Abdul Muqsit MUQSIT FINAL APM 385662 1158554972

FINANCIAL ANALYSIS (PPL)
ABDUL MUQSIT BS ACF 2K14- A

INDEX
PART 1
• Company introduction
• Ratio Analysis
▪ Profitability Ratios
Gross Profit Margin
Net Profit Margin
Total Asset Turnover
Return on Capital Employed
▪ Liquidity Ratios
Current Ratio
Quick Ratio
Receivable collection days
Receivable Turnover
Payable period days
Payable turnover
Inventory holding period
Inventory Turnover
▪ Investor Ratios
Gearing
Interest coverage
Dividend cover
P/E
Dividend Payout
Earnings Per share
PART 2
• PEST Analysis
• SWOT Analysis
• Industry outlook (Porters Five Forces)
• Implications on Performance Management
• References
• Supplementary Data
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PART 1
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FINANCIAL ANALYSIS: PAKISTAN PETROLEUM LIMITED
INTRODUCTION
Pakistan Petroleum limited (PPL) is into exploration and production of petroleum products across Pakistan.
Pakistan Petroleum Limited (PPL) has been a frontline player in the energy sector since the mid-1950s. As a major
supplier of natural gas, PPL today contributes over 20 percent of the country’s total natural gas supplies besides
producing crude oil, Natural Gas Liquid and Liquefied Petroleum Gas
PPL is among the four players in the industry of oil exploration and production other players include
• Oil and Gas development Company Limited (OGDC)

• MARI Petroleum Limited
• Pakistan Oilfields Limited
To understand the current financial strength and situation of the PPL different types of financial ratios will be
employed, which include Profitability Ratios, Liquidity Ratios and Investor Ratios
PROFITABILITY RATIOS: These are a class of financial metrics that are used to assess a business's ability to generate
earnings compared to its expenses and other relevant costs incurred during a specific period of time. Following
profitability ratios will be used:
a) Gross Profit Margin

b) Net Profit Margin
c) Total Asset Turnover
d) Return on Capital Employed
LIQUIDITY RATIOS: These ratios measure a company's ability to pay debt obligations and its margin of
safety through the calculation of metrics including the current ratio, quick ratio and operating cash flow
ratio. Current liabilities are analyzed in relation to liquid assets to evaluate the coverage of short-term debts in an
emergency. Following Liquidity ratios will be used:
a) Current Ratio
b) Quick Ratio
c) Receivable collection days
d) Receivable Turnover
e) Payable period days
f) Payable turnover
g) Inventory Holding period
h) Inventory Turnover
INVESTOR RATIOS: These ratios explain about the performance of the company to the current and prospective
investors. Following investor ratios will be used.
a) Gearing
b) Interest coverage
c) Dividend cover
d) P/E
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e) Dividend Payout
f) Earnings Per share
BENCHMARK: To measure financial performance certain benchmark is needed to compare the results attained. To
understand the performance of Pakistan Petroleum Limited (PPL), we will make use of past year (2015)
performance as a reference point, alongside we have obtained same ratios for all the other players in industry
(POL, MARI, OGDCL) so the other reference point will be INDUSTRY AVERAGE.
NOTE: Supplementary data has be attached at the end, containing all relevant calculations.
RATIO ANALYSIS
PROFITABILITY RATIOS
1) GROSS PROFIT MARGIN: Gross Profit margin generally is the margin or the profit made when Cost of sales
are deducted from the Revenue (Sales). Since PPL is in the business of Oil exploration and production. It
does not have typical structure of Cost of sales. Rather it has costs like field expenditures, royalties etc.
2015 PPL 2016 PPL POL 2016 MARI 2016 OGDCL 2016 INDUSTRY
AVERAGE 2016
GROSS PROFIT 47.107% 31.314% 45.247% 22.856% 54% 38.354%
MARGIN
COMPONENT FIGURE IN FIGURE IN % CHANGE REASONS

2015 (‘000) 2016 (‘000)
SALES 105,940,631 80,809044 -23.72 -Decrease in revenue of PPL has been due to several
factors, First and the most evident is the decrease in
prices of petroleum products from 2015 to 2016
(CONFIRMED WITH OGRA), due to which revenues from
Natural gas, Crude oil and LPG decreased.
-While these is no shift in either sales tax or discount
given to customers.
Field 56,035,554 55,504,250 -0.95 -Expenditures have relatively risen by approximately
Expenditure 3m, But due to decrease in royalty fee and recovery for
and insurance claims of 2011 have offset the impact of rise
Royalties. in expenses.
COMPARISION TO INDUSTRY AVERAGE

Pakistan Petroleum Limited has performed poor compared to the industry average. Gross profit margin
for 2016 in industry has been 38.354% while PPL has been able to achieve only 31.314%. Showing that
even oil prices decreased on average returns were higher. OGDCL managed to achieve gross margin of
54%.
CONCLUSION
What can be said about PPL is that its performance in 2016 decreased compared to 2015, mainly due to
decreased prices of petroleum products, while all the costs remained somewhat the same. Compared to
industry average too, PPL was not able to achieve average targets.
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2) OPERATING PROFIT MARGIN: This is the margin or the profit made when operating expenses are deducted
from the gross profit, while other income is added to it. Generally PBIT (Profit before interest and tax) is
take in for the calculation.
AVERAGE 2016
OPERATING 50.821% 34.15% 39.85% 7.153% - 27.05%
PROFIT MARGIN

