1972 after acquiring the operation of the then Dawood Petroleum Limited (1968). In the year 1976 the assets and liability of the company were transferred and handed over to BPC. Since then Meghna Petroleum Limited has been functioning as a subsidiary of BPC and serving as one of the petroleum distribution company of BPC. Meghna Petroleum Limited has also faced a critical year during FY 2015-16 as the business has incurred increasing operating expense due to Modified New Pay Scale 2015 and increasing gratuity provision. The company has also faced challenges similar to other oil marketing companies which have caused their profit to decline. Financial Performance

2012-13 2013-14 2014-15 2015-16 2016-17 (9m,An)

Financial Information (BDT mn): Net Earnings 1,320 1,488 1,635 1,396 1,840 EBITDA 762 702 901 548 677 Operating Profit 693 625 821 438 576 Non-Operating Income 1,938 2,628 2,007 2,204 2,346 Profit After Tax 1,864 2,360 2,035 1,850 2,064 Assets 43,885 47,918 58,883 70,433 79,027 Equity 5,177 6,963 8,063 8,777 9,189 Retained Earnings 1,902 2,374 2,076 1,890 1,602 Enterprise Value 853 8,107 3,902 -5,684 -4,386 Cash & Cash Eqiv. 13,769 16,118 17,200 24,330 24,027 Dividend (C/B)% 70/20 95/10 105/0 105/0 N/A Margin: EBITDA 57.70% 47.20% 55.10% 39.20% 36.80% Operating Profit 52.50% 42.00% 50.20% 31.30% 31.30% Pretax Profit 189.30% 207.60% 164.30% 179.70% 150.80% Net Profit 141.20% 158.60% 124.40% 132.50% 112.20% Growth (YoY): Net Earnings 10.50% 12.70% 9.90% -14.60% 31.80% Operating Profit 6.06% -9.82% 31.51% -46.73% 31.59% Pre Tax Profit 35.70% 23.62% -13.03% -6.59% 10.60% Net Profit 33.93% 26.57% -13.77% -9.07% 11.56% Profitability: ROA 4.60% 5.10% 3.80% 2.90% 2.80% ROE 42.50% 38.90% 27.10% 22.00% 23.00% Non-operating Income /PBT 77.60% 85.00% 74.70% 87.80% 84.50% Valuation: Price/Earnings 7.84 10.26 10.37 10.08 9.51 Price/BV 2.82 3.48 2.62 2.12 2.14 EPS (BDT) 22.74 23.99 18.8 17.1 19.08 DPS (BDT) 7 9.5 10.5 10.5 N/A NAV per share (BDT) 63.15 70.78 74.51 81.11 84.91 Z-Score 0.5 0.65 0.52 0.39 0.37

**Net earnings from petroleum products has been treated as revenue for oil marketing companies as per their accounting procedure Source: Website of Jamuna Oil Company Limited and EBLSL Research

Particular Facts & Figures Current Price 199.0 Paid-up Capital (BDT mn) 1,082.2 Total No. of Securities (mn) 108.2 Market Capitalization (BDT mn) 21,535.0 3 month Average Daily Turnover (BDT mn) 13.9 52 Week Price Range (BDT) 167.4 – 211.2 DSE Code MPETROLEUM Listing year 2007 Category A

Source: Source: DSE & EBLSL Research


7


Eastern Lubricants Blenders Limited (EASTRNLUB) The company is engaged in blending lubricant oils and greases on behalf of three oil marketing companies- Jamuna Oil Company Limited, Meghna Petroleum Limited and Padma Oil Company Limited. The company is registered as a public limited company under company act of 1913. It was incorporated on 22 October 1963. It has plant in Chittagong. It works as a subsidiary of Bangladesh Petroleum Corporation (BPC). The company blend lubricant only on the basis of requisition received from the POCL, JOCL and MPL. It has been trying to diversify its business. It has started importing Lube base oil for marketing and marketing “YUASA BRAND” batteries. It has 9,464 MT Lube Oil storage capacity and 24,000 MT Lube Oil blending capacity. Its capacity utilization depends on the requisition received from the POCL, JOCL and MPL. The company’s huge growth in FY 2015-16 has been attributed to its base oil business which started running in the FY 2015-16. Although the company incurred operating loss in lubricants blending business, the company earned an operating profit of BDT 62.5 million in base oil business in the FY 2015-16. The business of base oil has played a significant role in achieving healthy growth in terms of profitability in the FY 2015-16. Financial Performance

