PACRA Maintains Entity Ratings of Sitara Petroleum Service Limited

Sitara Petroleum Service Limited's (‘Sitara Petroleum’ or ‘the Company’) ratings reflect its affiliation with Gas & Oil Pakistan along with a strong business profile. The Sponsors of the Company have been in the business for over three decades, reflecting their business acumen. The Company is primarily engaged in two business segments namely i) Trading & Distribution of POL products and ii) Fleet Logistic services to various OMCs. The Trading segment is further split into retail and bulk sale units. Under the retail side, the Company sells on cash/fuel cards through a network of 60 retail stations, primarily spread out in the Punjab region (~93%); whereas, under the bulk sale side, the Company provides POL products directly to corporate customers on credit. The latter holds a major portion of the Company's overall sales. The Company owns a fleet of 400 lorries; where vast majority (~95%) of the fleet revenue is generated from its group company, Gas and Oil Pakistan (GO). During 6MFY24, the Company experienced a consistent uptrend in revenues. The Company's prime revenues (~90%) are generated from the trading and distribution business. The Company's management of working capital poses concerns due to the disparity between its receivables (i.e. from bulk POL sale and fleet logistics to group company) and payables (i.e. to group company for POL procurement) cycles. This discrepancy is evident as receivables remain long-tail, in line with the existing 30-day receivables policy, with an average settlement period of 24 days. However, the Company's payable period remains short tail, standing at only 14 days. To address necessitating working capital needs, the Company heavily relies on short-term borrowing, constituting ~77% of its total borrowings. Given the anticipated volume increase, this trend is likely to tighten the working capital cycle further. Thus, during the 6MFY24, the Company acquired a new borrowing facility, leveraging its capital structure (70:30). This resulted in higher finance costs, consequently impacting the Company's coverage ratios and elevating its overall financial risk.
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.

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, while also offering fleet logistics services. The Company is ~97% owned by Mr. Tahir Iqbal, who is the Chairman and the CEO of the Company. Mr. Tahir is supported by a team of experienced personnel.