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c Attock Refinery Ltd. (ATRL)

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Final Project: Security Analysis (FIN5063)

Presented To: Prof.Hafiz Tauseef Ahmed

Presented By:

Zubair Ayub L1F08MBBF2004

Faisal Faiz L1F08MBBF0028

Syed Sannan Ahmed L1F08MBBF2010

Submission Date: 17 June 2010

Semester: Spring (S10)

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All of the group members had a great experience while making this kind of
project. It was very difficult for us to make such kind of project because we had
never made any project in this form. There was a lot of burden on us while making

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this project due to less availability of time. But we start working on project with the
name of Allah«And at the end of the project we realize that it will help us alot in
our final thesis and our future career«

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We were expected to make this project according to the terms and condition, which
were communicated to us by our instructor, to avoid copying of any previously

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submitted project, give the professional look to the project by avoiding mistakes.
And to insert the main outlines in the project..

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With the help of Allah, all the group members have made a lot of effort to meet the
above mentioned expectations. We did not copy the project or even a single page of
project from the previously submitted project, work on all the outlines which were

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communicated to us. And presenting this project on Attock Refinery Ltd. for the
first time in this university.

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Zubair Ayub Faisal Faiz Syed Sannan Ahmed
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Thanks to Allah for providing usc the strength, courage, direction and
skills to learn, acquire knowledgec and the ability to accept and meet
challenges. c

Secondly we would like to thankc our instructor Prof. Hafiz Tauseef

Ahmed, who have helped in all cthose stages where we were facing
difficulties & problems. And provided
c his assistance to us in the form
of advice and suggestions. whose
c encouragement, guidance and
support from the initial to the final level enabled us to develop an
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understanding of the project. I would also like to thank all those senior
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students who helped us and guide us where their help was needed.
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Lastly, I offer my regards and blessings
c to all of those who supported
me in any respect during the completion of the project.
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Table of Contents c

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mc [xecutive Summary««««««««««Pg 6
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mc Introduction«««««««««««««.Pg 7
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[conomic Analysis««««««««««.Pg 8
mc Industry Analysis & Company
c Analysis««««
mc r Projections««««««««««««««..
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mc rCalculation of Ratios««««««««««.
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mc rCalculation of expected Return««««««..
mc rBeta of Company................................................
mc rCalculation of CAPM««««««««««.
mc Suggestions«««««««««««««««
mc Bibliography«««««.....................................

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[xecutive Summary
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One of the requirement of our project is to choose the company that should be listed in stock
exchange of pakistan and to make complete fianacial analysis to get entire information about
company performance and functionality.Attock Refinery Limited (Attock Refinery) is an energy
company. It is engaged in refining of crude oil and supplying of refined petroleum products. It
has its operations in Pakistan. The company is headquartered in Rawalpindi, Pakistan.. Attock
Refinery was incorporated as a private limited company in order to take over the business of the
Attock Oil Company Limited (AOC), which was into refining of crude oil and supplying of
refined petroleum products."Attock Refinery Limited (Attock Refinery) is listed on all three
stock exchange of pakistan like Karachi stock [xchange , Lahore stock exchange and Islamabad
Stock exchange and it also has a good reputation in stock exchange market. The report provides
a comprehensive insight into the company, including business structure, operations, executive
biographies and competitors.This project include a complete economic analysis in which we
have discussed Gross domestic products (GDP) , Gross National Product (GNP) , Government
policies and political system etc.Company alalysis and industry analysis also included in this
project to give the complete overview of this company.This report contain financial analysis of
Attock Refinery Limited in order to check the current market position of the company and two
years projections to check the market position in future.The company analysis include
company¶s comparability, , sales trends , size of the firm , income statement pre-adjusted and
adjusted and pre-adjusted and adjusted balance sheet. We have also done the calcutation of Beta ,
CAPM , ratios their interpretations and expected rate of return as well. We performed ratio
analysis which includes Current Ratio , Quick Ratio , Total Debt Ratio , Time Interest [arned
Ratio , Inventory Turnover Ratio , Total Asset Turnover ratio , Profit Margin Ratio ,Return On
equity , Return On Assets , [arning Per Share , Receivable turnover Ratio and we also give some
suggestions.These analyses have been conducted in full detail In order to make final decisions
for Attock Refinery Limited value. On the basis of results from projections of the Attock
Refinery limited and the market return of Attock Refinery Limited in future, we made our
decision to about the investment in Attock Refinery Limited and how to manage the investment.

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Introduction
The installed oil refining capacity in Pakistan has remained stagnant for many years in spite of
increase in consumption of energy products. To meet the increasing domestic demand of energy
products the country is dependent on imports. The industry experts attribute this to many factors
including limited production of indigenous crude ² that too contains very high percentage of
wax, the pricing formula, an acute shortage of capital required to build modern refining complex
and establishment of large scale refineries in the Middle [ast and Singapore. While the refineries
in the Middle [ast have the advantage of indigenous crude at very low price the refineries in
Singapore enjoy the advantage of their scale of operation and efficiency. Pakistan enjoying very
cordial relationship with the Middle [astern countries continue to import bulk of its requirements
from Kuwait and Saudi Arabia.

Attock Refinery Limited (ATRL) was incorporated as a Private Limited Company in November,
1978 to take over the business of the Attock Oil Company Limited (AOC) relating to refining of
crude oil and supplying of refined petroleum products. It was subsequently converted into a
Public Limited Company in June, 1979 and is listed on the three stock exchanges of the country.
The Company is also registered with Central Depository Company of Pakistan Limited.Attock
Refinery Limited (ATRL¶s) principal activity is to refine crude oil. It also produces premium
motor gasoline, high speed diesel, kerosene oil, furnace fuel oil, low sulfur furnace fuel oil,
aviation fuels, paving asphalt, cut back asphalt, polymer modified bitumen, mineral turpentine,
light diesel oil, naphtha, liquefied petroleum gas, Jute batching oil and solvent oil. The Company
operates in Pakistan.

