Flow Petroleum (Pvt.) Limited

CREDIT RATING REPORT | May-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
06-May-25 A- A2 Stable Maintain -
14-Jun-24 A- A2 Stable Upgrade -
16-Jun-23 BBB+ A2 Stable Maintain -
17-Jun-22 BBB+ A2 Stable Maintain -
17-Jun-21 BBB+ A2 Stable Initial -
About the Entity

Flow Petroleum (Pvt.) Limited ('Flowr Petroleum' or 'the Company') was incorporated as a private limited company in 2017 under the repealed Companies Act, 2017. The Company is engaged in the procurement, storage, distribution, marketing, and import of petroleum products and lubricants. With a network of ~125 retail outlets, the Company holds ~1% of the market share in total sales and has a storage capacity of around 5,350 MT.
The Company's ownership vests with Mr. M. Waris (~51%) and Mr. M. Asif (~49%). Mr. Haroon Rasheed, a Non-Executive Director, has been recently appointed as the Chairman of the Company. Mr. M. Waris heads the Company as the CEO. A team of professionals assists him.

Rating Rationale

Flow Petroleum (Pvt.) Limited ('Flow Petroleum' or 'the Company') has evolved as an emerging player in the oil marketing companies (OMC) sector. The ratings reflect an improved business profile of the Company that demonstrates consistent progress toward market share expansion, supported by a network of ~125 retail outlets. The Company holds a storage facility at Faqirabad, with a capacity of 5,623MT, which is operational and fully utilized. As a part of the expansion strategy, the Company is working on two new storage facilities, Daulatpur and Kohat, with an approximate cumulative storage capacity of 12,229MT. Going forward, the Company plans to merge the Group's investment in Quality 1 Petroleum with and into Flow Petroleum. This, once materialized, is expected to gradually integrate a retail network by ~450 total stations, out of which ~250 are operational, into Flow Petroleum. The merger will add ~11,095 MTs to the Company’s existing storage capacity. The Company is also eyeing considerable hospitality income from Daulatpur and Kohat's storage facility and self-utilization. Kohat's storage facility is currently under construction and is expected to become operational by FY26. The Company's affiliation with Aslam Energy (Pvt.) Limited's presence in Pakistan's logistics sector contributes positively to the overall operations. The Company has posted a consistent improvement in performance. During FY24, the revenue significantly increased by ~22.6%, primarily attributable to price adjustments alongside volumetric uptake. Flow Petroleum has made a strategic investment of ~51% in TransAsia Refinery Limited (TRL). The Sponsors and affiliates (i.e., Aslam Energy (Pvt.) Ltd.) hold the remaining shares of TRL. TRL has lately obtained renewal of operating license from the Port Qasim Authority. Once streamlined, this is expected to enhance Flow Petroleum's operational capabilities. The current supply chain-related challenges may also improve. However, transpiring the transaction and the modalities as per the pre-defined timeline remains imperative. Currently, the Company is facing significant pressure from the increasing cost of sales, leading to a lower business margin. This has stretched the Company’s profitability. On the financial risk front, the Company maintains adequate coverages and a stable working capital cycle. Capital structure remains robust and has kept the leverage at an adequate level. Streamlining the governance framework bodes well for the Company.

Key Rating Drivers

The ratings are dependent on Flow Petroleum’s ability to improve market penetration along with business margins. Successful and timely materialization of the Company's strategic initiatives (retail expansion, making TRL operational, and incorporating lubricants into the revenue stream) remains imperative to the ratings. Streamlining the governance framework remains crucial.

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

Flow Petroleum (Pvt.) Limited

rating analysis

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Profile
Legal Structure

Flow Petroleum (Pvt.) Limited ('Flow Petroleum' or 'the Company') was incorporated as a private limited company in Feb-17 under the repealed Companies Act, 20'17.


Background

Rana Muhammad Aslam (Late) initiated the business in the early 1980s under the name "Aslam Oil Traders"(the Group), concentrating on logistics and establishing a significant presence. Starting on a modest scale, the Company has since expanded its operations and grown its reach. In a strategic decision to enter the oil marketing sector, Flow Petroleum was established in Feb-17 and registered with the Securities and Exchange Commission of Pakistan. The Company acquired an OMC licence on April 05, 2018.


Operations

The Company is engaged in the procurement, storage, distribution, marketing, and import of petroleum products and lubricants. With a network of ~125 retail outlets, the Company has a storage capacity of 5,623MT at Fakirabad, and is also constructing two new storage sites at Daulatpur and Kohat with an approximate cumulative storage capacity of 12,229MT. Lately, the Company has merged the Group's investment in Quality 1 Petroleum with and into Flow Petroleum. This has expanded the Company's retail network to ~450 total stations out of which ~250 are operational, and the management is gradually integrating them into Flow Petroleum. The merger has added ~11,095 MTs to the Company’s storage capacity.