2012-13 2013-14 2014-15 2015-16 2016-17 (9m,An)

Financial Information (BDT mn): Revenue 9 9 6 215 193 Gross Profit -4 -4 -5 54 22 EBITDA -5 -5 -6 53 20 Operating Profit -5 -5 -6 53 20 Non-Operating Income 13 13 11 5 3 Profit After Tax 5 5 4 41 16 Assets 155 148 315 190 296 Equity 71 73 73 111 114 Retained Earnings -

- 62 63 101 104

Cash & Cash Eqiv. 72 69 128 41 166 Enterprise Value 331 334 275 323 993 Dividend (C/B)% 30/0 30/0 30/0 100/0 N/A Margin: EBITDA -55.70% -50.50% -94.90% 24.70% 10.60% Operating Profit -61.40% -55.40% -101.90% 24.50% 10.40% Pretax Profit 79.30% 63.90% 80.20% 25.70% 11.30% Net Profit 60.60% 48.90% 61.20% 19.30% 8.50% Growth (YoY): Revenue -22.90% 6.90% -34.40% 3407.00% -10.20% Gross Profit 292.90% -15.60% 31.20% 1219.20% -59.90% Operating Profit 160.90% -3.50% 20.60% 945.20% -62.10% Pre Tax Profit -15.80% -13.80% -17.60% 1022.10% -60.40% Net Profit -15.60% -13.70% -17.90% 1002.60% -60.20% Profitability: ROA 3.23% 3.02% 1.62% 16.44% 6.78% ROE 7.80% 6.40% 5.20% 45.00% 14.60% Non-Operating Income/PBT 182.80% 217.70% 232.20% 9.60% 13.70% Valuation: Price/Earnings 76.02 88.09 107.2 8.77 70.33 Price/BV 5.71 5.55 5.52 3.26 10.14 EPS (BDT) 5.33 4.60 3.78 41.70 16.57 DPS (BDT) 3.00 3.00 3.00 10.00 N/A NAV per share (BDT) 71.01 73.03 73.41 112.08 114.9 Z-Score 3.31 4.26 1.49 6.24 5.66

Source: Website of Padma Oil Company Ltd. and EBLSL Research

Particular Facts & Figures Current Price 881.7 Paid-up Capital (BDT mn) 9.94 Total No. of Securities (mn) 1.0 Market Capitalization (BDT mn) 876.4 3 month Average Daily Turnover (mn) 0.7 52 Week Price Range (BDT) 870.0 – 1,479.0 DSE Code EASTRNLUB Listing year 1976 Category A