Attock Refinery Limited (ATRL) is the pioneer of crude oil refining in the country with its
operations dating back to 1922. Backed by a rich experience of more than 85 years of successful
operations, ATRL¶s plants have been gradually upgraded/replaced with state-of-the-art hardware
to remain competitive and meet new challenges and requirements. The following companies are
the major competitors of Attock Refinery Limited: Bosicor Pakistan Limited, Pakistan Refinery
Limited & National Refinery Limited.

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[conomic Analysis
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Islamic Republic of Pakistan


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Quaid-e-Azam Muhammad Ali Jinnah


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Asif Ali Zardari (President)

Yousaf Raza Gillani (Prime Minister)

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Punjab

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Balochistan

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Slaman Taseer (Governor)

Mian Shahbaz Shareef (Chief Minister)


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Syed Qaim Ali Shah (Chief Minister)

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Owais Ahmed Ghani (Governor)

Ameer Haider Hoti (Chief Minister)

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Zulfiqar Ali Magsi (Governor)

Nawab Aslam Raisani (Chief Minister)

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Balochistan p PK.BA PK02 6,565,885 347,190 134,051 Quetta

Khyber-Pakhtunkhwa p PK.NW PK03 17,743,645 74,521 28,773 Peshawar

Punjab p PK.PB PK04 73,621,290 205,344 79,284 Lahore

Sindh p PK.SD PK05 30,439,893 140,914 54,407 Karachi

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Main cities of Pakistan and their estimated population is given below:

The population of Karachi at 13,386,730, Lahore 7,214,954, Faisalabad 2,912,269, Rawalpindi

2,013,876, Gujranwala 1,676,357, Multan 1,610,180, Hyderabad 1,521,231, Peshawar
1,386,529, Islamabad 972,669 and Quetta 871,643.c

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Pakistan Gross Domestic Product (GDP) expanded 2.00% over the last 4 quarters. The Pakistan
Gross Domestic Product is worth 168 billion dollars or 0.27% of the world economy, according
to the World Bank. Pakistan's economy has suffered in the past from decades of internal political
disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing
confrontation with neighboring India. However, IMF-approved government policies, bolstered
by foreign investment and renewed access to global markets, have generated solid
macroeconomic recovery during the last decade. This page includes: Pakistan GDP Growth Rate
chart, historical data and news.

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The Pakistani-administered portion of the disputed Jammu and Kashmir region (Azad Kashmir
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Pakistan is the member of following organization UNO, SAARC, [CO, SAFTA, AS[AN,
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GDP growth in Pakistan¶s export markets is likely to continue to fall sharply in 2009, which
would translate into a starker-than-projected decline of Pakistan¶s export growth in the medium
term, put pressure on Pakistan¶s external balances and complicate growth recovery.

Risks to the domestic financial sector may increase, and it seems almost certain that even the
downward revised revenue target will not be met in this fiscal year. Stringent implementation of
the government¶s IMF-supported economic stabilization program will be critical to success, and
timely responses of fiscal and monetary authorities to emerging risks will be essential to ensure it
remains on track.

Pakistan¶s macroeconomic imbalances are rooted in the sharp rise in international prices of oil
and food in 2007/08, combined with policy inaction and internal political turmoil. To avoid a
balance of payments crisis and default on foreign debt payments, the authorities developed the
stabilization program, which was supported by the IMF through a 23-month Stand-By
Arrangement (SBA) in November 2008. The program includes a medium-term macroeconomic
framework with fiscal and monetary tightening to bring down inflation and reduce the external
current account deficit to sustainable levels. At the first quarterly review of the SBA in February
2009, the stabilization program remained on track.

The rapid decline in international commodity and oil prices since August 2008 has reduced the
risks, facilitated improvement in the external position and the achievement of targets. However,
given the global economic crisis, the medium-term outlook presents significant downside risks.
The sharp deterioration in the global economic and financial outlook poses significant risks to
exports, remittances and external financing. [ven though projections in these areas as well as

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forecasts about the speed of real economy recovery were significantly moderated during the first
program review in February 2009, they may still turn out to be optimistic.

In 2007/08, the sharp rise in international prices of oil and food (specifically Wheat), in
combination with policy inaction and internal political turmoil, led to rapidly expanding
macroeconomic imbalances in Pakistan. Both fiscal and current account balances widened
significantly. In the absence of adequate remedial policy measures to address the imbalances ± in
particular not passing on the international price increases to domestic consumers ± the economy
begun to adjust through a slowdown in growth and rising inflation. Spending overruns led to a
sharp increase in the 2007/08 fiscal deficit to 7.4 percent of GDP, compared to the budget target
of 4.0 percent of GDP. [xpenditures exceeded the budget target by about 2.9 percent of GDP,
while revenues fell short of the target by about 0.6 percent of GDP.

About 80 percent of the fiscal deficit increase was driven by international oil and commodity
price increases. The rise in the budget deficit was mostly caused by the overrun of 2.7 percent of
GDP in budgetary subsidies (to 3.8 percent of GDP from the budget target of 1.1 percent of
GDP) owing to the spike in international commodity and oil prices . From 2006/07 to 2007/08,
the domestic price of Pakistani oil imports increased by about 60 percent on average. Yet, in an
attempt to protect households and businesses from domestic price adjustments, the government
kept domestic petroleum prices unchanged until March 2008. This resulted in overruns of 1.4
percent of GDP in the petroleum, oil, and lubricants (POL) subsidy, and of 0.6 percent of GDP in
the electricity subsidy. Furthermore, the rise in international wheat and fertilizer prices led to an
overrun of 0.5 percent of GDP in expenditure on the wheat and fertilizer subsidy.

According to [conomic Survey 2008-09, launched jointly by Advisor to Prime Minister on

Finance, Shaukat Tarin and Minister of State for Finance, Hina Rabbani Khar, the economic
growth of 2.0 percent seems reasonable although it implies definite slippage against 4.1 percent
growth of last year and this year¶s target of 4.5 percent.

Addressing the press conference, Shaukat Tarin said that the economic growth of Pakistan
should be looked in the backdrop of global recession where positive growth is a rare exception.

He said that microeconomic crisis, trade shock, global recession and domestic security
challenges were the main hurdles in the way of economic growth of the country during the
current financial year. He described the year 2008-09 as µYear of consolidation¶ for the revival of
economy, saying that the current government inherited economic setbacks from the previous
government.

