AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Advance Corporate Finance Project Report
Al-Barka Fossil Fuels Private Limited
Business Feasibility Report
Submitted to:
Sir Sadir Zaidi
Submission by:
Abdullah Shaukat
(21E01007)
Mohsin Mahmood
Muhammad Bin Waseem
(21E01002)
(21E01001)
Sheza Moeen
(21E01004)
December 2, 2022
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Table of Contents
Introduction .................................................................................................................................... 4
Registration Process at SECP........................................................................................................... 5
Flow Chart of Company Incorporation ........................................................................................ 8
Business Overview .......................................................................................................................... 8
Business Plan Description ............................................................................................................... 9
Ownership and capital structure .................................................................................................. 10
Financial Assumptions .................................................................................................................. 10
Statement of Financial Position .................................................................................................... 11
Statement of Profit or Loss ........................................................................................................... 12
Statement of Cash Flows .............................................................................................................. 13
Initial Investment .......................................................................................................................... 13
Fixed Assets Schedule: .................................................................................................................. 14
Amortized schedule ...................................................................................................................... 15
Staffing Details .............................................................................................................................. 15
Administration Details............................................................................................................... 16
Fuel Prices ..................................................................................................................................... 16
Estimated cost of capital............................................................................................................... 17
Weighted Average Cost of Capital ................................................................................................ 17
Capital Budgeting Analysis ............................................................................................................ 18
Payback Period & Discounted Payback Period ............................................................................. 18
Net Present value.......................................................................................................................... 19
Free Cash Flow to Company ......................................................................................................... 19
Ratio Analysis. ............................................................................................................................... 20
Liquidity Ratios ......................................................................................................................... 20
Activity Ratios ............................................................................................................................ 20
Profitability Ratios .................................................................................................................... 21
Asset Utilization ........................................................................................................................ 21
Financial Leverage .................................................................................................................... 21
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Return on Capital ...................................................................................................................... 22
Market Measures ...................................................................................................................... 22
Scenario Analysis........................................................................................................................... 22
Worst Case ................................................................................................................................ 23
Best Case ................................................................................................................................... 23
Sensitivity Analysis ........................................................................................................................ 24
Case 1 ........................................................................................................................................ 24
Conclusion and Recommendation ................................................................................................ 25
Bibliography .................................................................................................................................. 26
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Introduction
Energy plays a key role in the development of modern economies. All human activities i.e.,
education, health care, agriculture, and employment require energy for proper functioning. A
country cannot succeed without proper utilization of energy. It is considered the main
component of a country's economy. Pakistan is a developing country and due to recent
development and to support its large population and industry, the country needs a huge amount
of energy to keep all things on track. However, there is always a shortage of energy supply and
the country is in its worst energy crisis. According to province-wise consumption of energy
products from FY17 to FY21, prepared by Oil Companies Advisory Council (OCAC), total petrol
consumption in FY17 was 6.6 million tonnes which soared to 7.4m tones in FY18, 7.6m tonnes in
FY19, 7.45m tonnes in FY20 and the highest-ever 8.35m tonnes in FY21. Petrol demand continued
to get a boost amid the long closure of compressed natural gas (CNG) outlets in the last few years,
especially in winters, due to gas shortage. As a result, the CNG vehicles have been switched to
petrol despite its rising prices. Punjab consumed 5.3m tonnes of petrol in FY21 which was 4.4m
tonnes in FY17. Sindh held the second spot with the usage of 1.8m tonnes from 1.4m tonnes in
FY17. Demand for petrol in Khyber Pakhtunkhwa and Balochistan also soared to 827,894 tonnes
and 221,054 tonnes in FY21, respectively, from 511,833 tonnes and 193,825 tonnes in FY17.
Earlier, the ECC had deliberated upon the Petroleum Division’s summary on July 28 and approved
the margins of dealers at Rs. 7 per liter with the direction that Ogra may review the OMCs’
margins in consultation with the stakeholders.
OMCs had demanded that their margins be raised to Rs8.85 per liter due to increase in the cost
of doing business. They also stressed that turnover tax, high interest rates, increased LC charges,
demurrage and increased costs on account of inflation had reduced their profitability
significantly.
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
According to the statistics of Pakistan Automotive Manufacturers Association (PAMA), Pakistan
produced 226,433 passenger cars in 2021-22 with sales volume of 234,180 units, up about 49%
and 55% from 151,794 and 151,182 units respectively in 2020-21.