8


Comparative Analysis of Fuel-Oil Distribution Companies of Bangladesh

Business Model and Products The three oil distribution companies collect refined petroleum through pipe lines in in their main installations from Eastern Refinery Limited while some refined products are imported directly. Then these oil distribution companies disseminate petroleum products from their respective Main Installation (MI) facilities to all over the country through their distribution networks. The price of the products is fixed by the Government. The margin is also fixed by the Government on the basis of quantity sold. Jamuna Oil Company Limited (JAMUNAOIL): The prime activities of the company include the procurement, storage and marketing of petroleum products, non-petroleum products and lubricants products. The petroleum products include High Octane Blending Component (HOBC), Motor Spirit (MS), Superior Kerosene Oil (SKO), High Speed Diesel (HSD), Light Diesel Oil (LDO), Furnace Oil (FO), and Jute Batching Oil (JBO). Non- petroleum products include Liquefied Petroleum Gas (LPG) and Bitumen. JOCL is the distributor of lubricants of Mobil Jamuna Lubricants Limited. Lubricants products of JOCL include MOBIL DELVAC SPECIAL 20W50, MOBIL DELVAC 1340, MOBIL HD 40, MOBIL SUPER XHP 20W50 and MOBIL ATF 220. Aside from those JOCL also markets bitumen, LP gas, and lubricants and grease. Padma Oil Company Limited (PADMAOIL): The major activities of POCL are procurement, storage and marketing of Petroleum products, Lubricants and Greases, Bitumen, LPG. In addition, the company is engaged with production and marketing of Agro Chemicals Products. The petroleum products include Liquefied Petroleum Gas (LPG), Special Boiling Point Solvent (SBP), Naphtha, Motor Gasoline (regular & premium), Mineral Turpentine (MTT), Superior Kerosene Oil (SKO), Aviation Fuel (JET-A1), Low Sulphur High Sheep Diesel (LSHSD), High Speed Diesel (HSD), Jute batching Oil (JBO), Light Diesel Oil (LDO), High Sulphur Furnace Oil (HSFO) and Bitumen (Grade 10-100). The lubricant products include Monograde Diesel Engine Oil, High Performance Hydraulic Oil, Premium quality Industrial Gear Oil, Multigrade Gasoline Engine Oil, High performance engine Oil, High Performance Diesel Engine Oil, Monograde Gear Oil, Extreme Pressure Automotive Gear Oil, Extreme Pressure Automotive Gear Oil, Advance Hydraulic Transmission Fluid, Machinery Oil, Compressor Oil, Heat Treatment Oil, Metal Working Fluid, Brake and Clutch Fluid and Spindle Oil. Aside from those POCL also market chemical based insecticide products for agricultural use. Meghna Petroleum Limited (MPETROLEUM): The activities of the company comprise procurement, storage and marketing of petroleum oil and lubricant products, bitumen and Liquefied Petroleum Gas (LPG) in Bangladesh. The petroleum products include High Octane Blending Component (HOBC), Motor Spirit (MS), Superior Kerosene Oil (SKO), High Speed Diesel (HSD), Light Diesel Oil (LDO), Furnace Oil (FO), and Jute Batching Oil (JBO). Non- petroleum products include Liquefied Petroleum Gas (LPG), Battery Water, Lubricant and Bitumen.

Mode of Transportation After procuring petroleum products, the products are distributed to different destination all over the country. Petroleum products are distributed by three transportation modes. Due to higher capacity and cost effectiveness river is the first choice. All three companies transport around 90% products by river.

Particulars PADMAOIL MPETROLEUM JAMUNAOIL By River 90% 82% 88% By Railway 8% 6% 10% By Road 2% 12% 2%

Railway and road is used very little as their mode of transportation. Around 8% products are transported by railway whereas rest 2% is carried through road.


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Distribution Network Jamuna Oil Company Limited (JAMUNAOIL): JOCL has huge infrastructure and facilities as required by a petroleum marketing company in order to ensure proper distribution of petroleum products throughout the country with uninterrupted supply. The company possesses a countrywide extensive network of 16 depots in addition to its main installation at Guptakhal in Chittagong, 560 Filling Stations, 20 Consumer Pump, 1067 Distributor Agent, 248 Packed Point Dealers and 767 LPG Dealers as on June, 2016. Padma Oil Company Limited (PADMAOIL): POCL has huge infrastructure and facilities as required by a petroleum marketing company in order to ensure proper distribution of petroleum products throughout the country with uninterrupted supply. The company has countywide extensive network with 1436 Agents, 805 Filling Stations, 370 Packed Dealers, 892 LPG Dealers and 556 Chemical Distributors as on June, 2016. Meghna Petroleum Limited (MPETROLEUM): In order to distribute petroleum throughout the country, MPL have 699 Nos. Filling Station, 156 Nos. Packed point Dealer, 1140 Nos. Agent and 1253 Nos. LPG Dealers as on June, 2016. Company has established business relationship with some direct customers, industries and power plants.

Business Expansion Plan

JAMUNA OIL COMPANY LIMITED PADMA OIL COMPANY LIMITED MEGHNA PETROLEUM LIMITED

BPC is planning to install an Oil Installation at Mongla in collaboration with subsidiaries where JOCL has invested BDT 612.3 million for 33.3% stake.

The company is establishing storage tank with a capacity of 5,000 MT at the main establishment which will cost BDT 66.0 million and will be completed by the end of 2018.

To enhance the operational capability, the company will establish RCC Jetty in place of Pontoon Jetty in the main establishment.

A 100,000 MT capacity expansion project has been taken on 17 acre land of BPC where POCL will invest for stake of 33.3%. The estimated cost for the project is BDT 1,792.5 million. It is estimated that the project will be completed by 2018.

Construction of three fuel storage tank of 2,500 MT capacity each and one storage tank of 6,000 KL capacity are going on. The work will be completed by 2017.

Extension of Hydrant Line at the Parking Bay of airport, Dhaka, is going on to meet the additional demand of refueling.