Advisor to Prime Minister on Finance, Shaukat Tarin said that the agriculture sector depicted a
stellar growth of 4.7 percent, as compared to 1.1 percent witnessed last year and the target of 3.5
percent for the year. However, the overall FBR tax collection remained less than satisfactory and
witnessed deceleration in real terms. Resultantly, the FBR tax collection to GDP ratio is likely to
deteriorate to around 9 percent of GDP as against the target of bringing it in the vicinity of 10
percent of GDP.

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Tarin said that FBR would broaden its tax base by bringing those services and other sectors into
the tax net who are still avoiding tax payment but contributing to the GDP.

Output in the manufacturing sector contracted by 3.3 percent in 2008-09 as compared to

expansion of 4.8 percent last year and target of 6.1 percent. Small and medium manufacturing
sector maintained its healthy growth of last year at 7.5 percent.Large-scale manufacturing
depicted contraction of 7.7 percent as against expansion of 4.0 percent in the last year and 5.5
percent target for the year.He added that the massive contraction has been because of acute
energy outrages, security environment and political disruption in March 2009.The services sector
grew by 3.6 percent as against the target of 6.1 percent and last year¶s actual growth of 6.6
percent.

Value-added in the wholesale and retail trade sector grew at 3.1 percent as compared to 5.3
percent in last year and target for the year of 5.4 percent.

Finance and insurance sector witnessed registered negative growth of 1.2 percent in 2008-09 he
said adding that the performance of the sector shows that Pakistan¶s financial sector was
integrated in the world economy and is feeling the heat of the crisis plaguing international
financial markets.

He said that the transport sector and communication sub-sector depicted a sharp deceleration in
growth to 2.9 percent in 2008-09 as compared to 5.7 percent of last year.Pakistan¶s per capita
real income has risen by 2.5 percent in 2008-09 as against 3.4 percent last year. Per capita
income in dollar terms rose from $1042 last year to $1046 in 2008-09, thereby showing marginal
increase of 0.3 percent.Advisor to Prime Minister on Finance, Shaukat Tarin said that total
investment declined from 22.5 percent of GDP in 2006-07 to 19.7 percent of GDP in 2008-09.

He said that fixed investment decreased to 18.1 percent of GDP from 20.4 percent last year
adding that private sector investment was decelerating persistently since 2004-05 and its ratio to
GDP declined from 15.7 percent in 2004-05 to 13.2 percent in 2008-09.Public sector investment
to GDP ratio has risen persistently from 4.0 percent in 2002-03 to 5.6 percent in 2006-07.
However, it declined to 4.9 percent in 2008-09.

National savings rate has declined to 14.4 percent of GDP in 2008-09 as against 13.5 percent of
GDP last year. Domestic savings also declined substantially from 16.3 percent of GDP in 2005-
06 to 11.2 percent of GDP in 2008-09.The overall foreign investment during the first ten months
has declined by 42.7 percent and stood at $2.2 billion as against $3.9 billion in the comparable
period of last year.Foreign direct investment private showed some resilience and stood at
$3205.4 million during July-April (2008-09) as against $3719.1 million in the corresponding
period of last year, thereby showing a decline of 13.8 percent.

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Net foreign assets of the banking system recorded a decline of over Rs.227.1 billion during the
first ten months of the current fiscal year to May 9, he added.He said that the government¶s
budgetary borrowing from the banking system decreased by Rs.339.9 billion during July-May
2008-09 against an increase of Rs.360.4 billion in the same period of last financial year.

The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 22.3
percent during July-April 2008-09, as against 10.3 percent in the comparable period of last year.
The food inflation is estimated at 26.6 percent and non-food 19.0 percent against 15.0 percent
and 6.8 percent in the corresponding period of last year, he added.

The Sensitive Price Indicator has recorded increase of 26.3 percent during July-April 2008-09
against 14.1 percent of last year.He attributed the increase in inflation rate to the increase in food
price inflation. It is expected that the average inflation for the year (2008-09) as measured by
CPI will be close to 21.0 percent, he added.

Advisor to Prime Minister on Finance, Shaukat Tarin said that overall exports recorded a
negative growth of 3.0 percent during July-April 2088-09 against the positive growth of 10.2
percent in the corresponding period of last year.

Imports registered a negative growth of 9.8 percent in July-April 2009 as compared to the same
period of last year, he added.

Workers¶ Remittances totalled $6355.6 million in July-April 2008-09 as against $5319.1 million
in the comparable period of last year, depicting an increase of 19.5 percent.Tarnin said that
Foreign [xchange Reserves amounted $11.6 by the end of May 2009, reserves held by State
Bank of Pakistan stood at $8.28 billion and reserves by banks stood at $3.32 billion.

Tarin said that the government has initiated survey on poverty which would be completed in next
three months.He said that the government, under its safety net programme, has already initiated
Benazir Income Support Programme and Punjab Food Support Programme to help the vulnerable
section of the society.To a question, he said that the government would allocate considerable
allocations for the internally displaced persons and will not only rely on foreign assistance and
donors.He said that the government expects Rs.180 billion from Friends of Democratic Pakistan
in the forthcoming budget adding that IMF would also provide next tranche of grant by June end.
He said that Federal Bureau of Statistics will be given autonomy and linked with reputed
international organization to make its data reliable, transparent and acceptable to all stakeholders.

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Company & Industry Analysis

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Attock Refinery Limited (ARL) is a pioneer crude oil refining company and a major supplier of
refined petroleum products in Pakistan. It is a subsidiary of Attock Oil Company Limited, UK
and its ultimate parent is Bay View International Group S.A.

It began its operations in 1922 and was the first refinery in the region. ARL became a private
limited company in 1978 and in 1979 the company was converted into a public limited company.
It is listed on all the three stock exchanges of the country.

The company s primary activity is refining crude oil. It also produces certain petroleum products
such as liquefied petroleum gas (LPG), unleaded petroleum solvent grade (PMG), naphtha,
premium motor gasoline, mineral turpentine (MTT), JP-1 & JP-8, kerosene oil, high speed diesel
(HSD), light diesel oil (LDO), furnace fuel oil (FFO), low sulfur fuel oil (LSFO), and polymer
modified bitumen (PMB).