Fuel filling station is a profitable business in Pakistan especially in Punjab and Sindh province. In
Punjab major consumption has been recorded in Lahore, Faisalabad, and Gujranwala regions.
Meanwhile, public and private sector investment is very important to harness true potential of
this business. Looking at the above statistics regarding gradual increasing market demand and
healthy profit margins, it is pretty safe to assume that there is a lot of space and potential in this
sector for more fuel-filling stations as they can pretty easily capture the untapped market of this
part energy sector.
Registration Process at SECP
To register a private limited company under company's act 2017, we must make an account on
https://eservices.secp.gov.pk/eServices/. The first step is to select a unique name for the
company and hence Al-Barka Fossil Fuels Private Limited has been chosen. To check if name is
free to choose, we can verify from https://eservices.secp.gov.pk/eServices/NameSearch.jsp and
the name cannot have any prohibited words as stated in https://www.secp.gov.pk/list-ofprohibited-words. Then we have to register as an online user with SECP and complete all
particulars including CNIC, mobile number and email address. After creating your user ID, we
have to log in the SECP portal and select the option that says "company name reservation".
Firstly, in the "company Kind" section we have to select Private Limited Company since there
are four directors in the company. There is also another option being SMC private limited
company in which there is a single director of the company enjoying private limited status. In
the "company proposed name" field we will enter Al-Barka Fossil Fuels Private Limited as our
first-choice name. However, we also have to enter two other unique business names in such
case we do not receive our chosen business name. The fees for this form is PKR 250.
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Next there is a field in which you have to state your relationship with a company that has
similar name to Al-Barka, in that field we have to type NIA. Then we have to select our principal
line of business which in this case will be Fuel Filling or similar. Then we have to give the
meaning of the company name in case there are any abbreviations, here we will also type NIA.
Then we have to make payment via credit card or bank transfer via bank challan which can be
deposited at any branch of MCB and UBL. Lastly Applicant particular information has to be
entered. And both company name application and bank challan form have to be saved and click
on the option "submit process".
After 24 hours of submitting payment, we will receive an email from SECP detailing whether
name we have chosen for the company i.e., available or not. If it is available then the name will
be reserved, we have 60 working days in order to incorporate the company.
After logging in the SECP online website, we will now see Al-Barka Fossil Fuels Private Limited’s
(hereinafter referred as Company) company name with no incorporation number on the screen.
We then have to select the login option and continue with the link of Company incorporation to
complete the incorporation of company. We then have to complete the company registered
office section and the details of the nominee of the company after the user who is applying for
application.
Ownership details is mentioned as follows:
1. Abdullah Shaukat (Director)
2. Mohsin Mahmood (Director)
3. Muhammad Bin Waseem (Director)
4. Sheeza Moeen (Director)
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
In the Witness section, no witnesses are required for the online process hence we can skip this
step. Then we have to select Table A part 1 (articles of association (AoA0 of company limited by
shares). We can also apply for EOBI and if we do then we have to select the current number of
employees in the company. In the declarant section, we declare ourselves as the person named
in the articles as a director and finally sign off the document.
There is a section in which we can upload (PDF) all the CNIC of all the directors, power of authority
and name availability letter. After reviewing all information, we will download article of
association from SECP website, which is an editable form. Here we will add the company name,
Name of directors and particulars/shareholding pattern of directors. The next step is to download
the memorandum of association which is in line with our primary work which is power
generation. Note that there are multiple types of Memorandum of Association (MoA) depending
on the line of work.
After downloading the editable file, we will add the company name, information of directors and
shareholding pattern. We will then upload and attach the MOA and AOA and both have a fee of
250 PKR for filing these documents. We will also enter the pin which was given to us when we
registered with SECP and then click on the submit process option after making a payment for
company incorporation. After submitting all documents, we will receive the company
incorporation number and NTN number in 7 days.
After 7 days, we will receive the company incorporation documents which will be required to
open a bank account. The bank will require incorporation documents, directors ID card copies,
biometrics, a small deposit and a business resolution document verifying the chosen person as a
signatory of the account. After the bank account is opened all directors have to transfer to the
company account an amount according to their shareholding pattern. The deposit slips, account
maintenance certificate and MOA will then be verified by a chartered accountant. The chartered
accountant will release a certificate of receipt of subscription money which will cost around 3,000
PKR. This certificate will then be uploaded! on SECP website with an additional 250 PKR online
charge. This marks the completion of incorporation of Al-Barka Fossil Fuels Private Limited.
