Petroleum product distributors' business overshadowed by fixed income

Petroleum and lubricant product distributors in the country witnessed a significant year-on-year jump in profit in FY24 as their non-operating income shot up amid rising interest rates.
Of the four listed distributors, Eastern Lubricants experienced a 25.34 per cent year-on-year rise in income to Tk 0.036 billion in the year to June 2024. Meghna Petroleum gained a 22.65 per cent year-on-year increase in profit to Tk 5.42 billion while Padma Oil's profit was up 16.9 per cent to Tk 4.08 billion in FY24, compared to the year before. Another listed firm of the group -- Jamuna Oil -- is yet to disclose its annual financial results for FY24.
According to the data available for the nine months through March this year, the companies' operating profits are a small fraction of the total earnings in the year through June. In fact, operating profits of petroleum product distributors fell year-on-year in FY24 due to a reduction in petroleum consumption in the country.

Energy specialist Dr. M Shamsul Alam told The FE that petroleum consumption had been slashed on the back of lower imports to cut import costs. Coal is being used as an alternative to petroleum products.
As per Bangladesh Petroleum Corporation, the sole government agency to import and market petroleum products, FY24 saw an 8 per cent year-on-year decline in sales to 6.76 million metric tonnes.
That resulted in reduced revenue and profit for the listed petroleum product distributors. For example, Meghna Petroleum's operating profit slumped 17.33 per cent in FY24 to Tk 0.67 billion, compared to FY23.
However, the company, which distributes octane, petrol, kerosine oil, diesel, furnace oil, and various kinds of lubricants, showed extraordinary financial results for FY24.
Bolstered by the escalation of profit, Meghna Petroleum declared record cash dividends - 170 per cent -- for shareholders for FY24.
"Our net profit has increased due to higher interest income. We have a huge deposit in banks, and as interest rate increased our interest income increased," said company secretary Reza Md. Riazuddin.
According to the FY23 financial statements of Meghna Petroleum, 20 per cent of its total assets, worth Tk 19.36 billion, are kept as short- and long-term bank deposits.
It got the advantage of higher interest rates in FY24 than in FY23.
Escalation of profit growth in Q1 FY25
For the first quarter through September of FY25, Meghna Petroleum reported a profit of Tk 1.378 billion, 51 per cent higher than for the same quarter a year ago.
The stock fell 0.64 per cent to Tk 216.90 per share on Sunday from the previous session on the Dhaka stock Exchange (DSE).
Given the stock price, the price-to-earnings ratio comes to 4.26, less than the sector's overall P/E ratio of 5.34 and the market's P/E of 14.3 as shown by amarstock.com.
The P/E ratio shows what the market is willing to pay for a stock relative to the company's earnings in a certain period of time. A high P/E ratio may be translated into the stock being overvalued. Conversely, a low P/E could indicate that the stock price is cheap relative to the company's earnings.
In the first quarter to September of FY25, Eastern Lubricants earned Tk 0.009 billion in profit, 211 per cent higher than in the same period of the previous year.
It declared 80 per cent cash and 10 per cent stock dividends for FY24, higher than for FY23.
Meanwhile, the stock traded at Tk 1499.20 per share on Thursday, a more than 2 per cent rise from the previous session, on the Dhaka stock Exchange (DSE).
Its price-to-earnings ratio is 61.14, with the latest earnings and stock price taken into consideration. The figure is much higher than the sector's P/E ratio, which means the stock is overvalued.
Padma Oil secured a 37 per cent higher profit in the first quarter of FY25, compared to the same quarter a year earlier.
It had declared 140 per cent cash dividends for FY24, higher than for FY23.
The stock traded at Tk 210.30 per share on Sunday, a slight increase from last week's closing price on the Dhaka stock Exchange (DSE). The price-to-earnings ratio comes to 4.13.
Jamuna Oil has not published its financial results for FY24 let alone for the first quarter of FY25.
The stock traded at Tk 190 each share on Sunday on the Dhaka Stock Exchange (DSE). The current price-to-earnings ratio based on the company's unaudited statement is 5.36.
The government holds a more than 50 per cent stake in all the four companies.
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