4. 3
EXECUTIVE SUMMARY
As Pakistan’s largest oil marketing company, Pakistan State Oil, in discharge of its professional
duties directly impacts the lives of 2.5 million individuals on a daily basis. However, its vast
outreach is not the only measure of PSO’s commitment to the nation.
The company consistently goes beyond its professional duties to meet head-on the challenge of
social change by taking active responsibility in good corporate citizenship.
Pioneering initiatives by PSO in this regard touch many more people; outside its customer base,
offering them life improvement opportunities and possibilities of brighter future. The effort is to
positively impact Pakistan’s progress through the development of its human capital.
PSO’s efforts in the preservation of environment have been recognized and lauded by National
Forum for Environment & Health, Cleaner Air Initiative (CAI) and other reputed bodies. The
company provides charitable donations and educational scholarships and conducts vigorous
internship programs for students and management courses for professionals. Alongside, it
regularly sponsors awareness programs to inculcate traffic and road safety sense as they’ll as
those that focus on heritage preservation.
The company’s efforts for progressive change are diverse and widespread from enabling rural
empowerment to providing assistance in ensuring a crime-free urban society to the protection of
consumer rights in developing countries.
Today, PSO takes justifiable pride that it is a globally recognized role model of entrepreneurial
quality and good governance. Along with that the company also cherishes its role as an agent-of-
change, transcending its mandate to reach out to touch the lives of people for a better, brighter
tomorrow.
5. 4
HISTORY
The creation of Pakistan State Oil (PSO) can be traced back to the year 1974, when on January
1st; the government took over and merged Pakistan National Oil (PNO) and Dawood Petroleum
Limited (DPL) as Premiere Oil Company Limited (POCL).
Soon after that, on 3rd June 1974, Petroleum Storage Development Corporation (PSDC) came
into existence. PSDC was then renamed as State Oil Company Limited (SOCL) on August 23rd
1976. Following that, the ESSO undertakings were purchased on 15th September 1976 and
control was vested in SOCL. The end of that year (30th December 1976) saw the merger of the
Premier Oil Company Limited and State Oil Company Limited, giving way to Pakistan state Oil
(PSO).
After PSO’s inception, the corporate culture underwent a comprehensive renewal program which
was fully implemented in 2004. This program over the years included the revamping of the
organizational architecture, rationalization of staff, employee empowerment and transparency in
decision making through cross functional teams. This new corporate renewal program has
divided the company’s major operations into independent activities supported by legal, financial,
informative and other services. Inorder to reinforce and monitor this structural change, related
check and balances have been established by incorporating monitoring and control systems.
Human Resource Development became one of the main priorities on the company’s agenda
under this corporate reform.
It is due to this effective implementation of corporate reform and consistent application of the
best industrial practices and business development strategies, that PSO has been able to maintain
its market leadership in a highly competitive business environment.
BACKGROUND
The consumption and demand for petroleum products are increasing every year due to increase
in population, standard of living and urbanization. The domestic oil production and supply are
not in position to cater the country’s total energy demand. This results in dependence on foreign
imports. According to the report of the Oil Companies Advisory Committee (OCAC) dated June
8, 2008, Pakistan consumes around 8 million tons of diesel and 7.2 million tons of furnace oil per
year. Around 9 million tons of diesel and furnace oil is imported out of which Pakistan State Oil
alone imports 3.4 million tons of diesel and 4 million tons of furnace oil. The emissions of gases
from burning of these fuels have adversely affected the environment. Pakistan is a low
greenhouse gas (GHG) emitting country contributing 0.43% of the world’s total emissions (35th
in world’s ranking)1 . However, the low GHG emission status of the country provides no safety
from the adverse effects of global climate change. Pakistan being an agricultural based economy,
6. 5
lying in arid and semi-arid region, with heavy dependence on irrigated agriculture, is highly
vulnerable to climate change. Fossil-based reserves provide most of the world’s energy
requirements. These Oil resources are declining and are becoming more difficult to explore.
Moreover the extensive use of these fuels in meeting the energy requirement is changing the
earth’s climate at an unprecedented rate, impacting both physical and biological systems. The
emission of greenhouse gases has considerably caused global warming. Temperature increases
have been linked to rising tropical hurricane activity and intensity, more frequent heat waves,
drought, and changes in infectious disease. The 4th Assessment Report of the Intergovernmental
Panel on Climate Change (IPCC) 2007 indicates that “Global temperature rises of 2 - 4.5° C are
almost inevitable due to increased concentration of greenhouse gases caused by human activities
(fossil fuel use, land use changes etc). This change in climate is expected to have serious impacts
on agricultural production, biodiversity, health and disasters.