ARL has an edge over other refineries because of its configuration which enables it to process
the lightest to the heaviest indigenous crude and produce a complete range of both energy and
non-energy products. The non-energy products include lubes and greases, asphalt, solvent oil,
mineral turpentine (MTT), benzene toluene xylene (BTX), jute batching oil (JBO), processing
oil, carbon oil and wax.

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Attock Refinery is located in Morgah, near Rawalpindi. ARL had commenced its operations with
a capacity of 119k tpa. Now the company s capacity has reached to 1.82m tpa. The overall total
capacity of the refinery sector is 12.87m tpa. ARL with a 14.14% of total refining capacity of the
sector is the fourth largest refinery of Pakistan in terms of refining capacity.

The company is constructing a 100,000 barrels crude oil storage tanks, costing Rs 73 million and
a furnace fuel; storage tank with a capacity of 500M tons to supply fuel oil to AGL s Power
Plant. The company is further constructing other products storage tanks such as a 4000 M tons
capacity naptha storage and a Jute Batching Oil (JBO) of 500 M tons. This will help ARL
achieve more operational flexibility in the future.

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Attock Refinery Limited has is the fourth largest refinery in term of market share too. PARCO is
the market leader with 35% market share followed by PRL (17%), NRL (22%) and ARL (14%).
ARL s market share declined by 2% over the last year, and so has PARCO s, whereby NRL s
share has increased. Total Capacity is of 12.8 MTO[ per annum. ARL operates under the Import
Parity Pricing Formula whereby net profit after tax greater than 50% of paid-up capital is
required to be diverted to a special reserve to offset any future loss of make investment for
expansion or up-gradation of the Refinery. Current crude production of Pakistan is 65,000 to
67,000 barrels per day and total capacity of the refineries is 285,000 barrels per day or 12 million
tons hence 22,0000 barrels per day are imported.

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Currently, Parco works under oil refinery formula with 25 percent guaranteed rate of return up to
December 2008. The profit of NRL, PRL and ARL up to 2001-2002 is under 10 percent
guaranteed rate. The IPP formula was modified in 2002 and minimum 10 percent guaranteed
with upper limit of 40 percent was done away with. Tariff protection was allowed to NRL, PRL
and ARL giving incentive of custom/deemed duty of 10 percent on high speed diesel (HSD) and
6 percent on kerosene oil, light diesel oil (LDO) and jet propulsion (JP-4) in their ex-refinery
prices to operate on self financing basis.

The formula was further revised in 2007-08 by reducing deemed duty to 7.5 percent on HSD and
removing 6 percent deemed duty on kerosene, LDO and JP-4/8 through budgets. This reduction
in deemed duty, twined with fall in global oil prices and caused a considerable decline in the
profitability of the oil refineries.

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Share of the petroleum products is about 40 percent of the current energy consumption in
Pakistan. This consumption has grown sharply during 1980s at rate of almost 7 percent per
annum but it has shown a decreasing trend during 1990s and later it gained the pace during 2004-
2005 at about 10 percent per annum. Oil consumption in different energy products is dominated
by gasoline and fuel oil. Gasoline in Pakistan consists of High-speed diesel (HSD) and Light
speed diesel oil (LSDO), while fuel oil is normally used in terms of furnace oil, which is being
used for thermal power generation projects.

Transport and agricultural sectors are the two major users of gasoline. Transport sector, includes
both private and commercial types. In the recent years, the government of Pakistan was
providing huge subsidy over the gasoline due to which its consumption has increased. But in
2007, increase in oil prices in the international market affected Pakistan s economy due to which

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government has gradually reduced the subsidy levels; as a result, gasoline prices are increasing
locally also and affecting the consumption. Secondly, the government is promoting the
compressed natural gas (CNG) sector in Pakistan and both encouraging and forcing the transport
sector to convert on CNG.

This indicates that in the coming years Pakistan will see reduced consumption of Gasoline
products. But there is no alternative of Gasoline in Agriculture sector and as a result, this sector
is facing extreme difficulties due to rise of Gasoline process. Furnace oil or fuel oil is normally
used for production of [lectricity via thermal power plants. At the moment country is facing
extreme energy crisis and government is planning for short term power generation plants that are
oil based and also encouraging independent power producers to invest in the country. As all the
new thermal power plants are oil based and also country has now very limited natural gas
resources the consumption of furnace oil will also increase in the coming years.

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The results were in line with the industry results. The refinery sector is facing the problems due
to declining GRMs and unfavorable pricing decisions by the government. The refinery faced a
loss, albeit lower, due to adverse forex movements. The refineries due to restriction on hedging
against the forex movements facing trouble due to the rupee depreciation. Company incurred a
loss of Rs 396 million as compared to a loss of Rs 870 million in 1Q09. The exchange rate loss
was lower at Rs 127 million as compared to Rs 1240 million a year before. Due to liquidity
issues, the output and consequently the sales were lower as compared to the quarter previous
year.

Other income also declined by Rs 110 million while dividend income of Rs 157 million was
earned which offset the negative results somewhat.

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The sales performance of ARL displayed a consistent upward trend from FY04 to FY08,
recording a phenomenal increase of 55% increase in sales in FY08 but this was followed by a
16.72% decline in sales in FY09. Cost of Sales has varied correspondingly to almost near levels
as of the sales. The refinery product prices in Pakistan are linked to the prices in the Gulf region.
The Arab Light crude oil prices increased by 44.3% to an average US $83.34 per barrel in FY08
as compared to US $57.77 per barrel during FY07. This increase in oil prices have helped in
improving the sales revenue and profits of the refinery sector.

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The companies in the refinery sector registered a substantial rise in the gross refining margins
(GRMs) during FY08 as compared to in FY07 also because the increase in product prices was
higher than the increase in the crude prices. While the inflated crude oil resulted in huge profits
in FY08, the same reason deteriorated revenue in FY09. The economic recession of 2008
brought with it plummeting oil prices, with the Arabian light hitting a record all-time low of US
$40 per BBL in November 2008. Asymmetric prices of company s product went drastically
down as a result and eroded the profitability. The cost of this main input averaged at US $67.83
per BBL in FY09.