2015 (‘000) 2016 (‘000)
SALES 105,940,631 80,809044 -23.72 -Decrease in revenue of PPL has been due to several
given to customers.
Operating 3,659,520 3,140,157 -14.19 -Operating expenses mainly include worker’s
Expenses Profit Participation Fund, Impairment loss and
provisions for obsolesce.
-There was increase in impairment loss but due
to decreased allocation in WPPF, over all
expenses reduced.
Other 7,594,040 5,428,907 -28.51 -Other income in the year 2016 decreased, there
Income are two sources to this income, and income from
financial assets other is income from assets other
than financial asset.
-Income from financial assets include loans and
bank deposits, investment in long term deposits, T-
bills. All the income derived in 2016 from this
source, have yielded lower returns compared to
previous year. Income from financial assets
decreased from 6.615million in 2015 to
4.644million in 2016. (DUE TO DECREASED INTEREST RATE
IN 2016, WITH AVERAGE DECREASE OF 4% IN INTEREST RATE)
-While income from other assets include, rental
income, profit from disposal of property (PPE or
store and spares), Exchange gain on currency,
share on profit on LPG. While income from other
assets decreased from 0.987million in 2015 to
0.543million in 2016.
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PPL has been successful in achieving better operating profit margin compared to industry average, this is
mainly due to reduced operating expenditure, as it can be observed that other income reduced leaving us
to a point that reduced operating cost have helped PPL push its operating profit margin compared to
industry.
CONCLUSION
It can be said that from previous year PPL has performed poorly, that we know is due to decrease in
petroleum prices. On the brighter side PPL managed to outperform its industry average.
3) NET PROFIT MARGIN: This is the margin or the profit made when all operating expenses are deducted from
the gross profit including finance cost and tax. While other income is added to it.
AVERAGE 2016
NET PROFIT 36.07% 19.88% 29.112% 6.37% 37% 23.091%
MARGIN

2015 (‘000) 2016 (‘000)
SALES 105,940,631 80,809044 -23.72 EXPLAINED ABOVE
Operating 3,659,520 3,140,157 -14.19 EXPLAINED ABOVE

Expenses
Other 7,594,040 5,428,907 -28.51 EXPLAINED ABOVE
Income
Finance 588,542 668,970 +13.66 -Increase in finance cost is due to the increase in
Cost finance leases.
Taxation 15,043,592 10,859,529 -27.81 - Current tax for the year 2016 has yet not been
ascertained due to which less tax charge is shown.
-Alongside, decreased revenue have resulted in
lower sales charge.

Compared to peer companies and industry average, PPL has performed poor, it has not be able to
generate average profits achieved in the industry.
CONCLUSION
It can be said that from previous year and industry average PPL has poorly performed, that we know is
due to decrease in petroleum prices.
4) ASSET TURNOVER: Asset turnover explains about the potential of the assets. It tells how much of the sales
can be made using all available assets, so this ratios in a way highlights the efficiency of the business. Due
to the nature of business, industry in which PPL operates in will have relatively low asset turnover due to
high expenditure on capital assets.
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AVERAGE 2016
ASSET 0.48 0.335 0.450 1.6 0.28 0.666
TURNOVER
COMPONENT FIGURE IN FIGURE IN % REASONS

2015 (‘000) 2016 (‘000) CHANGE
SALES 105,940,631 80,809,044 -23.72 -Decrease in revenue of PPL has been due to several
given to customers.
Total 244,879,358 274,760,560 +12.2% -These are different mix of assets which have been
Assets increased from 2015 to 2016, addition in PPE,
increase in intangible assets, rise in long term
investments, increase in long term receivables etc.

Compared to peer groups and industry, PPL is not very much efficient in utilizing its resources to generate
sales. Asset turnover of PPL is less than industry average, meaning that on average in this industry a
company can potentially generate more sales with each rupee of investment. On average in industry one
rupee of investment helps to generate 0.66rupee in one fiscal year, while PPL only generates 0.44rupee.
CONCLUSION
Overall it can be said that with reference to 2015 performance and industry average of 2016, PPL has
performed poorer. It has not been efficient at making sales. Another reason why asset turnover for PPL is
low is because of the additions that have been made to PPE, approximately 17miilion worth expenditure
has been made along with other additions, which for a while have increased total assets but their
increase of sales have yet not been translated. So, in future higher asset turnover could be expected.
5) RETURN ON CAPITAL EMPLOYED: This ratio explains about the return that is being made on the investment
done. It just like the previous ratio highlights the efficiency of the business.
AVERAGE 2016
RETURN ON 24.373% 11.452% 22.14% 36.78% 13% 20.84%
CAPITAL
EMPLOYED
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2015 (‘000) 2016 (‘000) CHANGE
Profit 38796005 27593544 -28.86 -Main behind decrease in the PBIT as we know is
Before the decreased revenue. Reduced revenue and
Interest unchanged expenses have decreased the PBIT.
and tax
Capital 220,902,240 240,945,753 +9.07 -Capital employed has increased from 2015 to
Employed 2016, mainly due to increased long term
liabilities, high provisions. Share capital has risen,
along with reserves.