Ownership
Ownership Structure

Ownership of the Company lies with two brothers, Mr. Muhammad Waris, holding ~51%, and Mr. Muhammad Asif, holding ~49% of the shares.


Stability

The ownership structure has been stable since the Company's inception and is anticipated to remain unchanged in the foreseeable future.


Business Acumen

Flow Petroleum benefits from its affiliation with the Group, which has been active in the petroleum, oil, and lubricants (POL) business since the 1980s. This connection provides the Company with valuable experience and industry-specific knowledge. Moreover, the Company is led by experienced professionals in Pakistan's oil sector, reinforcing its strong business acumen.


Financial Strength

The Company's sponsors have demonstrated unwavering dedication to providing comprehensive support. The Group's platform serves as a solid foundation, bolstering the Company's financial strength. The sponsors have stakes in various businesses, including Aslam Energy, Aslam Sons, and Flow Base.


Governance
Board Structure

The Board primarily comprises family members, specifically two brothers, Mr. Muhammad Waris and Mr. Muhammad Asif. Recently, the Company onboarded two Independent Directors and a Non-Executive Chairman, Mr. Haroon Rashid, who has strengthened the Company's decision-making process.


Members’ Profile

Mr. Muhammad Waris serves as the CEO and brings in an extensive experience of over 18 years in the petroleum industry. He has been actively engaged at the executive level across all stages of business operations. His exceptional mindset and leadership qualities have provided the vision and determination propelling Flow Petroleum. In addition to his technical expertise, he holds a Bachelor’s degree in Mechanical Engineering from NUST. Furthermore, the other member of the Board also possesses significant experience in the oil and marketing industry.


Board Effectiveness

The Board operates efficiently through HR and Audit Committee. Meetings of these committees are conducted on a frequent basis to address potential opportunities and devise strategic plans for the Company. However, there is room for improvement to help the Board deliver its strategic goals and objectives. 


Financial Transparency

The External Auditors of the Company, M/s. BDO Ebrahim & Co. Chartered Accountants expressed an unqualified opinion on the Financial statements for FY24. The firm is QCR rated and is placed in category A of the SBP's panel of auditors.


Management
Organizational Structure

Flow Petroleum deploys a horizontal organizational structure which functions across four key areas: (i) Retail & Commercial, (ii) Finance & Accounts, (iii) Marketing & Sales, and (iv) HR & Admin. Each department is managed by respective Heads that reports directly to the CEO. He then, with consent of the Board, makes pertinent decisions. The CEO is the man at the last mile.


Management Team

Mr. Muhammad Waris is the CEO of Flow Petroleum and has extensive experience of more two decades in the Retail & Oil Transportation sector. He has been associated with the Company since its inception. He is supported by a team of skilled professionals.


Effectiveness

Flow Petroleum constituted one committee at the managerial level, Risk Management Committee, which is involved in strategic decisions. Meetings are conducted as and when required and no formal minutes are documented.


MIS

The Company has installed SAP that integrates well with all business functions, and readily generate management reports.


Control Environment

The Company has outsourced its internal audit department to M/s. PKF F.R.A.N.T.S. This partnership enhances risk management, control, and governance processes, as well as improves business practices by establishing standard operating procedures (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, Flow Petroleum captured a market share of ~1% based on total sales.


Revenues

During FY24, the revenue of the Company witnessed a substantial improvement of ~22.6% and clocked at ~PKR 59,641mln (FY23: ~PKR 48,632mln). Improvement in revenue was attributed to price change coupled with improvement in volumetric sales. Going forward, improvement in volumetric sales is anticipated as the Company progresses to increase market concentration.


Margins

Owing to high operational expenses and the mismanagement of resource deployment during FY24, the Company's overall margins posted a decline. Gross margin decreased to ~2.5% (FY23: ~5.5%). Similarly, the operating margin declined to ~1.7% during FY24 (FY23: ~4.8%), owing to trickling-down impact. The net profit margin of the Company was reported at ~0.1% (FY23: ~5.3%). Moving forward, the Company’s margins are expected to remain stable.


Sustainability

The Company recently developed two new storage facilities in Daulatpur and Kohat, which will augment its storage capacity by 12,000 MT and expand its retailer network. Flow Petroleum has also acquired a ~51% stake in TransAsia Refinery Limited (TRL). The modalities of this transaction remain imperative; however, this investment is expected to enhance the operational capabilities of the Company, if and when operational.