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Flow Chart of Company Incorporation
Table 1.1 Flow chart of the Company incorporation
Business Overview
We will setup our fuel filling stations in different areas of city depends upon a survey analysis
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
to analyze the market need as per the demographic situation. The main reason behind the
selection of any certain area will be the demand supply gap analysis, current sales figures of
existing fuel filling station, future expansion plans but development authorities, heavy traffic
flow, and industrial states and dry port areas. In city areas major consumers will be of petrol
and HOBC whereas in the dry port area and main highways HSD consumption will be more
than petrol and HOBC. We have selected PSO as our agency company because it’s a national
company and the delivery cycle is relatively smooth with respect to other OMCs. There will
be consumables other than necessary fuel items as per OMC policy a certain ratio of lubricant
inventory must be maintained i.the e., 1% of total monthly sale of fuels. This will bring
additional income as well, other than that there will be other income heads as well that will
be rent incomes of TUC shop, Tyre shop, ATM booth, and Washing stations. The contribution
to finance the assets will be as of 40% equity and 60% debt of the total required capital. Debt
will be divided in working capital and long-term loans, long term loans will be arranged
against our fixed assets for a period of five-years. Detail business plan methodology is
explained here below.
Business Plan Description
As per our business strategy, we will establish 6 fuel filling stations at following locations at
Lahore along with expected sales numbers.
• Quaid-e-Azam Industrial Estate: At Madar-e-millat road, we are planning top open fuel
filling station at 4 canal area, the land will be acquired on lease amount of Rs. 1.8
Million and installation works will be done after acquiring all necessary approvals and
NOC from LDA and regulators.
• Truck Adda, Ravi Road, Sadaat Colony: At Ravi road near mandi police choki, Truck Adda,
we are planning to open fuel filling station at 6 kanal on leasing amount of 2.5 million
PKR. Installation works will be done after acquiring all necessary approvals and NOC
from LDA and regulators.
• Bahria Town Lahore: At the entrance of Bahria Town on Hdiara drain road, we are
planning to open fuel filling station at 3 kanal on leasing amount of 3.0 million PKR.
Installation works will be done after acquiring all necessary approvals and NOC from
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
LDA and regulators.
• Band Road chowk Yateem khana Lahore: we are planning to open fuel filling station at
2 kanal on leasing amount of 1.8 million PKR. Installation works will be done after
acquiring all necessary approvals and NOC from LDA and regulators.
• Sundar Industrial Estate: Near the entrance of Sundar Industrial Estate at Sundar
Industrial Estate road we are planning to open fuel filling station at 8 kanal on leasing
amount of 1.8 million PKR. Installation works will be done after acquiring all necessary
approvals and NOC from LDA and regulators.
• Zarar Shaheed Road: Zarar shaheed road near Askari IX, we are planning to open fuel
filling station at 6 kanal on leasing amount of 2.5 million PKR. Installation works will
be done after acquiring all necessary approvals and NOC from LDA and regulators.
Ownership and capital structure
Shareholders
Shares Value
Share
Abdullah Shaukat
10%
200,000,000
10%
Mohsin Mahmood
10%
200,000,000
10%
Muhammad Bin Wasim
10%
200,000,000
10%
Sheza Moeen
10%
200,000,000
10%
Total Equity
800,000,000
40%
Total Debt
1,200,000,000
60%
Total Capital
2,000,000,000 100%
Financial Assumptions
1. Capital structure consists of 40% equity and 60% debt.
2. Interest rate considered 6 months KIBOR+2%. KIBOR will be the prevailing market rate.
3. Yearly growth rate of 5% per Annum was considered.
4. Tax rate on sale of fuel was 12% as per FBR and another income tax rate was charged as
normal rates.
Flat margin is considered 7 PKR / liter sale as per ECC.
5. Sale mix will be considered as 20% credit sales with 50 days’ credit period.
6. Fixed assets are depreciated on straight line basis.
7. Life of assets was determined based on market practices
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
8. Life of assets varies between 5 year to 20 years
9. Increment rate on employee salaries and other administration expenses is considered
10%.