Compared to other key players and industry average, PPL has underperformed. It has not been able to
generate returns that on average are prevailing in this industry. That is firstly due to decrease in in PBIT,
due to sales, secondly its capital employed has also increased. PPL is investing into ongoing projects,
which have been capitalized but yet operations have not started. In future high amount of capital
employed will yield better results. It can uplift sales volume to help increase the return on capital.
CONCLUSION
It can be concluded that compared to past year performance and similarly with peer companies, PPL has
not performed good at all. PPL’s performance relative to past year has decreased and in 2016 has been
below the industry average, mainly due to decreased revenues and high capital employed.
LIQUIDITY RATIOS
1) CURRENT RATIO: Current ratio explains about the company’s ability to pay of its short term debts. So it
is the ratio of total current assets to total current liabilities.
AVERAGE 2016
CURRENT RATIO 4.537 3.009 2.22 0.93 4.32 2.62

2015 (‘000) 2016 (‘000) CHANGE
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CURRENT 108,793,461 101,734,210 -6.49 There has been reduction in current assets over
ASSETS the period due do decrease in trade debts, loans
and advances, decrease in current maturity of
long term investment and other short term
investments.
CURRENT 23,977,118 33,814,807 +41.03 Current liabilities on the other hand have
LIABILITIES increased significantly. Increase in payables by
almost 10 million

There is no best combination of current assets and liabilities that a company needs to maintain, it’s
completely to the discretion of the management, to keep more liquid assets or not, as there are both
ends to it opportunity cost and risk of liquidation. Compared to industry average PPL is relatively more
liquid, meaning that it has more liquid assets to cater short term needs for liabilities.
CONCLUSION
Overall it can be observed that PPL has a better position in terms of liquidity but relative to past
performance its liquidity has decreased mainly due to significant increase in current liabilities.
2) QUICK RATIO: Quick ratio is similar to current ratio and explains the same objective of liquidity, but it
takes prepayments and inventory out of current assets, as for some industries these items are not
marked as liquid enough to meet short term needs for liabilities.
AVERAGE 2016
QUICK RATIO 4.534 2.992 1.7 0.87 4.01 2.393

2015 (‘000) 2016 (‘000) CHANGE
CURRENT 108705475 101159158 -6.94 -There has been reduction in current assets over
ASSETS- the period due do decrease in trade debts, loans
and advances, decrease in current maturity of
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INVENTORY- long term investment and other short term
PREPAYMENTS investments.
-Prepayments over the time have also risen.
CURRENT 23977118 33814807 +41.03 Current liabilities on the other hand have
LIABILITIES increased significantly. Increase in payables by
almost 10 million

Similarly as in the case of current ratio, PPL has been at the better position compared to industry average
but its liquidity position has deteriorated. There has been very less impact of prepayments as they are
fraction of total current assets. Also due to the nature of the business PPL does not keep inventories. All
the petroleum products as when produced are transported.
CONCLUSION
It can be observed that PPL has been performing relatively better than its peer companies, yet its
performance relative to its last year has decreased.
3) RECEIVAVLE COLLECTION DAYS: This ratio helps to understand the average period it takes for the
company to on recover for the sales made on credit.
AVERAGE 2016
RECEIVABLE 151 202 50.07 114 261 156.77
COLLECTION
DAYS

2015 (‘000) 2016 (‘000) CHANGE
TRADE 58,915,582 57,954,553 -1.63 There has been little fluctuation in trade debts,
RECEIVABLES there has been a little decrease in receivable,
which too is due to the decrease in petroleum
prices in 2016.
given to customers.

Average time that the company takes to get its payment back is more than the average, that is not
desirable for the company in a sense that it will have to make arrangements for more working capital to
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finance for operations, until own money is recovered. So, PPL is definitely not performing well in this
regard.
CONCLUSION
Relative to own performance PPL has not been able condense the period it takes to get the money back
but instead it has risen. Comparing to peers, again PPL is not performing up to a desired level.
4) RECEIVAVLE TURNOVER:
AVERAGE 2016
RECEIVABLE 2.42 1.81 7.29 3.21 1.398 3.427
TURNOVER

2015 (‘000) 2016 (‘000) CHANGE
TRADE 58,915,582 57,954,553 -1.63 There has been little fluctuation in trade debts,
RECEIVABLES there has been a little decrease in receivable,
which too is due to the decrease in petroleum
prices in 2016.
- While these is no shift in either sales tax or discount
given to customers.

