Spectrum Securities (Private) Limited

April 23, 2015

BYCO: Hated company started to be liked by investors

Introduction
Oil & Gas
Bloomberg Code

BYCO.PA

Reuters Code

BYCO.KA

KSE Code

BYCO

No. of Shares (mn)

977.86

Free Float (%)

20.0%

Market Cap. (PKR mn)

1,200

Current Price (22-04-15)

12.27

52 weeks - High (Rs)

13.08

52 weeks - Low (Rs)

7.03

Byco Petroleum Pakistan Limited was incorporated in Pakistan as a public

limited company in 1995. The company is listed on Karachi, Lahore and
Islamabad Stock Exchanges. Byco O il Pakistan Limited (Holding
Company) holds 80.84% (30 June 2014: 80.84%) shares in the Company.
Currently, a 20% free float exists in the market. The Holding Company
is a wholly owned subsidiary of Byco Industries Incorporated
(BII),Mauritius (ultimate Parent Company). The Company is principally
engaged in the production, marketing and sale of petroleum products.

Business Segments
The Company currently operates two business segments namely Oil
Refinery Business and Petroleum Marketing Business. The Company
commenced its crude Oil Refining Business in 2004.The refinery has a
rated capacity of 35,000 bpd (barrels per day). Petroleum Marketing
Business was formally launched in 2007 and now growing aggressively
with 253 retail outlets across the country.

Comparison with peers

The comparison with peers revealed that BYCO sales is near to PRL sales
but gross margins are far better as compared to PRL and other refineries
PEERS FINANCIAL COMPARISON

(Rs mn)

BYCO

NRL

PRL

ATRL

Net Sales

44,840

91,703

50,569

78,178

COGS

44,270

91,006

53,768

80,597

570

698

(3,199)

(2,419)

Operating Profit/(Loss)

(636)

(60)

(3,420)

(2,681)

Financial Charges

1,501

663

247

314

PBT/(LBT)

(1,588)

35

(3,573)

(1,001)

PAT/(LAT)

(1,663)

(48)

(3,577)

(543)

EPS/(LPS)

(1.70)

(0.61)

(102.21)

(6.36)

Gross Profit

Bycos Gross Margins

better than peers

(1HFY15)

Gross Margin

1.27%

0.76%

-6.33%

-3.09%

PBT Margin

-3.54%

0.04%

-7.07%

-1.28%

Net Margin

-3.71%

-0.05%

-7.07%

-0.69%

Source: Company Reports, Spectrum Research

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Spectrum Securities (Private) Limited

similarly, net margins were also better as compared to PRL net margins however
below the NRL and ATRL net margins

Byco Terminal to fuel up earnings

The Single Buoy Mooring (SBM) project of subsidiary company, Byco Terminal
Limited' operations are running successfully and also during monsoon season.
Previously the company was facing problem during monsoon season as high
tides were disturbing the flow of crude oil, and thereby provided logistical
advantage in importing Crude oil by enabling vessels to berth without loss of
time and hence provided substantial savings.
Byco near to
turnaround

The next project for the SBM will enable it to be utilized for loading High Speed
Diesel on vessels for transportation to Port Qasim and pumping into the White
Oil Pipeline. This Project shall have a capacity of loading 50,000 metric tons of
HSD in 24 operating hours and has been completed. Subsequent to this Project
on-stream, the company plan to initiate the next project which shall enable
the loading out of Residual Furnace O il onto vessels onto vessels for
transportation to Port Qasim, this project is expected to be completed by
January 2015.

Advantage of new refinery operations

With the start of new refinery production, the holding company, Byco's working
capital requirement reduced significantly as the company 600k bbl crude ship
distributed amount the both refinery as Byco takes 180k bbl while remaining
420k bbl crude oil supply to BOPL. This synergy reduces the process cycle of
one ship from ~20 days to ~5 days thus working capital requirement reduces
substantially. The low inventory cycle also reduces the risk of inventory as the
government set the oil prices on monthly basis and the company carries 2-3
days stock for production. Moreover, a substantial decline in international oil
prices has also reduced the working capital requirement for the company.

Isomerisation plant to improve margins

Isomerisation
Plant

The Isomerization unit has also been commissioned and tested for commercial
operations as it has a capacity of 12,500bpd. With conversion of 60-65 octane
Light naphtha into 89 octane Motor Gasoline, it is expected that earnings from
this unit would substantially improve the profitability Company, beside
reductions in selling and transportation costs attributable to export of Naphtha.
This is the only Isomerization Plant which has the dual 8nits of Penex and
Molex in the Country. As Naphtha is a low margin product while MS margins
for oil marketing are higher side.
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Spectrum Securities (Private) Limited

OMCs business enhances profitability further

So far 254 retail outlets have been set-up, primarily focusing on retail segment
and Petroleum Marketing Business (PMB) is now expanding the canvas by
targeting to become a dominant player in the industrial, international and retail
segments. Going forward, PMB will be increasing its product portfolio by adding
LPG and lubricants as well.

Debt restructuring provides better cash flows

Declining interest rates

to improve companys
financials

The company has restructured its long term loan during FY13 for seven years
(2013-2019). As per agreement principal amount of Rs17.4bn has been
structured at 6M KIBOR whereas Interest amount of Rs1.8bn will be interest
free and will start 2 years after restructuring period but book the financial
charges in profit and loss account.