10. Assets Maintenance rate is considered as 3% of total assets
11. Utilities rates to be grow at 10%
12. Daily sale at different locations was as followed:
Petrol
HSD
HOBC
Total
Unit 1
15,000
10,000
2,000
27,000
Unit 2
10,000
20,000
30,000
values in Liter
Unit 3
Unit 4
20,000
20,000
5,000
5,000
5,000
5,000
30,000
30,000
Unit 5
11,000
20,000
31,000
Unit 6
11,000
20,000
31,000
13. Approval for the opening of fuel stations on locations mentioned above.
14. Other incomes estimated/segregated revenues as follows
15. Lubricant sale was assumed to be 1% of total accumulative sale of fuels.
16. Market risk premium of 5% was assumed based on the risk of business.
17. 3 months’ recent T-bill rate of 16.81% as per the last SBP auction was assumed to
remain constant
18. 6 monthly KIBOR rate of 15.90% was assumed to remain constant over the years.
19. Loan to be approved as per estimate.
Statement of Financial Position
STATEMENT OF FINANCIAL POSITION
Year 0
Non-Current Assets
Property Plant & Equipment 471,408,600
Vehicles
180,000,000
Year 1
Year 2
Year 3
Year 4
Year 5
447,473,640
124,013,000
383,551,680
108,013,000
319,629,720
92,013,000
255,707,760
76,013,000
191,785,800
60,013,000
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Furniture & Fixtures
Security Deposit
Current Assets
Stock in trade
Trade Debts
Cash & Bank Balances
TOTAL ASSETS
Non-Current Liabilities
Long Term Loan
Current Liabilities
Trade Payables
Current Portion of long
term liabilities
Short term borrowing
TOTAL LIABILITIES
Equity
Issued, subscribed and paid
up share capital 80,000,000
ordinary shares of Rs 10
each
Retained Earnings
EQUITY & LIABILTIES
4,200,000
609,600,000
1,265,208,600
3,360,000
609,600,000
1,184,446,640
2,520,000
609,600,000
1,103,684,680
1,680,000
609,600,000
1,022,922,720
840,000
609,600,000
942,160,760
609,600,000
861,398,800
202,057,866
532,733,534
734,791,400
2,000,000,000
177,882,904
395,998,174
162,559,848
736,440,926
1,920,887,566
302,357,005
415,798,083
147,883,287
866,038,374
1,969,723,054
251,899,765
436,587,987
203,295,524
891,783,276
1,914,705,997
200,129,653
458,417,386
225,391,553
883,938,593
1,826,099,353
198,271,036
481,338,255
87,711,533
767,320,824
1,628,719,625
693,400,129
693,400,129
561,994,252
561,994,252
405,870,930
405,870,930
220,380,810
220,380,810
-
-
-
-
-
-
-
-
110,601,697
131,405,877
156,123,322
185,490,119
220,380,810
-
395,998,174
506,599,871
1,200,000,000
335,798,083
467,203,959
1,029,198,211
396,587,987
552,711,309
958,582,239
338,417,386
523,907,505
744,288,316
231,338,255
451,719,066
451,719,066
-
800,000,000
800,000,000
800,000,000
800,000,000
800,000,000
800,000,000
800,000,000
2,000,000,000
91,689,355
891,689,355
1,920,887,566
211,140,816
1,011,140,816
1,969,723,054
370,417,681
1,170,417,681
1,914,705,996
574,380,287
1,374,380,287
1,826,099,353
828,719,624
1,628,719,624
1,628,719,624
Statement of Profit or Loss
STATEMENT OF PROFIT OR LOSS
Revenue
COGS
Gross Profit
Admin Expenses
Operating Profit
Other Income
Other Expenses
Finance Cost
Profit Before Tax
Tax
Profit after Tax
Year 1
14,453,933,351
(14,289,828,748)
164,104,603
(9,000,000)
155,104,603
158,314,126
(13,206,500)
(151,332,366)
148,879,862
(57,190,508)
91,689,355
Year 2
15,176,630,019
(15,019,254,931)
157,375,088
(9,900,000)
147,475,088
163,349,832
(226,500)
(131,096,926)
179,501,494
(60,050,033)
119,451,461
Year 3
15,935,461,519
(15,763,654,286)
171,807,233
(10,890,000)
160,917,233
168,637,323
(248,500)
(106,976,657)
222,329,399
(63,052,535)
159,276,865
Year 4
16,732,234,595
(16,545,767,422)
186,467,174
(11,979,000)
174,488,174
174,189,190
(272,700)
(78,236,895)
270,167,768
(66,205,161)
203,962,607
Year 5
17,568,846,325
(17,367,529,407)
201,316,918
(13,176,900)
188,140,018
180,018,649
(299,320)
(44,004,591)