On average in this industry companies collect receivables around 4.43times, while PPL only makes
collections 1.81 on average that shows that PPL will have a larger business cycle, which asks for more
capital.
CONCLUSION
Relative to company’s past performance and to the performance of peers, PPL is performing not well. It
collects receivables less frequently than other players.
5) PAYABLE PERIOD
6) PAYABLE TURNOVER
7) INVENTORY HOLDING PERIOD
8) INVENTORY TURNOVER:
NOTE: Above mentioned ratios cannot be calculated due to the nature of the business. As this
company does not have identifiable cost of sales, purchases. It does not keep inventors.
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APART, NONE OF THE PLAYERS (MARI, POL, OGDCL) IN THIS INDUSTRY HAVE CALCULATED THESE
ABOVE RATIOS
INVESTOR RATIOS
1) GEARING: Or commonly known as debt to equity ratio, it tell about the capital structure of the business
and what is the ratio of debt in comparison to equity.
AVERAGE 2016
GEARING 0.00111:1 0.00124:1 0.0224:1 0.05899:1 0.00225:1 0.02122:1

2015 (‘000) 2016 (‘000) CHANGE
DEBT 209647 238385 +13.70 -Debt mainly include finance lease, as capital
expenditure in such business are huge.
-To finance the capital in process and additions
to PPE, have increased these finance leases.
EQUITY 188038079 192646501 +2.45 -Increase in share issue and reserves have
pushed equity upward.

Compared to industry, PPL’s capital structure does not have much debt compared to equity. All the other
members in the industry have more debt to ratio.
CONCLUSION
Overall it can be scrutinized that ratio of debt has increased in comparison to past year figures and in now
a bit more geared, but still less geared than its peers.
2) INTEREST COVERAGE: This ratio explains the ability of a company to pay for the finance cost. This reflects
the financial position of the company, such ratio is useful to investors.
AVERAGE 2016
INTEREST 91.48 41.25 9.68 144.08 47.87 60.72
COVERAGE

2015 (‘000) 2016 (‘000) CHANGE
PBIT 38796005 27593544 -28.86 -Main behind decrease in the PBIT as we know is
the decreased revenue. Reduced revenue and
unchanged expenses have decreased the PBIT.
FINANCE 588542 668970 +13.66 -Increase in finance cost is due to the increase in
COST finance leases.
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Comparing the results with peer companies and industry we see that PPL, has a lover interest coverage
ratio. 41.25times interest coverage ratio does not show poor performance at all, but comparing it to
industry average it is a bit lower.
CONCLUSION
Interest coverage with reference to own past performance has decreased and also in comparison to
industry average.
3) INTEREST COVERAGE: This ratio explains the ability of a company to pay for the finance cost. This reflects
the financial position of the company, such ratio is useful to investors.
AVERAGE 2016
INTEREST 91.48 41.25 9.68 144.08 47.87 60.72
COVERAGE

2015 (‘000) 2016 (‘000) CHANGE
PBIT 38796005 27593544 -28.86 -Main behind decrease in the PBIT as we know is
the decreased revenue. Reduced revenue and
unchanged expenses have decreased the PBIT.
FINANCE 588542 668970 +13.66 -Increase in finance cost is due to the increase in
COST finance leases.

Comparing the results with peer companies and industry we see that PPL, has a lover interest coverage
ratio. 41.25times interest coverage ratio does not show poor performance at all, but comparing it to
industry average it is a bit lower.
CONCLUSION
Interest coverage with reference to own past performance has decreased and also in comparison to
industry average.
4) DIVIDEND COVER: This ratio explains to what times a company is able to generate profit to the dividends
paid to ordinary shareholders.
AVERAGE 2016
DIVIDEND 1.984 1.4744 87.38 12.20 2.68 25.934
COVER

2015 (‘000) 2016 (‘000) CHANGE
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NET PROFIT 29334699 11628653 -60.35 -Lower revenues in 2016 have resulted in
decreased NP.
DIVIDEND 14787878 7886868 -46.67 -Increased dividend paid to preference
PAYABLE TO shareholders.
ORDINARY -Reinvestments have been made to the
SHAREHOLDER business, resulting in lower dividend payable.

PPL compared to the other players or on average is not able to have high dividend cover. There could be
another explanation to this, that other companies in the industry are not paying much dividend, they are
paying dividend quite less compared to what PPL is paying.
CONCLUSION
Overall comparing to own past performance and comparing to industry average, PPL’s dividend coverage
is lower.
5) EARNING PER SHARE: This explains about the ability of the potential of a company to earn as per unit of
its share.
AVERAGE 2016
EARNING PER 19.378 8.14 30.58 54.89 13.95 26.89
SHARE

2015 (‘000) 2016 (‘000) CHANGE
PROFIT 38207426 16065008 -57.95 -Main behind decrease in the profit as we
ATTRIBUTABLE know is the decreased revenue. Reduced
TO revenue and unchanged expenses have
SHAREHOLDERS decreased the PBIT.
NUMBER OF 1971716836 1971717159 - -
SHARES

