The Pakistan Credit Rating Agency Limited
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Behrooz Fareed

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PACRA Maintains Entity Ratings of Flow Petroleum Private Limited

Rating Type Entity
(17-Jun-22 )
(17-Jun-21 )
Action Maintain Initial
Long Term BBB+ BBB+
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Pakistan's petroleum industry has 35 players in the sector with PSO, Total PARCO, HASCOL, Attock Petroleum Ltd, Shell Pakistan Ltd and Be Energy Pakistan being the major OMCs. The sector is highly regulated by OGRA, especially with respect to the prices of MOGAS and diesel. It was observed that global fuel prices have been escalating post pandemic, benefitting OMCs as they can pass on the hike to consumers. However, record high prices can, in future, constrain the growth provided oil prices continue to follow an uptrend amid escalating geopolitical tensions in Eastern Europe. With the Pakistani economy recovering from the impacts of COVID-19, fuel demand has surged, creating better prospects for OMCs during FY22. OMCs generated an aggregate revenue of PKR~2,528bln in FY21 (FY20: PKR~2,225bln), with an annual GDP contribution of 5.3% (FY20: 5.4%). During FY21, the sector’s revenue registered a growth of 13.6%, owing to increased POL prices and volumetric sales. Additionally, three major products, HSD, MOGAS and RFO account for approximately 98% of the total POL consumption.
The Ratings reflect an improved business profile of Flow Petroleum (Pvt) Ltd. ('Flow Petroleum' or 'the Company') in line with current dynamics of petroleum industry. Despite increasing international POL price, being an OMC, the Company is able to pass on the hike to consumer with commissioning of new outlets, leading to better revenues. The Company has exhibited improvement in margins on the back of high petroleum prices , lower operational costs and reduced financial costs. The Company has a network of 35 operational retail outlets, fifty under construction units and a Permit for eighty-nine filling stations from OGRA. The Company had a capacity of ~1,500MT which has been further enhanced. Two new storage facilities are being constructed at Daulatpur and Kohat.
The ratings are dependent on Flow Petroleum’s ability to build market penetration, improved operational and net profit margins and Improvements in Corporate Governance Structure. Working capital cycle is stretched and leveraged ratio increased moderately. However, entire loan from related parties is non-interest bearing and convertible to equity. Increasing number of retail out lets and storage capacity enhances confidence in Company's ability to sustain revenue growth and profit margins.

About the Entity
Flow Petroleum Private Limited (FPPL) was founded by a sponsors of Aslam Oil Traders, a leading firm in the energy sector of Pakistan with a comprehensive range of products since 1980s. FPPL was established in Feb 2017 under SECP and having its registered office in Lahore, Pakistan. The Company is owned by three individual family members with equal shareholding. Muhammad Waris (33.33%), Muhammad Asif (33.33%) and Muhammad Arif (33.33%). Primarily, it is engaged in the procurement, storage, distribution, marketing and import of petroleum products and lubricants. With a network of 35 retail outlets, FPPL has less than 1% market share as at FY-21 based on the total sales. The Company is penetrating in the market in Punjab and Azad Kashmir but they have a plan to extend in other locations as well.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.