Profits earned at the back of naphtha export also registered a decline of 27% contributing to the
already low sales of ARL. The declined sales figures correspond to the declining PAT of ARL in
FY09. The company is operating under the import parity pricing formula, as modified from time
to time, whereby it is charged the cost of crude on import parity basis and is allowed product
prices equivalent to the import parity price, calculated under prescribed parameters.

[ffective July 1, 2007, the Government made certain modifications in the prescribed parameters
effectively reducing the price of Kerosene oil, Light Diesel Oil (LDO) and JP-8 in 2007 and
2008. The Government has further modified the refineries pricing formula in August, 2008
whereby the 10% duty included in pricing of HSD has been cut to 7.5% and the motor gasoline
pricing has been unilaterally revised by linking its price to Arab Gulf 95 RON prices and
calculating the price of 87 RON motor gasoline on a unitary method basis. This revision
adversely affected the pricing of HSD and motor gasoline, which are company s two major
products.

[arlier in July 2002, the Government had modified the pricing formula that was applicable to the
company restricting the distribution of net profits after tax (if any) from refinery operations to
50% of paid-up capital as at July 1, 2002 and diverting the surplus profits, if any, to a special
reserve to offset any future loss or make investment for expansion or up gradation of the
refinery. Further, the Government had abolished the minimum rate of return of 10% which
continues to be contested by the company, as it represented to the Government that the already
existing agreement for guaranteed return could be modified only with the mutual consent of both
the parties. While this deregulation promoted competition in the sector, it caused a huge setback
in conditions where the international oil prices are subject to drastic price shocks.

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0„*)`&*.*)4c

Attock Refinery Limited registered a drastic fall in profit after tax after a phenomenal increase in
FY 08. The company earned a profit after tax of Rs 1.016 billion in FY09 against Rs 6.147
billion posted in FY08. The gross sales earned by the company amounted to almost the same
level as FY08. However, the petroleum development levy charge increased by 565% over the
FY09, causing a setback in the already declining sales figures which amounted to Rs 76.546
billion against Rs 91.910 billion in FY08.

The cost of sales for the period FY09 decreased from Rs 89.65 billion in FY08 to Rs 75.342
billion in FY09 mainly on account of decline in the crude oil consumed. Research and
Development cost reduced considerably by 78% indicating the company s reduced interest in
initiating new projects in face of risky crude oil market and the slowdown of the economy.
Despite a 16% decrease in the cost of sales, the company netted 52% decline in gross profit in
FY09. This is depicted in the sharp decrease in the gross profit margin of the company in FY09.

The administration and distribution costs for the period FY09 increased by 10.50% and 8.02%
respectively. The financial charges of the company increased by 15% in FY09. Financial costs
increased mainly due to the huge exchange loss amounting to Rs 1.464 billion in FY09. The
exchange difference arises due to translation of foreign currency liabilities of crude oil and
increased to such a great extent due to the depreciation of Pak rupee against the US dollar.

The profitability ratios have improved considerably after falling considerably in FY06. ARL
observed cascading profit margins for the FY06 in tandem with the declining profitability in the
sector to the extent that gross margins and profit from Refinery operations turned negative during
the first half of FY07. The fluctuating crude oil and petroleum products prices were the major
factors behind these results. However things started improving in the third quarter of FY07 as
product prices increased more than crude oil prices, allowing the company to earn a net profit of
Rs 504.33 million for the year and giving a much needed boost to the gross refiner s margin and
net profit margin.

Sluggish demand for motor gasoline (PMG) due to high prices and unfavourable government
policies also contributed to declining profits in FY06. PMG is a premium product for the
company s profitability and the declining sales of the product forced the company to resort to the
exports of naphtha. This transaction resulted in losses for the company because of the high
transportation and handling costs and due to the lower margins available on sales of the product.
Hence profitability crashed further during the year.

FY07 brought about a positive change in this regard as well as demand for motor gasoline
increased, accompanied by a decline in naphtha exports. This was a result of curbing the

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smuggling of this product due to domestic rationing in one of the neighbouring countries and a
change in the geo-political situation in the border areas. This development also contributed to the
profitability of the company during the FY07.

The upward trend of crude and oil prices continued in FY08, where the crude oil hit the record
high price of US $147 per barrel in the international market. These fluctuations in the
international prices of petroleum products and crude oil provided abnormally high returns to the
refiners margins and the profitability increased to unprecedented level to Rs 6.147 billion in
FY08 against Rs 0.748 billion in FY07.

However the refineries did face a challenging and testing time when the government this year
didn t allow the full impact of these rising prices to be passed on to the consumers. Resultantly
huge subsidies were given in the prices of motor gasoline, kerosene oil, diesel and other
petroleum products. These subsidies were financed heavily by the oil industry including the oil
refineries and the oil marketing companies creating a huge inter corporate debt. These inter
corporate debt and price differential claims receivables are still outstanding by the government,
seriously hampering the operations of the oil industry.

A modification of the Pricing Formula in FY08, which reduced the deemed duty on HSD,
Kerosene Oil, LDO and JP-8 resulted in corresponding decline in the prices of these products.
[ven thought the GoP initiated this measure for public interest, it initiated resistance by the
refineries as it would erode the profitability of the company and hamper continued operations at
full capacity.

With the global recession setting in the beginning of FY09, the international prices of petroleum
products and crude oil started falling since August 2008 and hit the record low of US $38 per
barrel in the international market. Without stabilization, these prices remained within the range
of US $38 per barrel to US $per barrel. With the change in the pricing formula and declining
international crude oil prices, this also resulted in inventory losses, the refiners margins were
affected by around 30% decline in dollar/rupee parity. With all these factors combined, ATRL
suffered a huge loss in FY09 particularly in July-December 2008.

ATRL was able to reverse the negative impact in the ensuing period through product
management based on price economies and increase in production of high value products that
was supported by an increase in demand for motor gasoline. The persistent issue of circular debt
continued to hamper the optimal utilization of the refinery s capacity. With the declining GRM,
the profits from the refinery operations for the FY09 amounted to Rs 406,016 million against Rs
2,007.015 million in FY08.