Comparing the earnings per share of PPL with the industry shows that it is earning less per share. This
could be due to the fact that PPL is not highly leveraged, but is more financed by equity, due to this it’s
earning per share is lower compared to other players.
CONCLUSION
Earnings per share of the company has decreased substantially again due to lower revenues in 2016
compared to those in 2015. Overall EPS of PPL is lower than 2015 own results and to the average of
industry in 2016.
6) PRICE/EARNINGS: Shows the value investors give to a company.
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AVERAGE 2016
P/E 8.477 19.029 11.36 16.55 9.9 14.21

2015 (‘000) 2016 (‘000) CHANGE
MARKET 164.26 155.05 - -
PRICE
EPS 19.378 8.147 -57.95 -Decrease in revenue have resulted in lower EPS
in 2016

P/E ratio of PPL shows that the company is highly valued compared to the industry, investors are ready to
pay 19times its earnings. This high confidence could be due to the expansions plans of PPL as highlighted
in their financial statements.
CONCLUSION
Overall the P/E ratio has be increased showing PPL has made value for itself in the market compared to
peer groups and its own past year performance.
7) DIVIDEND PAYOUT RATIO: This ratios shows how much of the profit or the earnings are distributed as
dividends to the owner, or how much of the profit is reinvested back into the company.
AVERAGE 2016
DIVIDEND 0.387 0.4909 1.145 0.8108 0.37 0.704
PAYOUT RATIO

2015 (‘000) 2016 (‘000) CHANGE
DIVIDEND 7.5 4 -46.67 -
PER SHARE
EPS 19.378 8.147 -57.95 -Decrease in revenue have resulted in lower EPS
in 2016