BYCO merger with BOPL remain possible

The merger of both the refineries of the same group is possible in future. In
case of merger the one unit capacity would be 155k bbl which will be the
biggest refinery in the country with refining of by-products.

Financial Performance
1HFY15: The net sales of the company jumped by 9.5%YoY to PKR44.84bn
owing to increased sales volume by ~22%YoY in 1HFY15, where it sold higher
volumes through its owned fueling stations & direct sales of Furnace oil to
IPPs & PSO. During the period under review, the refinery achieved throughput
of 3.3mn bbl compared to 2.8mn bbl in corresponding period, a growth of
18%. However, this increase in volume was partly offset by the decline in oil
prices. Similarly, gross profit escalated by ~34%YoY to PKR569mn in the current
period.

A twinkle twinkle
star is born

Selling & distribution expenses which increased significantly due to

transportation charges is recoverable through IFEM for motor gasoline and
diesel sales through retail sites and through Customers for furnace oil. The
Company posted a net loss after tax of PKR1.6bn, due to the financial charges
most of which represents markup incurred on long term loan which is not
currently due or payable. The cash flow of the company remained unaffected
as charges on long term loans are payable after the settlement of the principal
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Spectrum Securities (Private) Limited

amount.
BYCO FINANCIAL PERFORMANCE

(Rs mn)

1HFY15

1HFY14

YoY

Net Sales

44,840

40,942

10%

COGS

44,270

40,519

9%

570

424

Gross Profit

34%

Operating Profit /(Loss)

(636)

(373)

Financial Charges

1,501

1,245

21%

PBT/(LBT)

(1,588)

(2,807)

PAT/(LAT)

(1,663)

(2,215)

EPS/(LPS)

(1.70)

(2.27)

Gross Margin

1.27%

1.03%

0.2%

PBT Margin

-3.54%

-6.86%

3.3%

Net Margin

-3.71%

-5.41%

1.7%

Source: Company Reports, Spectrum Research

FY14: The Company's overall sales witness a hefty surge of 40%YoY to

PKR92.6bn, where its Oil refining business and PMB achieved sales growth of
29%YoY to PKR51.95bn and 56%YoY to PKR40.59bn respectively. The
Company's gross profit increased to PKR421mn in FY14, depicting a staggering
growth of 5.5 times YoY, because of high absorption rate of manufacturing
overheads, increased level of production, and stringent inventory management.
BYCO FINANCIAL HIGHLIGHTS

(Rs mn)

2010

Net Sales
COGS
Gross Profit
Operating Profit/(Loss)
Financial Charges

2011

2012

2013

2014

41,098

38,977

40,430

38,169

19,453

66,187

92,545

21,170

66,111

92,124

667

77

(1,717)

76

421

(565)

(1,126)

(2,628)

(1,239)

(1,964)

3,026

2,096

2,965

2,645

2,793

PBT/(LBT)

(1,488)

(1,850)

(3,197)

(2,085)

(6,325)

PAT/(LAT)

(1,616)

(1,987)

(3,078)

(2,259)

(5,937)

EPS/(LPS)

(4.12)

(4.91)

(3.15)

(2.31)

(6.07)

Gross Margin

1.62%

0.20%

-8.83%

0.11%

0.45%

PBT Margin

-3.62%

-4.75%

-16.43%

-3.15%

-6.83%

Net Margin

-3.93%

-5.10%

-15.82%

-3.41%

-6.42%

EBITDA Margin

5.29%

2.41%

4.76%

2.67%

1.83%

Source: Company Reports, Spectrum Research

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Spectrum Securities (Private) Limited

As a result, the Company has been able to repay the loan principal amount
installments totaling Rs1.6bn during the year under review.
The Company suffered a net loss after tax of Rs5.9bn, translating into LPS of
6.07/sh. The Company remained under the regime of minimum tax on turnover
basis in the current year as well. The loss can be attributed to increased level
of operational activities, where operating expenses almost doubled as
compared to SPLY. Almost two third of the loss is attributable to financial charges
and exchange losses incurred during the year, resulting in shortage of funds
thereby causing delay in payment to government.

Company risk
The restructured facility contains a covenant that the company cannot pay
dividend to its shareholders if an event of default has occurred and / or is
continuing.
During the period ended 31 December 2014, the Company incurred a net loss
after taxation of Rs1.66bn and as of that date its accumulated losses amounted
to Rs25,47bn. As at 31 December 2014, current liabilities of the Company
exceeded its current assets by Rs1,7bn.

Outlook: Positive
With the completion of the group's related projects, including the first
Isomerisation Plant and SBM with no significant additional capital investment
required in the next couple of years, there will be significant value addition for
the Company in years coming ahead. Moreover, the company's net sales is
continuously at the growing path following the elimination of discount on sales
of its products coupled with healthy rise in its market share would diffidently
improve the earnings going forward.

Spectrum Research
research@spectrumonline.com.pk
+ 92 (21) 32467598

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the sources that are considered reliable. This report is prepared for the use of Spectrum Securities clients and Spectrum Securities reserves the right for its distribution. Opinions and recommendations
provided does not take into account specific investment objectives or particular investment needs of any specific person or group of persons who may receive this report.