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After accounting for non-refinery income of Rs 610.672 million the net profit after tax stood at
Rs 1,016.758 million in FY09, demonstrating a decline of 83.46% from last year. The declined
profitability has simultaneously caused a drastic fall on return to assets and return to common
equity, each falling by a colossal 81% and 84% over FY09. These declines are in line with
industry trends, as similar factors plagued the profitability of the refineries in this year.

.*65**)4c
In terms of the liquidity measure generated by the current ratio, ARL lags behind its
counterparts. The liquidity position of ARL had been declining over the period since FY 04. The
current ratio of the company reached dangerously low levels so that the current assets were no
longer sufficient to cover the current liabilities. This decline was observed despite an increase in
cash assets during FY06 from long-term loans taken by the company as a portion of the loan
matured and became due. The trade payables increased rapidly over the last few years, thus
making a significant contribution to the observed trend.

This increase in trade payables may be traced back to rising crude oil prices over the years. The
deteriorating liquidity situation was a source of concern for the company and a threat to its
financial strength. In FY08, ARL managed to slightly improve its liquidity position. This was
because the current assets of ARL increased more in proportion (71%) than the current liabilities
(45%). There was a significant of 113% in the cash and bank balance. In FY09, liquidity of
ATRL declined by just 0.01 but is subject to vulnerability as we can see a contraction in the cash
balance from 56% of total current assets in FY08 to 24% of total current assets in FY09.

Trade debts have increased considerably between the two periods, from Rs 9.207 billion in FY08
to Rs 15.508 billion in FY09. This indicates illiquid assets of the company mainly tied up in
PDC receivable from the GoP. Current Liabilities for the company have declined by almost 16%
which was a little less than the 17% decline of Current Assets.

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ATRL appears more efficient than the industry in management of its inventory but lags behind in
the collection of receivables. In FY08 the asset management of the company further improved as
the operating cycle of the company reduced by 8 days. In FY09 there is a reversal in this trend as
the operating cycle increased drastically by almost 41 days. This is a cause of concern for the
refinery as slack credit policy and extension in collecting receivables endangers the cash flow of
the company. This operating cycle is higher than that in the industry and hence ATRL should be
cautious in future and be more prudent in carrying out its business.

The receivable collection period for ARL improved in FY06 but rose in FY07 whereas the
opposite is true for the inventory turnover (days). The inventory turnover jumped up during the

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FY06 but declined slightly during FY07. As a result of these fluctuations in DSO and inventory
turnover, the operating cycle also declined during FY06 and increased during HY07. The total
assets turnover has been on a declining trend since FY05 and the trend continued till FY07. Both
DSO and inventory turnover register increases in FY09 against last year. This is line with the
industry trend in FY09. As lower sales and income constraints plagued the economy, effects of
this are evident on the Refinery s ability to generate sales and subsequent cash flows.

The total asset turnover remained the same during FY08 because the company was able to
generate business in proportion to the increase in the assets of the company. The same trend
continued in FY09. The ratio of this turnover is line with that of the industry. The sales to equity
had increased in FY06 as a result of a 34% increase in sales against a relatively small increase in
equity. However in FY07, despite higher sales, the sales/equity declined. The sales to equity ratio
maintained its declining trend in FY08 as well because the sales of the company increased less in
proportion to its equity base. The company s equity base has been strengthened due to higher
paid up capital and increased reserves. Downward trend continued in FY09, due to declining
sales and increased equity on the back of issue of bonus shares of value Rs 142,155,000.
c

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ARL is largely an equity-based company as evident from the low long-term debt to equity ratio.
The ratio had jumped up in FY06 as the company acquired long-term loans but the repayment of
the loans during the first half of FY07 has brought down the ratio to the previous lower levels.
The ratio has further declined in FY 08. The ratio registered a small climb in FY09 mainly at the
back of 24% increase in provision for staff gratuity. As a consequence of the loan undertaken
during FY06, the TI[ plunged drastically for the year. However with the repayment of the loan,
it is expected that the company will be able to gradually redeem its position.

An initiation of the trend has been observed during FY07, as TI[ rose slightly and finance cost
declined 53%. However this trend wasn t sustained as finance cost increase drastically in FY08
by 404% and in FY09 by 18.25%. The main reason for this cost has been the increasing
exchange loss suffered by the Refinery. Considerable discrepancy is seen in terms of the debt
ratios of the company. ATRL has a history of higher than average debt to asset ratio whereas its
long-term debt to equity ratio has stood well below average for all years except FY06 when it
had taken on additional loans.

However the TI[ ratio for the company is very low compared to the average industry. When
assessed in terms of the total debt to equity, the company does not fare so well. This is due to the
high current liability figures, comprised mainly of trade and other payables and provision for
taxation. This ratio had also jumped up in FY06 as a consequence of the long-term loans but has
not been able to regain its former level in FY07. Declining trend was witnessed in FY08 and
FY09. In FY08 even though a 55% increase in current liabilities, equity expanded considerably

University Of Central Punjab (PCBA ʹPICS)

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by the increase in retained earnings on the back of high profits earned in the year. In FY09, the
current liabilities decreased by 11%, equity experienced a rise due to the issue of bonus shares.
The strong debt ratios reflect the financial strength of ARL and with an improvement in the
profit situation, the TI[ may also improve.

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After consistently giving out dividends in the form of cash or bonus shares, ATRL decided not to
give out dividends in FY09 in view of the declining refiner¶s margins and uncertain future
profitability. This also shows shareholders commitment to undertake the projects relating to
Naphtha Isomerization, Preflash unit, and Diesel Hydrodesulphurization and to produce
environment friendly products. Government is expected to take positive measures in providing
requisite measures essential for the materialization of the projects for continued economic
sustainability of the refinery.

5)50c„5).„„#c
The revision of the pricing formula as notified in August 2008 has had an adverse effect on the
revenues of the refinery with prices of its two main products HSD and PMG having being
adversely impacted. These measures were taken by the GoP under extreme public pressure in
addition to the earlier modifications it made to the pricing formula from time to time in the form
of withdrawal of deemed duties on jet fuel, kerosene oil, and LDO.