323,854,756
(69,515,419)
254,339,337
EPS
1.15
1.49
1.99
2.55
3.18
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Statement of Cash Flows
STATEMENT OF CASH FLOWS
Net Profit
Depreciation
(Increase)/Decrease in
Trade Receivables
Increase/(Decrease) in
Trade Payables
(Increase)/Decrease in
Inventory
Security Deposit
Net cash inflow/(outflow)
from operating activities
Cash flows from investing
activities
CAPEX
Net cash outflow from
investing activities
Cash flows from financing
activities
Proceeds/(Repayment)
from short term finances
Proceeds/(Repayment)
from Long term finances
Issuance of equity
Net cash inflow from
financing activities
Net increase/(decrease) in
cash and cash equivalents
Cash and cash equivalents
at the beginning of the year
Cash and cash equivalents
at the end of the year
Year 0
-
Year 1
91,689,355
80,761,960
Year 2
119,451,461
80,761,960
Year 3
159,276,865
80,761,960
Year 4
203,962,607
80,761,960
Year 5
254,339,337
80,761,960
-
(395,998,174)
(19,799,909)
(20,789,904)
(21,829,399)
(22,920,869)
-
-
-
-
-
-
(202,057,866)
24,174,962
(124,474,101)
50,457,240
51,770,112
1,858,617
(202,057,866)
(609,600,000)
(371,823,212)
-
(144,274,010)
-
29,667,336
-
29,940,712
-
(21,062,252)
-
(811,657,866)
(199,371,897)
55,939,411
269,706,161
314,665,279
314,039,045
(645,595,600)
-
-
-
-
-
(645,595,600)
-
-
-
-
-
395,998,174
(60,200,091)
60,789,904
(58,170,601)
(107,079,131)
(231,338,255)
804,001,826
(110,601,697)
(131,405,877)
(156,123,322)
(185,490,119)
(220,380,810)
800,000,000
-
-
-
-
-
2,000,000,000
(170,801,789)
(70,615,973)
(214,293,923)
(292,569,250)
(451,719,065)
532,733,534
(370,173,686)
(14,676,562)
55,412,238
22,096,029
(137,680,021)
(10,013,000)
532,733,534
162,559,848
147,883,287
203,295,524
225,391,553
532,733,534
162,559,848
147,883,287
203,295,524
225,391,553
87,711,533
Initial Investment
Following is the segregation of the initial investment of the business.
Initial Cost
Fixed Assets
Security Deposit
One Time Expenses
Working Capital
645,595,600
609,600,000
13,000,000
731,804,400
2,000,000,000
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Fixed Assets Schedule:
Fixed assets Schedule
Book Value
Asset
Tiles
Initial Cost
210,693,600
Year 1
189,624,240
Year 2
168,554,880
Year 3
147,485,520
Year 4
126,416,160
Year 5
105,346,800
Canopy
19,440,000
18,468,000
17,496,000
16,524,000
15,552,000
14,580,000
Dispensers
64,800,000
58,320,000
51,840,000
45,360,000
38,880,000
32,400,000
Storage tank
36,750,000
33,075,000
29,400,000
25,725,000
22,050,000
18,375,000
Signboards
12,000,000
10,800,000
9,600,000
8,400,000
7,200,000
6,000,000
Electric Work
36,000,000
28,800,000
21,600,000
14,400,000
7,200,000
-
Lub Booth
3,600,000
3,420,000
3,240,000
3,060,000
2,880,000
2,700,000
Car Wash
5,760,000
5,472,000
5,184,000
4,896,000
4,608,000
4,320,000
Tyre Shop
2,400,000
2,280,000
2,160,000
2,040,000
1,920,000
1,800,000
TUC Shop
7,200,000
6,840,000
6,480,000
6,120,000
5,760,000
5,400,000
ATM Booth
1,152,000
1,094,400
1,036,800
979,200
921,600
864,000
Food Chain/Bank
72,000,000
57,600,000
43,200,000
28,800,000
14,400,000
-
Lube Machinery
7,800,000
6,240,000
4,680,000
3,120,000
1,560,000
-
Car wash Machinery
7,800,000
6,240,000
4,680,000
3,120,000
1,560,000
-
Nozzle Control System
24,000,000
19,200,000
14,400,000
9,600,000
4,800,000
-
Furniture & Fixtures
4,200,000
3,360,000
2,520,000
1,680,000
840,000
-
Lorry
100,000,000
90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
Tanker
30,000,000
24,000,000
18,000,000
12,000,000
6,000,000
-
TOTAL
645,595,600
564,833,640
484,071,680
403,309,720
322,547,760
241,785,800
Straight line method was used to depreciate the assets. Life of assets was determine based on
market practices. Book value of fixed assets at year 5 would be 241.785M.