A Lube blending plant with a capacity of 15,000 MT at a cost of BDT 200 million is going to set up in Chittagong.

Company has taken step to construct 100,000 capacity LPG bottling plant and bottle manufacturing plant in Khulna.

The company has taken steps to construct 40 storied building for multipurpose commercial use at Motijheel in Dhaka.

Revenue Breakdown Jamuna Oil Company Limited (JAMUNAOIL): The net earnings of JOCL is mainly composed of major products such as refined petroleum products and minor products such as bitumen, lubricants and grease and LPG. During FY 2015-16, 80.2%, the bulk portion of the revenue, generated from net sales of petroleum products and 19.8% revenue came from net sales of minor products.

80.2%

19.8%

Breakdown of Total Revenue

Major Product Minor Product

0.9%

95.9%

3.2%

Breakdown of Minor Product

Bitumen Lubricants & Grease LPG

1.2% -0.2%

5.3%

63.8%

28.9%

0.6%

Breakdown of Major Product

HOBC MS SKO HSD FO JBO


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During the period under review, it is found that major portion of total revenue came from High Speed Diesel by 51.4%, followed by Furnace Oil by 23.3%, Lubricants and Grease 18.9%, Kerosene 4.3% and rest from others. Padma Oil Company Limited (PADMAOIL): The net earnings of POCL is mainly composed of major products such as refined petroleum products and minor products such as bitumen, lubricants and grease and LPG. During FY 2015-16, 93.0%, the bulk portion of the revenue, generated from net sales of petroleum products and 7.0% revenue came from net sales of minor products.

During the period under review, it is found that major portion of total revenue came from Jet A-1 by 34.9%, followed by High Speed Diesel by 28.3%, Motor Spirit by 13.1%, Furnace Oil by 10.6% and rest from others. The sale of Furnace Oil increased by 148.9% during 2015-16 compared to the previous year due to higher supply made to private power plants. On the other hand, installation of solar home system and electricity supply made to the remote and other areas for meeting the individual power demand caused a lower sale of karosene and use of CNG in transport sector is the reason for decreasing of Motor Sprit sale by 51.6%. Meghna Petroleum Limited (MPETROLEUM): The net earnings of MPL is mainly composed of major products such as refined petroleum products and minor products such as bitumen, lubricants, Battery Water and LPG.

During FY 2015-16, the bulk portion of the revenue, generated from net sales of petroleum products (68.1%) and 31.9% revenue came from net sales of minor products. Major portion of total revenue came from High Speed Diesel by 39.6%, followed by Lubricants by 31.2%, Furnace Oil by 14.9%, Motor Spirit by 5.4%, Kerosene Oil by 3.7% and rest from others. The turnover decreased by 14.6% in year 2015-16 from 2014-15 due to lower demand of petroleum in the industry. The sale of Furnace Oil increased by 13.9% in year 2015-16 from year 2014-15 due to higher supply of Furnace Oil required for private power plants. MPL is serving 37.2% of total industry demands (according to the annual report 2014-15). Eastern Lubricants Limited: From year 2015-16, company has been focused on selling of imported base oil. According to 2015-16 financial statements, bulk portion of revenue comes from sell of imported base oil (95.4%). Lubricant blending charges provides 2.6% revenue and rest 2.0% comes from battery marketing.

97.7%

1.0%

1.3% 0.0%

Breakdown of Minor Products

Lubricants LPG

Bitumen Battery Water

68.1%

31.9%


Major Products Minor Products

83.0%

4.0%

1.6% 11.5%

Breakdown of Minor Products

Lubs & Greases LPG (Cylinders)

Bitumen Other Products

4.6%

37.5%

14.1%1.8%

30.4%

0.1%

11.4%

0.0%

0.0% 0.2%

Breakdown of Major Products

HOBC Jet A-1 MS SKO HSD

LDO FO MTT SBP JBO

93.0%

7.0%


Major Products Minor Products

2.4%

7.9%

5.5%

58.1%

21.8%

4.3%

Breakdown of Major Products

HOBC MS SKO HSD FO JBO

2.0%

95.4%

2.6%

Blending Charges

Imported Base Oil

Battery Marketing


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Cost Structure Jamuna Oil Company Limited (JAMUNAOIL):

Total operating expenses covers 57.1% of total expenses of the company. During FY 2015-16 total operating expenses increased by 6.0%.This increase in operating expenses mainly resulted from the increase in depreciation expense by 19.6%. Major portion of cost goes to Administrative, Selling, and Distribution expense which is 42.4% of total cost.