The year under review witnessed fluctuating international prices of crude oil and petroleum
products, which could not stabilize due to world recession in the past year. Unless these prices
stabilize the refineries shall continue to carry the risk of unpredictable refiners margins with the
additional risk of exchange rate fluctuations that too had considerable effect on the profitability
of the refineries.

Due to changes in product specifications warranted by environmental considerations and as part

of its commitment to meet these requirements, ATRL has undertaken the task of implementing
certain projects that shall cater to the market requirements of cleaner fuels, as well as to maintain
and enhance its oil refining facilitated to meet any future growth in crude oil availability in the
northern region, continued with its efforts to complete the engineering design of these projects to
ensure expeditious implementations.

These plans include construction of Pre-Flash Unit to enhance the overall refining capacity, an
Isomerisation Unit that shall upgrade the motor gasoline by reducing benzene and aromatics and
a Hydro-desulphurisation unit (DHDS) to reduce sulphur contents in HSD to meet [uro
Standards. With the implementation of these projects ATRL shall not only be able to retain its
market share in production and supply of petroleum products but also provide operational
flexibility in its future operations.

University Of Central Punjab (PCBA ʹPICS)

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Calculation Of Ratios
Year 2006-2007

 c0 :

Current Assets / Current Liabilities

19,789,768,671 / 26,400,149,445

0.75 : 1

6c0 'c

Quick Assets / Current Liabilities

15,937,122,835 / 26,400,149,445

0.60 : 1

)  c
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Total Debt / Total Assets*100

28,409,208,036 / 32,187,952,684*100

88.26%

)
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c0 'c

[BIT / interest [xpense

There is no [BIT and interest expense is given . So we can not calculate Time interest earned
ratio.

University Of Central Punjab (PCBA ʹPICS)

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*
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c0 'c

Cost of good sold / Average Inventory

58,609,954,476 / 3688,226,783

15.89 Times.

)  c`
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Total Sales / Total Average Inventory

59,154,779,218 / 30,642,118,910

1.93 Times

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Net Income / Total Sales*100

748984812 / 59,154,779,218*100

1.26%

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Net Income / Shareholder¶s [quity*100

748,984,812 / 3,778,664,648*100

19.82%

University Of Central Punjab (PCBA ʹPICS)

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0
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Net Income / Average Total Assets

748,984,812 / 30,642,118,910*100

2.44%

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Net Income / No. Of share Outstanding

748,984,812 / 5686200

13.17 Per Share.

0

 
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Net Credit sales / Average Accounts receivables

No credit sales are available of ATRL.

University Of Central Punjab (PCBA ʹPICS)

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Year 2007-2008
(Rs¶000)
c


 c0 :

Current Assets / Current Liabilities

33,783,918 / 38,361,964

0.88 : 1

6c0 'c

Quick Assets / Current Liabilities

28939,065 / 38,361,964

0.75 : 1

)  c
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Total Debt / Total Assets*100

40,382,192 / 50,081,183*100

80.63%

)
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c0 'c

[BIT / interest [xpense

There is no [BIT and interest expense is given. So we can not calculate Time interest earned
ratio.

University Of Central Punjab (PCBA ʹPICS)

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cc c
c

*
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c0 'c

Cost of good sold 8cAverage Inventory

89,646,373 8 4,348,749

20.61 Times.

)  c`
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Total Sales 8 Total Average Inventory

91,910,703 8 41,134,568

2.23 Times

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Net Income 8 Total Sales*100

6,147,774c8 9,190,703*100

6.68 %

0
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Net Incomec8 Shareholder¶s [quity*100

6,147,774c/ 9,698,991*100

63.38 %

University Of Central Punjab (PCBA ʹPICS)

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c

0
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Net Income / Average Total Assets

6,147,774 / 41,134,568*100

14.94 %

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Net Income / No. Of share Outstanding

6,147,774 / 71081

86.49 Per Share.

0

 
c) 
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Net Credit sales / Average Accounts receivables

No credit sales are available of ATRL.

University Of Central Punjab (PCBA ʹPICS)

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c

Year 2008-2009
(Rs¶000)
c


 c0 :

Current Assets / Current Liabilities

28,130,383 / 32,296,945

0.87: 1

6c0 'c

Quick Assets / Current Liabilities

23,261,407 / 32,296,945

0.72: 1

)  c
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Total Debt / Total Assets*100

34,340,414 / 44,487,543*100

77.19%

)
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c0 'c

[BIT / interest [xpense

There is no [BIT and interest expense is given. So we can not calculate Time interest earned
ratio.

University Of Central Punjab (PCBA ʹPICS)

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c

*
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c0 'c

Cost of good sold 8cAverage Inventory

75,342,096 / 4,856,914

15.51 Times.

)  c`
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Total Sales 8 Total Average Inventory

76,546,448 / 47,284,363

1.61 Times

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Net Income 8 Total Sales*100

1,016,758 8 76,546,448*100

1.32 %

0
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Net Incomec8 Shareholder¶s [quity*100

1,016,758 / 10,147,129*100

10.20 %

University Of Central Punjab (PCBA ʹPICS)

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c

0
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Net Income / Average Total Assets

1,016,758 / 47,284,363*100

2.15 %

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'c

Net Income / No. Of share Outstanding

1,016,758 / 85,298

11.29 Per Share.

0

 
c) 
c0 'c

Net Credit sales / Average Accounts receivables

No credit sales are available of ATRL.

c
c

University Of Central Punjab (PCBA ʹPICS)

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Current Ratio:
Higher current ratio shows the better liquidity position of the company. But in the year 2007, the
current assets are low as compare to the current liabilities which was not good for ATRL.The
current assets were 0.75 in comparison with current liabilities. But in year 2008 it increased to
0.88 and in 2009 it was 0.87 as compare to the current liabilities.

Quick Ratio:
Quick assets show the liquidity position of the company. In the year 2007 the liquidity position
of ATRL is not good as it is less than as current liabilities. It was .60: 1 in year 2007.Then In
year 2008 it was 0.75:1 and in year 2009 it was 0.72:1.

Debt Ratio:
The debt of ATRL are 88.26% of the total assets in the year 2007.Then in year 2008 it decreased
and reached at80.63% and in year 2009 it reached at 77.19%.Its means that the debts of ATRL
are decreasing year by year..This is good for ATRL.