Dividend payout ratio is high in industry as shown by the industry average, in contrast PPL’s payout ratio
is less, showing that funds are kept for reinvestment and expansion of the business.
CONCLUSION
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With reference to past performance of the company payout ratio of the company has increased, more
percentage of earnings is given out to owners, but yet it is less than the industry average.
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PART 2
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PEST ANALYSIS
POLITICAL
Oil and gas industry in Pakistan is one of the crucial sector, which holds pivotal position in determining future
direction of the whole country. Pakistan Petroleum limited is one of the 4 players in the upstream of Oil and Gas
industry. Since whole economy is dependent on the performance of this industry, current government at all
political forums is contribution as much as possible.
Current government in specific is providing incentives to players in the industry and is inviting other local and
foreign potential parties to be part of this sector to further uplift the performance.
• Foreign direct investment is fully protected under foreign investment protection law of 1976 passed by the
parliament, under which sovereign guarantee is given to safeguard foreign investment in Pakistan.
• Administration of Nawaz is inclined towards betterment in infrastructure of the country, thus have come up
with a policy package of liberal incentives to enhance exploration activities in the country.
• China Pakistan Economic Corridor has further increased the significance of this sector as demand for the
petroleum is expected to reach new heights.
• Power production plants around the country have also risen, which require acceleration in local production or
else hit the balance of trade, thus affecting balance of Payment.
• Furthermore, Ministry of petroleum and natural gas has granted license for 50 blocks, to further uplift the
exploring activities, Minister Shahid Khaqan Abbasi in the tenor of Nawaz gave 29 blocks to OGDCL, 10 to the
Pakistan Petroleum Limited, 3 to Pakistan Oilfields limited and rest to other parties.
• The Exploration and production sector in its budget proposals for 2017/2018 has recommended that higher
corporate tax rate on the sector should be reduced and aligned to the rate of other corporate sector.
Tax rate that is applicable on Oil and Gas Exploration and Production sector is around 40%. Before income tax
ordinance rate was almost 50 percent to 55 percent, however when the royalty which was paid to the
government was adjusted the effective tax rate would become 35%
• Applicability of effective 40 percent tax rate has in fact increased the tax expense of the Oil and Gas
Exploration and Production Companies, as against the incentives given to other sectors of the economy,
whereby the tax rate will be gradually reduced to 30 percent.
• Import duties are also set by the government, which are in accordance with the SRO 678(I)/2004 dated 7th
August, 2004, import duties and sales tax are payable @ 5% on the import of equipment not locally
manufactured. The import duty is 10% for items locally manufactured other than wellhead on which import
duty is 15%.
• Besides, there is a whole set of legal framework in each area of the business regarding oil and gas industry.
Environmental laws are there which are governing this industry, so all the players are in continuous scrutiny.
For instance once when oil and gas has been drilled out of the well, all the companies involved have to
restore the land back to its original position, else they might face cancellation of other lease licenses on other
blocks. Labor laws and policies are also of prime importance and have to been considered while carrying out
these activities.
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Some of the major laws, rules and regulations and policies governing this industry includes:
Ministry of Petroleum and Natural gas has all the authority to decide on aspects like, Royalty (currently is 12.5% of
value of petroleum produced.), training contribution by government (currently US$ 25,000 per year for Exploration
phase, while US$50,000 per year for Development and Production Phase), Social welfare contributions, windfall
levy, transmission tariffs, exploration period, retention period, total lease term etc.
CONCLUSION
All of the above mentioned aspects will have direct impact on the efficiency of the industry, all such decisions are
influenced by the views of current administration and political parties, so political stability and liberal view
towards building infrastructure is pertinent to growth. Journey towards more stable political environment and
recognition of infrastructure building in current government has created more opportunities than ever.
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ECONOMIC
Pakistan’s economy has continued to maintain its growth momentum for the 3rd year in a row with real GDP
growing at 4.71 percent in FY 2016 which is the highest in eight years. The stable PKR parity also helped in
keeping the CPI inflation under control, and in lowering inflation expectations in the country.
Per capita income reflects average standards of living of people in the country. The per capita income in dollar
terms has increased from $ 1,516.8 in FY 2015 to $ 1,560.7 in FY 2016. The contributing factors for the increase in
per capita income include acceleration in real GDP growth, lower growth in population and stability of Pak Rupee.
Fiscal Developments
The fiscal sector of the economy has witnessed a notable improvement on account of contained expenditures and
increased revenues. The budget deficit has witnessed a substantial decline from 8.2 percent of GDP in FY2013 to
5.3 in FY2015 in response to the efforts taken by the government to reduce power subsidies together with raising
tax revenues.
RISING BUSINESS ACTIVITY
Pakistan remained focused and committed to implement China-Pakistan Economic Corridor (CPEC) which is a
mega project of US $ 46 billion with Chinese Government. Execution of the project as per planned components of
the CPEC will provide major support for development of infrastructure including communication, energy, special
economic zones and Gawadar development. With proper planning and concrete efforts the country’s economy is
now stabilized and revived; the destination is to accelerate economic growth and maintained sustainability.
Government is implementing a four point agenda which primarily focuses on energy, economic stability,
education and elimination of extremism. . . . . . ..
State Bank of Pakistan has also reduced discount rate gradually and reached at 5.75 percent, which is also a major
inducement for business and investor’s community to increase economic activities in the country. The credit to
private sector have reached to Rs.311.7 billion during current fiscal year (July 6 th May 2016) as compared to Rs.
171.2 billion of last year. I terms of growth, it witnessed expansion of 82.0 percent during the period under review
compared to the contraction of 41.5 percent during same period last year.
FAVOURABLE INFLATION RATES
Inflationary pressure has also been reduced over the recent past due to the low inflationary pressure on the
economy, mainly due to reduced prices of petroleum products globally. Below is the graph showing inflation over
the past. The average CPI inflation fell from 8.62 percent in FY 2014 to 4.53 percent in FY 2015 and further
declined to 2.79 percent during July-April FY 2016 compared to 4.81 percent of the corresponding period last
year.
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Conclusion
What can be said about the economic environment of Pakistan is that there seems to be an economics growth
and development. Over the period, interest rates have decreased, making borrowing easier and cheaper. Also
there has been control in the average increase of prices, which mean Pakistan is able to generate positive growth,
i.e. in terms of real GDP. Per capita income is also rising, further lifting up the living standards. Overall it can be
assessed that there is good confidence in the economy which has carved unlimited opportunities for businesses
like PPL, since all of such increased activity has triggered demand for oil and gas products . . . .. . . . . . . . .. . . . .. . .
. . . . . .. . . . . . . . . . . . .. . . . . . . . .. .. .. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . .. .
SOCIAL.
With rising GDP, per capita incomes and education, people have become much more conscious than ever about
their social status. There has been shift in living standards and higher growth in population, which in turn have
increased demand for these petroleum products.
Historically it can been seen that per capita consumption has risen and expected to rise to new levels. Figure
below shows consumption of petroleum per capita in KGs from 1971-2013.
21 | P a g e
With time competition has increased, this has led to the concept of corporate citizens. Now a days CSR activities
have increased so much that they have created constructive obligation for the companies to be at the best of
their ethical principles. Alongside this with increasing responsibility, companies are now also being scrutinized by
their practices on how they treat their employees and the society in general.
Corporations needs to take care for all such factors as there can have impact on the operations, financial position
and overall positioning of PPL as a business.
TECHNOLOGICAL
• Oil exploration and production sector is highly capital intensive, which require state of the art technology to
be at par, among other PPL does have the latest, exploration, drilling and production machinery. There is a
positive link between having technologically advanced equipment and performance.
• Competition within the industry, to gain market share and maximum profits it’s imperative to have best
technology that can help achieve the objectives, import duties are reduced as specified above, to encourage
import of advanced technology. Technology helps to increase the pace of process, from exploration stage till
production, where petroleum is finally drilled.
• Due to technology to aid in identifying and obtaining approval for new wells, as well improved seismic
technology, companies have been successful in reducing the time to drill a well by 33 %. Efficiencies made
possible through technology have reduced the time to start production for a new well from weeks or months
to only a few days.
• Overall it is seen that our economy is moving towards use of technology, also to get edge over other
economies it is important to adopt processes and methods that improve the business activity.
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SWOT ANALYSIS
STRENGTHS
• Pakistan Petroleum limited (PPL) believes that human resource is a strength of the company, PPL has a
detailed framework on employee growth and development. The idea is not to have maximum number of
employees but a certain number which has every possible skill that is required on field. 2700 employees
are currently working with PPL which are given opportunity for continuous development. As opposed to
number of employees in OGDCL with sums up to 11,000.
• PPL believes in lean production and reducing costs to minimum at all levels, thus for the reason, PPL has
invested in one-time cost of capital machinery. Thus PPL has tried to keep their business as automated as
possible, to increase performance and profitability.
• CSR activities are one of the most evident strengths of the company, which not only has proved PPL a
responsible citizen but also has helped improve reputation as a company. PPL in its capacity has taken
several initiatives to contribute to the society, for an instance health care, education (providing
scholarships), Livelihood generation, infrastructure generation, Post disaster rehabilitation etc.
• Quality is the priority of PPL. PPL does not leave room for any inconsistency or reduced quality standards.
As a result 13 fields and facilities are certified for ISO 14001 Environmental Management System (EMS)
and ISO 9001 Quality Management System (QMS) and 14 for OHSAS 18001 Occupational Health and
Safety Assessment Series (OHSAS).Employees from various technical departments are qualified lead
auditors for ISO 9001 QMS, ISO 14001 EMS and OHSAS 18001 to assist in executing audits
WEAKNESS
• Pakistan Petroleum Limited only caters local market, and does not export its products to global market,
thus resulting in overdependence on domestic market for growth.
• Since this sector involves a lot of capital, most of the setups are done mutually, as a Joint operations leads
to inefficiency and dependency.
• Limited capital available to PPL, hinders growth, ownership of wells and reduced productivity.
• PPL has neither any experience nor the knowledge to extract petroleum from offshore zones, so the
scope and area of work is only limited to onshore blocks. Which can possibly restrict the growth and
expansion of PPL.
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OPPORTUNITIES
• Pakistan has received Rs. 1.6trillion of investment recently as mentioned by the Minister of Petroleum
and Natural gas, funds are expected to be used for 82 discoveries that have been made, out of this
number 45 of the discoveries have been into the process of production.
• Board of Investment (BOI) Chairman Miftah Ismail has announced that the ban on new industrial gas
connections is expected to be lifted as the investment board has sent a summary in this regard for
approval of the prime minister, this will open gates for PPL to get into production of Natural gas and
increase market share and thus profits.
• Current government is working on a package with liberal terms as an invitation to local and foreign
players to exploit indigenous hydrocarbon resources.
THREATS
• Presence of intense competition is one of the possible threat to PPL in a sense that is can result in
reduced market share, as OGDCL is considered to be a market leader, while other players like POL was
considered to be best performing company in 2015.
• Wells under ownership have fixed reserves, which with time are reducing. As this number of blocks and
wells are limited there is possible chance of decreased productivity. To get access to other blocks a lot of
investment is needed to obtain the license.
• Greater flexibility and incentives are being given to foreign players if they invest in Pakistan. As for the
current government foreign direct investment is crucial. This can further intensify the competition and
squeeze the expected profits.
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INDUSTRY OUTLOOK AND PLACEMENT
Oil and gas production and exploration industry is upstream of oil and gas sector. This industry is indulged into
exploration and production of petroleum products. There are major four players in this industry, OGDCL, PPL, POL
and MARI. Once the petroleum is extracted. It is then sold to the major refineries, which after refining crude oil is
sold to oil sales and marketing companies like PSO, Shell and other players of electricity production.
Below are the market shares of the four key players for 2016.
COMPANY MARKET SHARE