Padma Oil Company Limited (PADMAOIL): Total operating expenses covers 66.2% of total expenses of the company. As petroleum distribution is its major function, administrative, selling and distribution costs bear the major portion of total cost in year 2015-16. It has a large amount of depreciation expense mainly for high fixed assets. Interest on WPPF & WF and bank charges contribute to the financial charges.

Meghna Petroleum Limited (MPETROLEUM): Total operating expenses cover 54.8% of total expenses of the company. During FY 2015-16 total administrative, selling and distribution cost increased by 23.8% as employee salaries, which is 44.6% of total administrative cost, increased by 31.5%. Other expenses are quite stable relative to previous year.

Private Initiatives’ Access to Import Fuel Oil In 2011, the Government opened import of fuel oil for electricity generation under the private initiative. Such decision and its implementation has curbed down the potential revenue earning avenue for BPC. There are currently 19 power plants who use furnace oil for electricity generation with a combined capacity of 2,792 MW. A total of 14 electricity producers arrange their own fuels taking advantage of nine percent service charges as well as tax waiver facilities on around 1.3 million tonnes of furnace oil. On August 7, 2017 the permission to import fuel oil without tax by 5 power plants was signed by the Power Division. Such decision will further adversely impact BPC since the demand for fuel oil will be met by import and BPC will miss out the opportunity of utilizing the existing demand. The importer will be able to procure fuel oil at BDT 22 per litre against the BPC’s price of BDT 42 per litre.

Investment Positives


After completion of capacity, expansion projects such as Oil Installation and Construction of Building will boost company’s revenue and profitability.

JAMUNAOIL is consistent in paying dividend and constantly paid 100% dividend (stock and cash) in last four years.

Many development projects including expansion of depot, construction and erection of storage tanks and physical infrastructure expansion program are going on. Completion of these projects will enhance company’s capacity.

PADMAOIL is consistent in paying dividend and constantly paid 100% dividend (cash) in last three years.

Company is improving its core operating performance. As per 2016-17 quarter three (9 Months) disclosure, Net Operating Cash Flow Per Share (NOCFPS) increased to BDT 24.32 against BDT 16.39 in 2015-16 quarter three (9 Months).

MPL has consistently announced 105.0% cash dividend in recent two years.

42.4%35.4%

9.9% 7.5% 4.9%

0.0 %

5.0 %

10. 0%

15. 0%

20. 0%

25. 0%

30. 0%

35. 0%

40. 0%

45. 0%

A,S&D Tax FE Cont. toWPPF

Dep.

JOCL Cost Structure

52.2%

28.0%

7.4% 6.5% 5.9%0.0 %

10. 0%

20. 0%

30. 0%

40. 0%

50. 0%

60. 0%

A,S&D Tax FE Dep. Cont. toWPPF

POCL Cost Structure

38.3% 37.7%

10.2% 7.5% 6.3%

0.0 %

5.0 %

10. 0%

15. 0%

20. 0%

25. 0%

30. 0%

35. 0%

40. 0%

45. 0%

A,S&D Tax FE Cont. to WPPF Dep.

MPL Cost Structure


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Investment Negatives


Sales volume of most of the products (except Octane and Diesel) are in decreasing trend over the last years. Sales of Petrol fell due to conversion of vehicle into CNG. If this trend continues, the profitability will be negatively affected.

Almost 94.5% profit before tax

(PBT) comes from non-operating

income like, interest on FDR,

profit on disposal of fixed assets,

Interest on bank deposit,

dividend income etc. Decreasing

trend in interest rate will

negatively affect the earnings.

Earnings from non-operating income added considerably to the company’s profitability. In 2015-16, non-operating Income (interest come from SND & FDR) was BDT 1.5bn whereas Gross Earnings on Petroleum Products was BDT 1.9 bn. Hence, profitability of the company will be hampered as interest rate is decreasing day by day.

Almost 66.1% profit before tax (PBT) comes from non-operating income like, profit on disposal of fixed assets, Interest on bank deposit, dividend income, interest on house building loan etc. Decreasing trend in interest rate will negatively affect the earnings.

