This action might not be possible to undo. Are you sure you want to continue?
Presented by: Uzair Akbar Soomro Mairaj Muhammad Murad Suleman Kamal Guled Muhammad Haseeb Ahmed Soomro
INTRODUCTION TO PAKISTAN STATE OIL (PSO) COMPANY LIMITED
Pakistan State Oil (PSO) is the oil market leader in Pakistan enjoying over 79% share of Black Oil market and 58% share of White Oil market. It is engaged in import, storage, distribution and marketing of various POL products, including HSD, Fuel Oil, Jet Fuel, Kerosene, LPG, CNG and petro-chemicals. This blue chip company, the winner of "Karachi Stock Exchange Top Companies Award" and a member of World Economic Forum, has been a popular topic of case studies in Pakistan and abroad based on its radical corporate turnaround over the last few years.
To excel in delivering value to customers as an innovative and dynamic energy company that gets to the future first.
We are committed to leadership in energy market through competitive advantage in providing the highest quality petroleum products and services to our customers, based on: 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 supplier sources. Sustain growth in earnings in real terms. Highly ethical, safe, environment friendly and socially responsible business practices.
INDUSTRY SWOT Strengths Rising energy demand: Pakistan’s energy growth estimated at 7-8% pa. Healthy volume growth: Above-average economic growth rate and focus on transportation infrastructure plus higher consumption of transportation oil will lead to higher sales volume. Favorable marketing margin calculation: Current marketing margin calculation mechanism (as % of end-product prices mechanism) benefits the downstream industry in view of expected recovery in government taxes and PRs depreciation against US$. Stable government policy: The key positive is the government's resolve not to burden the sector with any subsidy provided to end consumers.
Lack of integration: Sector-wide integration is low as the largest marketing company operates as a standalone player.
Deregulation of product prices: + The government has yet to deregulate the prices on HSD Reliance on imported products: The indigenous production of petroleum products is not sufficient to meet domestic demand, thereby leading to heavy reliance on imports.
Benefiting from regional industry supply crunch: Firm product prices would translate into healthy marketing margins for the industry.
Possible delays in gas pipeline project: Furnace oil consumption would pick up as the power industry shifts to furnace oil from gas due to shortage of gas supply. Strong electricity demand and higher-thanexpected dependence on thermal electricity may provide opportunity for higher fuel oil growth.
Investment opportunities in storage and pipeline: Volume growth would necessitate investment in storage and pipeline.
Focus on alternative fuel: Government focus on changing the energy mix may create opportunities for the marketing players.
Threats Rise in exchange rate: Appreciation of the PRs against US$ could lower earnings. Steep decline in oil prices: A higher-than-expected decline would negatively affect earnings/valuations. Adverse revision of existing petroleum policy: No historical precedents. Any change policy could adversely affect realized margins prices. Water availability: Higher water availability leading to higher hydroelectricity generation and lower demand for fuel oil. Slowdown in economic activity: This can potentially lead to lower volume growth and affect our earnings and valuations estimates for PSO and APL.
IFE & STRATGIC EVALUATION
EFE MATRIX & STRATEGIC EVALUATION
Weight OPPORTUNITIES Market for environment friendly fuel products is growing 0.05 0.10 0.06 0.07 0.08 4 3 3 2 3 0.20 0.30 0.18 0.14 0.24 Rating Weighted Score
Energy requirement of the country will increase by 40% in the next 10 years
Consumers demand for better quality and high performance products at low cost agriculture growth higher then expected dependence on thermal electricity Gawadar Port- government is trying to develop new industrial zone in order to boost the economy
THREATS Possible delays in gas pipeline project Smuggled oil New entrants are forming joint ventures Rise in exchange rate higher water avalability/ growth in hydel power Volatile oil prices Market growth and de-regularization is encouraging new entrants 0.11 0.05 0.06 0.08 0.07 0.09 0.08 3 2 4 3 2 2 3 0.33 0.10 0.24 0.24 0.14 0.18 0.24
STRATEGIC EVALUATION The overall score is above average of 2.5. This means company is utilizing the opportunities over threats moderately. However some of the important opportunities company is not managing well like Agricultural Growth, dependence on thermal electricity, also some of the threats like volatility of oil prices and higher water availability is not being fully managed by company. It can also be inferred that company if avails the existing opportunity at fullest can strengthen its base and will become more competitive. PSO can grab the opportunity of agriculture growth by making its presence in the rural areas. It can start loyalty programs exclusively for the farmers like loyalty cards etc.
SO S1,S4, O4: PSO should penetrate and develop new markets in the rural areas to cater the consumption of POL in agriculture sector. S2, S5, O3: PSO should improve their infrastructure and make use of latest technology so as to provide customers with high quality and performance products and thus be able to serve a broader range of customers.
W4 O4 Develop effective distribution network to cater rural areas
S1 T4 T6: PSO should overcome the volatility in oil prices by better managing its storage capacity so that it may not incur losses when there are changes in the prices of oil internationally or whenever there is an increase in exchange rates. S2 T2: PSO should come with superior technology that may be able to monitor all operations regarding the transportation activities ranging from inbound logistics till delivery to customers.
PSO should do backward integration by doing strategic alliance with refineries. In this way it would be able do lower its cost. (S8, T3) WT W4, T2: Making the efficient distribution network system for effectively competing in the market. In this way it would also be able to lower the threat of smuggled oil.
•Take advantage external opportunities •Overcome internal weakness •Avoid external threats Therefore, market penetration, market development, product development, backward integration, forward integration, horizontal integration, conglomerate diversification, concentric diversification, or a combination strategy all can be feasible.
According to our analysis of past and present trends it has been found that about a few years back PSO enjoyed a greater market share and greater market domination but since 3 or 4 years we have seen a gradual decline in its percentage market share. The market share slice has been curtailed by shell and other new small entrants (collectively). However Shell has contributed to the most significant extend. Shell did it by not only competing PSO in terms of product quality and delivery styles but also by introducing many Lubricant varieties.
Likely strategies of key participants
PSO (market share 65%) — competitively placed leader Launching marketing initiatives (quality and service plus loyalty
cards) to protect its position in the retail fuel product categories.
Optimizing product portfolio with greater focus on high-margin
products such as auto lubricants, CNG and LPG
Finding a stable oil supply source (backward -integration) in
future. Having been denied participation in the privatization of Pakistan’s second-largest refinery, we see a high possibility of PSO developing a joint venture in the refining business with any of the new companies in the industry. In our view, such a venture will create a win-win situation for both parties. While PSO will gain a supply source to support its market share, the refinery company will have the advantage of large buyers with high marketing volume (over 10mn ton volume per annum).
Thank You For Your Patience!
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.