Oil and Gas Development Company Ltd. 44.80%
Pakistan Petroleum Ltd. 22.23%
Pakistan Oilfields Ltd. 6.84%
MARI 26.13
PORTER FIVE FORCES.

BARGAINING POWER OF SUPPLIERS.
There are no suppliers of raw material or semi-finished products since this industry itself is into extraction of oil
and related products.
But having said that, yet technological equipment related to exploration and production is yet required, which
needs to be bought when extra blocks are been allotted. Companies in Pakistan usually import all the necessary
machinery that is required to carry out all the process. So, globally there is presences of numerous suppliers
which make it easier for these companies to negotiate upon terms and price to be paid. So keeping such a view in
mind. Bargaining power of supplier is not to an extent that it possess any sort of threat to the industry.
BARGAINING POWER OF CUSTOMERS.

Customers of this industry mainly includes refineries, sales and marketing companies and IPPs or other electricity
generating bodies. Its customers includes:
Refineries
• Attock Oil Refinery

• National Oil Refinery
• Pakistan Refinery
Oil and Gas Marketing Companies
• PSO
• Shell Pak
• SSGC
• SNGPL
• Mari Gas
Captive Power Plants and IPP
25 | P a g e
• WAPDA
• KESC
• HUBCO
• Japan Power
Currently, there is excess demand of oil and petroleum products in Pakistani market, due to which oil that is
locally produced cannot meet the demand. Excess demand is satisfied by importing oil which is mainly imported
by PSO.
Due to such situation again, since number of companies supplying and quantity of oil is limited, bargaining power
of customers is not very strong. Also another fact to consider is that in Pakistan area is divided into zones, which
have resulted in cartels among the industry players, so quota of sales and region is almost fixed. Which again
keeps OGDCL, PPL, POL and MARI at a better place.
NEW ENTRANTS: Threat of Rivalry.