Inventory Turnover Ratio:

This ratio shows that how many times a company's inventory is sold or replaced over a period
The inventory turnover ratio of ATRL is 15.89 times in the year 2007.In year 2008 it was 20.61
times and in year 2009 it was 15.51 times.

Total Assets Turnover Ratio:

This is a measure of how well assets are being used to produce revenue, also called asset
turnover. The Total asset turnover ratios for ATRL are 1.93, 2.23 and 1.61 times, for the years of
2007, 2008 and 2009 respectively.

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Profit Margin Ratio:

The ratio is used to measure the overall profitability over the sales of the company. It means that
what the company actually earned on its sales. The profit margin of ATRL was 1.26% in year
2007,6.68% in year 2008, and it was 1.32% in year 2009.

Return on equity:
The return on equity in 2007 was 19.82%, In 2008 year it reached to 63.38% and in the year
2009 it was 10.20%.

Return on Assets:
It shows that what profit we are getting on our assets. The return on asstes of ATRL was 2.44%
in year 2007.Then in year 2008 it was 14.94% and in year 2009 The ROA of ATRL was 2.15%.

[arning Per Share:

This ratio shows that what the company actually earning on its 1 share/each share. The earning
per share([PS) of ATRL in 2007 was 13.17Rs ,Then it jump to 86.49 Rs in year 2008. And In
year 2009 it reached to 11.92Rs.

)
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Can not calculate these ratios of ATRL.because of some missing values.

University Of Central Punjab (PCBA ʹPICS)

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Calculation of Beta

4
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c >?4c >c 4c

- 8$c  
c *

2cc 0
 c 0
 c
`)0.c 4c >c
2009 56.9 5753.18 ---- ----c ----c ----c ----c
Jan,1
2009 58.6 5778.58 2.99 0.44 1.31 .1936 8.94
Jan,15
2009 44.93 5333.95 -23.32 -7.69 179.33 59.136 543.83
Feb,2
2009 50.7 5776.73 13.02 8.30 108.06 68.89 169.52
Feb,16
2009 62 5596.49 22.09 -3.12 -68.92 9.73 487.96
Mar,3
2009 70.03 6063.54 12.95 8.34 108.00 69.55 167.70
Mar,16
2009 84.25 6931.90 20.30 14.32 290.69 205.06 412.09
Apr,1
2009 131.92 7807.08 56.58 12.62 714.03 159.26 3201.29
Apr,15
2009 117.55 7062.25 -10.89 -9.54 103.89 91.01 118.59
May,4
2009 122 7177.64 3.78 1.63 6.16 2.65 14.28
May,15
2009 124.14 7210.34 1.75 0.45 0.78 0.20 3.06
June,1
2009 121.97 6953.09 -1.74 -3.56 6.19 12.67 3.02
June,15
2009 131.02 7270.72 7.41 4.56 33.78 20.79 54.90
July,1

University Of Central Punjab (PCBA ʹPICS)

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c

4
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c >?4c >c 4c

- 8$c  
c *

2cc 0
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2009 153.12 7686.15 16.86 5.71 96.27 32.60 284.25
July,15

2009 152.75 7716.99 -0.24 -0.40 -0.096 0.16 0.05

Aug,3
2009 144.78 7932.55 -5.21 2.79 -14.53 7.78 27.14
Aug,17
2009 150.19 8769.24 3.73 10.54 39.31 111.09 13.91
Sep,1
2009 150.45 9029.45 0.17 2.96 0.50 8.76 0.02
Sep,15
2009 156.61 9301.18 4.09 3.01 12.31 9.06 16.72
Oct,1
2009 140.64 9845.73 -10.19 5.85 -59.61 34.22 103.83
Oct,15
2009 119.43 8872.40 -15.08 -9.88 148.99 97.61 227.40
Nov,2
2009 153.25 9304.31 28.31 4.86 137.58 23.61 801,45
Nov,16
2009 147.26 9013.04 -3.90 -3.13 12.20 9.79 15.21
Dec,1
2009 136.77 9266.04 -7.12 2.80 -19.93 7.84 50.69
Dec,15
2010 138.79 9437.85 1.47 1.85 2.71 3.42 2.16
Jan,4
2009 137.78 9923.14 -0.72 5.14 3.70 26.41 0.51
Jan,15
c c c 9+=c @;+;@c ;(+9c 9+(=c @=9+9c

` +c c c (+A;Bc +B@c c c c

University Of Central Punjab (PCBA ʹPICS)

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c

&
c
cccccccccCcccccD2$cEcD2D$

cccccccccccccccccccDc2cc%cD2±c

c cccCcccccccccc(25)(1842.70) ± (58.85)(117.09)

25(1071.49) - (58.85)2

c cccCccccccccc46067.5 - 6890.75

26787.25 - 3463.32

= 39176.75

23323.93

ccc&
cccCcccc+A; cc

!  c`
c c-

c
Rs = Rf + BS (Rm ± Rf)

= 11.95% + [1.68 * (15% - 11.95%) ]

= 11.95% + [1.68 * 3.05%]

= 11.95% + 5.124%

`-cCc9+9Fccc)
c2!


c0
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University Of Central Punjab (PCBA ʹPICS)

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Bibliography
* 
 c

http://www.arl.com.pk/profile.php

http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C58652200

!$c` $c

http://finance.kalpoint.com/highlights/corporate-news/refinery-company-attock-refinery-limited-analysis-
of-financial-statements-financial-year-04-1q-10.html

 c& 'cG`)0.c c  
c<c#cc

2c  
c

http://www.scstrade.com/TechnicalAnalysis/charting.asp

c` $c

http://www.statoids.com/upk.html

http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/national/karachis-
population-growing-at-5pc-a-year-660

http://www.tradingeconomics.com/[conomics/GDP-Growth.aspx?Symbol=PKR

http://siteresources.worldbank.org/PAKISTAN[XTN/Resources/293051-1241610364594/6097548-
1241610395774/WBPakistanUpdateApril2009.pdf

http://www.pro-pakistan.com/2009/06/11/download-economic-survey-of-pakistan-2008-09/

University Of Central Punjab (PCBA ʹPICS)

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