Financial Risk
Working capital

As of FY24, Net Working Capital days increased to ~37 days (FY23: ~33 days). This increase was due to the Company's trade receivable days and inventory days increasing to  ~21 days as of FY24 (FY23: ~16 days) and ~33 days as of FY24 (FY23: ~22 days), respectively. Meanwhile, trade payable days of the Company increased to ~17 days as of FY24 (FY23: 5 days). During FY24, the Company's total leverage was reported at ~(-12.2)% (FY23: ~2.5%,) showing that the Company has no further room to safely borrow, increasing its financial risk.


Coverages

As of FY24, the Company observed a decline in the interest coverage ratio, reported at ~16.7x (FY23: ~39.0x); however, it still remains sufficient to meet short-term obligations. This reduction is attributed to a significant increase in finance costs. As of FY24,  the Company's finance cost stood at ~PKR 114mln (FY23: ~PKR 36mln). The Company experienced low net income, influenced by the high financing costs, resulting in decreased EBITDA, ultimately impacting the interest coverage ratio. Moving forward, the Company's coverage will remain stable.


Capitalization

The Company's capital structure remained leveraged; however, it showed a significant improvement as of FY24 and reported a debt-to-equity ratio of ~54.1% (FY23: ~65.6%). This positive shift can be attributed to a significant decline in credit bills for imports (FY24: ~PKR 3,993mln, FY23: ~PKR 6,890mln). On the other hand, the Company's equity increased to ~PKR 3,954mln in FY24, up from ~PKR 3,918 mln in FY23. To meet working capital requirements, the Company is highly dependent on STB, which stood at ~PKR 4,056mln in FY24 (FY23: ~PKR 6,942mln).
 
 

May-25

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Flow Petroleum (Pvt.) Limited

financial summary

(PKR mln)

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Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 3,308 2,021 800
2. Investments 0 0 0
3. Related Party Exposure 2,706 2,360 0
4. Current Assets 10,801 9,911 2,595
a. Inventories 5,918 4,932 948
b. Trade Receivables 3,336 3,547 776
5. Total Assets 16,815 14,293 3,395
6. Current Liabilities 8,126 2,778 1,017
a. Trade Payables 4,315 1,198 177
7. Borrowings 4,115 6,942 900
8. Related Party Exposure 548 543 439
9. Non-Current Liabilities 73 112 63
10. Net Assets 3,954 3,918 976
11. Shareholders' Equity 3,954 3,918 975
B. INCOME STATEMENT
1. Sales 59,641 48,632 15,882
a. Cost of Good Sold (58,151) (45,961) (14,260)
2. Gross Profit 1,490 2,671 1,622
a. Operating Expenses (498) (322) (303)
3. Operating Profit 992 2,349 1,319
a. Non Operating Income or (Expense) (237) 620 (404)
4. Profit or (Loss) before Interest and Tax 755 2,969 915
a. Total Finance Cost (114) (36) (18)
b. Taxation (602) (361) (346)
6. Net Income Or (Loss) 38 2,572 551
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 1,208 823 892
b. Net Cash from Operating Activities before Working Capital Changes 1,131 799 882
c. Changes in Working Capital (10) 263 (683)
1. Net Cash provided by Operating Activities 1,121 1,062 199
2. Net Cash (Used in) or Available From Investing Activities (1,338) (1,078) (140)
3. Net Cash (Used in) or Available From Financing Activities 197 45 2
4. Net Cash generated or (Used) during the period (21) 28 61
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 22.6% 206.2% 262.1%
b. Gross Profit Margin 2.5% 5.5% 10.2%
c. Net Profit Margin 0.1% 5.3% 3.5%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 2.0% 2.2% 1.3%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 1.0% 105.1% 84.7%
2. Working Capital Management
a. Gross Working Capital (Average Days) 54 38 22
b. Net Working Capital (Average Days) 37 33 18
c. Current Ratio (Current Assets / Current Liabilities) 1.3 3.6 2.6
3. Coverages
a. EBITDA / Finance Cost 23.6 65.4 161.4
b. FCFO / Finance Cost+CMLTB+Excess STB 0.8 11.3 152.1
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 1.8 0.7 0.5
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 54.1% 65.6% 57.9%
b. Interest or Markup Payable (Days) 45.4 26.4 0.0
c. Entity Average Borrowing Rate 1.3% 0.4% 0.7%

May-25

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Flow Petroleum (Pvt.) Limited

rating scale

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May-25

www.pacra.com

Flow Petroleum (Pvt.) 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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  3. Conduct of Business
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May-25

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