Entry of new player in this industry is quite difficult, as it requires a lot of initial investment. Besides, new entrant
will have to build its place in the industry, for instance establishing distribution channels, building customer base,
so there are a lot of complexities that are there for new entrant.
But thing to notice is that current administration of Nawaz is inclined towards new foreign direct investment, and
is ready to give liberal packages and incentives. Also there is gap of excess demand which needs to be filled, to
shift the burden of imported oil on balance of trade in huge which to current government would be wise if they
somehow attract new investors and uplift local production of petroleum.
Threat of substitute Products

Oil is a homogeneous product which is available worldwide at cheaper price. If local industry is not able to provide
the required amount of oil, that demand will be offset my importing oil, no matter how much would it affect out
balance of trade. So, definitely there is this option of importing different grades of petroleum from global market.
Which can possibly increase tension for the local payers.
Competitive Rivalry.
All of these forces mentioned above leads to competitive rivalry. What can be analyzed after having a look at the
industry is that, this industry due to a lot of rules and regulations, requirements of huge capital, compliance issues
is quite stable and these seems no major rivalry among the players due to zoning and cartelization.
This industry holds immense importance to the economy of Pakistan due to which all the related government
bodies are inclined towards the fact that smooth running of this sector is imperative so that performance and
efficiency is increased.
26 | P a g e
IMPLICATIONS ON PERFORMANCE MANAGEMENT
First part of the document analyses the financial strength of the company using various ratios, which broadly
were profitability, Liquidity and Investor ratios. Performance of the company remained comparatively well when
considered industry averages and its past year results.
Second part looks at the business models to evaluate, macroeconomic environment, industry performance and
performance of the company.
PEST analysis
It is carried out to understand the macro environment of the country, what can be concluded on the basis of this
analysis is that, with Nawaz administration there has been increased political stability and that there has been
ease in carrying out business activity due to their lenient policies. Economically Pakistan is doing quite well, as we
see real GDP increasing, foreign direct investment coming in, per capita income rising, inflation is controlled,
interest rates are low which can possibly increase business activity, overall economic environment is suitable
enough too for the businesses.
Socially there has been increase in living and consuming patterns of the country, there is social uplift which has
improved the living standards, demand for better products, health care, hygienic environment, strict policies and
regulations (Environmental laws, Labor laws) have been introduced due to greater awareness of rights.
Technology also have influenced businesses as whole, process of provision of goods and services have been
modified due to increased technology, this means business entities to remain competitive needs to have latest
technology which will possibly be imported and can have high impact on balance of trade if technology is not
developed at home.
PORTER’s FIVE FORCES

This analysis has been carried out to analyze the industry as whole, it can be said that industry is operating
smoothly and that there is not much competition or rivalry which can affect the businesses. Bargaining power of
supplier and customers is not high enough which can pose threat to business, there could possibly be threat of
new entrant but it does require huge amount of capital and political links to gain license. Threat of substitute if
there as oil is homogeneous product and is available around the globe, excess oil might not be imported, since
government will itself safeguard the local industry all this leads to low competitive rivalry.
SWOT analysis.
This analysis looks at the internal strength and weakness, external opportunity and threat. PPL has some
strengths like workforce and exploration technology. They can further build onto these strengths. What can be
done is that PPL can try to avail the opportunities that are there in the country using their strengths or try to
reduce threats again by using its strengths. They can work on their weakness and can base their strategic plans
according to such standing in the industry.
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REFERENCES
http://www.mpnr.gov.pk/orgDetails.aspx
https://www.scribd.com/doc/47999777/Pakistan-Petroleum-Industry
http://fp.brecorder.com/2016/04/2016042238821/
http://ogbus.ru/eng/authors/AdeelAhmad/AdeelAhmad_1.pdf
http://www.mbaskool.com/brandguide/energy/8134-oil-and-gas-development-company.html
http://www.ppl.com.pk/
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SUPPLEMENTARY DATA
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FINANCIAL ANALYSIS (PPL)

ABDUL MUQSIT BS ACF 2K14- A

• Oil and Gas development Company Limited (OGDC)

a) Gross Profit Margin

COMPONENT FIGURE IN FIGURE IN % CHANGE REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % CHANGE REASONS

COMPONENT FIGURE IN FIGURE IN % CHANGE REASONS

Operating 3,659,520 3,140,157 -14.19 EXPLAINED ABOVE

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

6) PRICE/EARNINGS: Shows the value investors give to a company.

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

COMPONENT FIGURE IN FIGURE IN % REASONS

COMPARISION TO INDUSTRY AVERAGE

RISING BUSINESS ACTIVITY

FAVOURABLE INFLATION RATES

COMPANY MARKET SHARE

PORTER FIVE FORCES.

BARGAINING POWER OF CUSTOMERS.

• Attock Oil Refinery

Oil and Gas Marketing Companies

Captive Power Plants and IPP

NEW ENTRANTS: Threat of Rivalry.

Threat of substitute Products

PORTER’s FIVE FORCES

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