MISSION
Professionally trained, high quality,
motivated workforce, working as a
team in an environment, which
recognizes and rewards performance,
innovation and creativity, and
provides for personal growth and
development
Lowest cost operations and assured
access to long-term and cost effective
supply sources
Sustained growth in earnings in
real terms
Highly ethical, safe environment
friendly and socially responsible
business practices.
VISION
To excel in delivering value to customers as an innovative and dynamic energy company that
gets to the future first.
7. 6
CORE VALUES
Excellence
We believe that excellence in our core activities emerges from a passion for satisfying our
customers' needs in terms of total quality management. Our foremost goal is to retain our
corporate leadership.
Cohesiveness
We endeavor to achieve higher collective and individual goals through team. This is inculcated
in the organization through effective communication.
Respect
We are an Equal Opportunity Employer attracting and recruiting the finest people from around
the country. We value contribution of individuals and teams. Individual contributions are
recognized through our reward and recognition program.
Integrity
We uphold our values and Business Ethics principles in every action and decision. Professional
and personal honesty, dedication and commitment are the landmarks of our success. Open and
transparent business practices are based on ethical values and respect for employees,
communities and the environment.
Corporate Responsibility
We promote Health, Safety and Environment culture both internally and externally. We emphasize on
Community Development and aspire to make society a better place to live in
Supplying the Needs of the Nation
PSO being mindful of increasing energy needs of the country managed to maintained uninterrupted
POL supplies to all its customers including the defense, power, retail, industrial, aviation, marine and
export customers. In view of limited product availability from domestic refineries, PSO arranged
movement of imported PMG to upcountry locations from Karachi in FY12. Similarly owing to the
needs of the power sector, PSO aligned all its resources to ensure maximum supplies to power sector
customers through road network thus averting any dry out situation at power plants.
8. 7
KEY ACCOUNTS OF COMPANY
PIA
Pakistan Army
Pakistan Air force
Pakistan Navy
Power Projects
EXISTING SALE FORCE
The division of a business that's responsible for selling products or services.
For Petrol Filling
For Car Wash
Helpers
Cashier
The sale force is selected by the dealers not by company but company provides essential
training to the hired employees.
9. 8
PORTFOLIO RISK & RETURN:
PORTFOLIO RISK
Each investment carries a risk of loss. The higher the potential returns, the
higher the risk. If you hold a portfolio with many investments, each of those investments carries
its own risk. All of the investment risks combined result in an overall risk you have exposed your
portfolio to.
PORTFOLIO RETURN
It can be calculated on a daily or long-term basis to serve as a method of assessing
a particular investment strategy. Dividends and capital appreciation are the main components of
portfolio returns.
PSO’s Portfolio Risk
Price Return R-R^ (R-R^)²
2002 211.5 ----- ----- -----
2003 288.55 0.3643026 -1.37883369 1.90118234
2004 286.75 0.00623808 -1.73689821 3.01681539
2005 416.85 0.45370531 -1.28943098 1.66263225
2006 291.6 -0.30046779 2.04360408 4.17631763
2007 406.6 0.39437585 -1.34876044 1.81915472
2008 144.58 -0.64441711 2.3875534 5.70041123
2009 297.44 1.05726933 2.80040562 7.84337163
2010 295.18 -0.00759817 1.75073446 3.06507114
2011 277.21 -0.06087810 1.80201439 3.25446791
2012 231.8 -0.16381082 1.90694711 3.63644728
AVERAGE RETURN = 1.74313629
STANDARD DAVIATION=1.89936493
COEFFFICIENT OF VARIATION= 1.08962502
: ~ return …….. (P-P^)/P
10. 9
SALES FORECASTING
PSO balance sheet
For the year ended 2015
Assets 2015 2014 2013 2012 2011 2010
Current assets 353204 313,514 224,356 337,796 252,815 193,37
3
Non-current
assets
58637 58,637 57,593 10,469 9,858 8,875
Total assets 411841 372151 281949 348265 262673 202248
Total liabilities 330691 293,530 221,307 299,931 220,770 172,91
2
share holder
equity
78621 78,621 60,643 48,334 41,903 29,336
Total
liabilities and
equity
409312 372151 281949 348265 262673 202248
11. 10
PSO INCOME STATEMENT
For the year ended 2015
2015 2014 2013
Net sales 1337994 1,187,639 1,100,122
Cost of goods sold (1245811) (1150815) 1063613
Gross profit 41485 36824 36,509
Other income 22598 20,059 6,510
Marketing &
Administrative
Expenses
10480 10,480 10,207
Other expenses 541 541 2918
Operating Profit /
(Loss)
49172 42513 29148
Finance Cost 9544 9,544 7,591
Profit / (Loss)
before Tax
39628 32,969 19,210
Profit / (Loss) after
Tax
15851 21,818 12,638
EBITDA 23777 43,567 27,840
g= 12.66%
A*=313,514
So=1,187,639
S∆= 150355
L*=293,530
M= 3.7
S1=1337994
RR= 0.058
13. 12
STOCK VALUATION
In financial markets, stock valuation is the method of calculating theoretical values of companies
and their stocks.
