PACRA Assigns Initial Entity Ratings to Sitara Petroleum Service (Private) Limited

Lahore, May 16, 2019 (PPI-OT): The ratings reflect the strong business profile of Sitara Petroleum Service (Private) Limited. Sponsors have been engaged in the business for over three decades and reflect grips on the dynamics of the industry. The company is primarily engaged in two business segments namely i) Trading and distribution of diesel, petrol, related products. This segment is further split into retail and bulk units. Under the retail side, the company operates a network of ~27 retail stations which is mainly spread out in the Punjab region whereas, under the bulk segment the company provides PoL product directly to customers ii) Furnishing fleet logistic services (Carriage income) to various OMCs. The sponsor’s long association with these business lines is being considered positive.

Company’s prime profits are being generated from the fleet logistic business. It carries ~70% share in the gross profit, followed by retail (~21%) and bulk business segments (~9%). Over the years share of profit from the fleet logistic division is soaring while retail and bulk segments are also supplementing the profitability. In most segments, Sitara’s margins are regulated not negotiated. Company’s fleet logistic revenue is primarily (~90%) coming from Gas and Oil Company (GO) which is a group company. This is considered a plus. The Company’s financial risk profile is characterized by adequate leveraged capital structure.

This along with improved cash flows help manage the financial risk. Adequate coverage lend support to financial profile. Management, being cognizant of the current industry situation, is embarking on functionalizing an Oil Marketing company to augment and diversify its revenue stream. The company is planning a debt instrument in a bid to build a depot at Port Qasim, Karachi; this, in turn, may lead to upping in the leverage capital structure, which remains aligned with the assigned rating.

The CAPEX will be cushioned by internal cash generation. Of late, the company has refined its control and governance structure. ‘Category A’ auditor – on the panel of auditors maintained by SECP – has been appointed. The finance team has been strengthened. The overall governance framework is also being augmented.

The ratings are dependent on the management’s ability to sustain its business volumes while holding the margins. With the new debt to be acquired, maintenance of coverage would remain important. Sustaining the business and financial profile along with effective changes in governance framework would be beneficial for the ratings. Meanwhile, financial transparency is considered important.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com

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