Company didn’t perform well in its core business function as according to its 2016-17 quarter three (Q3) statements, its net operating cash flow is negative.

Almost 84.5% profit before tax (PBT) comes from non-operating income like, interest on FDR, profit on disposal of fixed assets, Interest on bank deposit, dividend income, interest on house building loan etc. Decreasing trend in interest rate will negatively affect the earnings.

On year 2015-16, companies operating profit decreased significantly by 46.7% from year 2014-15 due to lower sales volume. As a result, its earnings decreased.


13


Comparative Snapshot of Fuel-Oil Distribution Companies as on 2016-17 (9 Months Annualized) Statements

POCL MPL JOCL

Financial Information (BDT mn): Gross Profit 1,956 1,840 1,160 Operating Profit 987 576 331 Non-Operating Income 1,669 2,346 2,891 Profit After Tax 1,872 2,064 2,301 Assets 132,043 79,027 65,683 Equity 9,549 9,189 17,546 Retained Earnings 8,567 1,602 2,480 Cash & Cash Equivalent 20,682 24,027 26,025 Margin: Operating Profit 50.5% 31.3% 28.5% Pretax Profit 129.0% 150.8% 263.8% Net Profit 95.7% 112.2% 198.4% Growth (YoY): Gross Profit 4.6% 31.8% 33.0% Operating Profit -13.2% 31.6% 0.1% Pre Tax Profit 0.8% 10.6% 17.6% Net Profit -0.1% 11.6% 17.5% Profitability: ROA 1.52% 2.8% 3.9% ROE 20.00% 23.0% 13.8% Non-operating Income/PBT 66.10% 84.5% 94.5% Valuation Ratio: Price/Earnings 13.43 10.50 9.94 Price/BV 2.63 2.36 1.30 EPS (BDT) 19.05 19.08 20.84 NAV per share (BDT) 97.21 84.91 158.90

*Dividend is based on 2015-16 yearend dividend announcement

Earning Per Share (EPS) – Quarterly Basis

Source: Financial Statements & DSE News

Latest 12 Months Market Performance


Comparative Investment Insights

POCL has the highest asset base among the three. Based on latest 2016-17 quarter three disclosure JOCL outperformed POCL and MPL on basis of net profit margin and growth. On the other hand, MPL has the highest ROE among the three followed by POCL and JOCL respectively.

JOCL earned the highest ROA followed by MPL and POCL respectively. So JOCL’s asset utilization capability is the best among the three.

POCL outperformed MPL and JOCL on core operating performance. POCL earned the highest operating profit followed by MPL and JOCL respectively.

Currently JOCL is trading in the lowest P/E among the three followed by POCL and MPL respectively.

POCL outstripped JOCL and MPL on last twelve months stock market performance. POCL gave 33.9% market return. On the other hand, MPL gave 10.0% and JOCL gave 9.2% in last twelve months.

Price Sensitivity analysis based on projected EPS

Sensitivity Analysis

Projected Price

POCL MPL JOCL

Current Price (27-09-2017) 247.7 199.4 205.1

EPS (9M’ 2016-17) 14.29 14.31 15.63

Annualized EPS 19.05 19.08 20.84

Price @8 PE 152.4 152.64 166.72

Price @10 PE 190.5 190.8 208.4

Price @12 PE 228.6 228.96 250.08

Price @14 PE 266.7 267.12 291.76

Concluding Remarks Petroleum sector is considered the most sensitive sector of economy. Macro-economic indicators are highly sensitive to the price of petroleum products. Thus oil marketing companies should give more priority on providing services to the people. Three fuel-oil distribution companies are contributing significantly to the total economy of the country by carrying out uninterrupted supply of petroleum products in all remote areas of the country. Besides, these companies are also contributing to the agricultural based economy though its production and marketing of agrochemical products. Government directly controls these three companies marketing commission. So their performance depends on the petroleum demands in the economy. Increase in petroleum demand can boost up their market performance in upcoming future.

4.36

3.14 3.

80

7.77

5.80

5.14

3.35

4.91

3.48

4.89

3.82

5.04

5.07

4.19

5.29

3.09

3.04

6.32

6.43

6.03

3.17

Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3

2 0 1 5 - 1 6 2 0 1 6 - 1 7

POCL MPL JOCL

80.00%

90.00%

100.00%

110.00%

120.00%

130.00%

140.00%

150.00%

Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17

POCL MPL JOCL


14


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