FORMULA:
Po = Do (1+g)
r – g
Do (1+g) = D1
Where,
D1 = Rs.6
G = 9%
R = 17.1%
Therefore,
Po = 6/0.171-0.09
= PRs. 74.07 per share.
TOTAL RETURN
14. 13
DIVIDEND YEILD + CAPITAL GAIN
Dividends paid to per common share.
DIVIDEND YEILD:
Pakistan State Oil Co Ltd's Dividend Yield (%) for today is:
DIVIDEND YIELD= Most recent dividend yield/ current share price
=3.6/363.57
= 0.99%
CAPITA GAIN:
𝑃1 − 𝑃𝜊
𝑃𝜊
=
363.5− 307.53
307.53
= 0.1819
= 18.19%
Total return = .99 + .1819
= 1.1719
OPERATING FREE CASH FLOW
Free Cash Flow is considered one of the most important parameters to measure a company’s
earnings power by value investors because it is not subject to estimates of Depreciation,
Depletion and Amortization (DDA). However, when we look at the Free Cash Flow, we should
look from a long term perspective, because any year’s Free Cash Flow can be drastically affected
15. 14
by the spending on Property, Plant, & Equipment (PPE) of the business in that year. Over the
long term, Free Cash Flow should give pretty good picture on the real earnings power of the
company.
= EBIT (1-TAX) + DEPRECIATION - CAPITAL EXPENDITURE - Δ IN WORKING
CAPITAL
= 18309M (1-0.40) + 373.15 - 330 - 4199
= 6829.55
ASSUMPTION:
We have assumed Tax rate is 40%.
WEIGHTED AVERAGE COST OF CAPITAL (WACC)
The weighted average cost of capital (WACC) is the rate that a company is expected to pay on
average to all its security holders to finance its assets. The WACC is commonly referred to as the
firm's cost of capital. Generally speaking, a company's assets are financed by debt and equity.
WACC is the average of the costs of these sources of financing, each of which is weighted by its
respective use in the given situation. By taking a weighted average, we can see how much
interest the company has to pay for every dollar it finances.
As of Jun. 2014, Pakistan State Oil Co Ltd's interest expense (positive number) was $0 Mil. Its
total Book Value of Debt (D) is $54795.3775 Mil.
Cost of Debt = 0 / 54795.3775 = 0%.
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market -
Risk-Free Rate of Return)
The current risk-free rate is 2.19%.
Beta is the sensitivity of the expected excess asset returns to the expected excess market returns.
Pakistan State Oil Co Ltd's beta is 0.00.
16. 15
(Expected Return of the Market - Risk-Free Rate of Return) is also called market premium that is
7.5%.
WACC = WdKd (1 – t) + WeKe
= 0% * 0.3568 * (1-0.40) + 0.6432 * 2.19%
= 0 + 0.0140
= 1.41%
As of today, Pakistan State Oil Co Ltd's weighted average cost of capital is 1.41%.
Pakistan State Oil Co Ltd's return on invested capital is 6.42%. Pakistan State Oil Co Ltd
generates higher returns on investment than it costs. A firm that expects to continue generating
positive excess returns on new investments in the future will see its value increase as growth
increases.