Finance cost
Kibor
Bid
Offer
Spread
Rate
3-M
15.62%
15.87%
2.0%
6-M
15.65%
15.90%
2.0%
12-M
15.69%
16.19%
2.0%
rd
* KIBOR rate as on 23 Nov 2022
Round
17.87%
17.90%
18.19%
18.00%
18.00%
19.00%
As per State bank of Pakistan website the KIBOR rate as on 23.11.2022 were as mentioned below.
Further, representatives of United Bank Ltd. and Allied bank ltd. Were contacted for discussion of loan
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AL-BARKA FOSSIL FUELS PRIVATE LIMITED
structuring and spread estimates. Overall project was briefly explained to the representatives and based
on a similar nature loan already financed a spread of 200 BPS was informed.
Total Debt
Year 0
Working Capital 395,998,174
Demand Finance 804,001,826
Total Debt
1,200,000,000
Year 1
335,798,083
693,400,129
1,029,198,211
Year 2
396,587,987
561,994,252
958,582,239
Year 3
338,417,386
405,870,930
744,288,316
Year 4
231,338,255
220,380,810
451,719,066
Year 5
-
Two categories of loans were recommended; long term loan on equal installments for five
years, and working capital loan to bridge the cash flow gap of the frim. The below above
explained the overall debt of Rs. 1,200M Company raised comprises of Rs. 395.998M short term
borrowing and Rs. 804.001M long term loan.
Amortized schedule
Period
BGN Balance
0
1
2
3
4
5
6
7
8
9
10
804,001,826
751,082,354
693,400,129
630,526,503
561,994,252
487,294,098
405,870,930
317,119,676
220,380,810
114,935,447
PMT
125,279,637
125,279,637
125,279,637
125,279,637
125,279,637
125,279,637
125,279,637
125,279,637
125,279,637
125,279,637
Interest
72,360,164
67,597,412
62,406,012
56,747,385
50,579,483
43,856,469
36,528,384
28,540,771
19,834,273
10,344,190
Principal
52,919,472
57,682,225
62,873,625
68,532,252
74,700,154
81,423,168
88,751,253
96,738,866
105,445,364
114,935,447
Closing
804,001,826
751,082,354
693,400,129
630,526,503
561,994,252
487,294,098
405,870,930
317,119,676
220,380,810
114,935,447
0
Above is the amortization schedule for long-term loan of amount Rs. 800.001M which was repaid in
equal installments of Rs. 125.279M on a semi-annual basis.
Staffing Details
Designation
Manager
Guards
Supervisor
Cashier
Fuel filler
Cleaner
Head Count Salary
Total
Annual
6
100,000
600,000
7,200,000
18
30,000
540,000
6,480,000
6
50,000
300,000
3,600,000
12
50,000
600,000
7,200,000
144
30,000
4,320,000
51,840,000
6
25,000
150,000
1,800,000
15
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Office Boy
6
198
Other Benefits
Net Salaries
25,000
310,000
31,000
341,000
150,000
6,660,000
666,000
7,326,000
1,800,000
79,920,000
7,992,000
87,912,000
Following is the detail of staff recruitment for all six fuel filling stations, we have incorporated
12 hours and eight hours shifts depending upon the traffic schedule of the fuel filling station
areas. A total number of 6 managers and an equal number of supervisors along with 144 fuel
filler workforce have been advised for recruitment via a recruitment agency. Moreover, other
support and security staff has been recruited as per the required demand. Overall our business
model ensures 198 direct employment opportunities for society.
Administration Details
Designation
Manager Accounts
Accountant
Net Salaries
Head Count Salary
Total
Annual
6
80,000
480,000
5,760,000
6
45,000
270,000
3,240,000
12
125,000
750,000
9,000,000
Other than the above direct human resources at fuel filling stations there will be 6 accountant
and equal number of manager accounts
Fuel Prices
Rates / Liter
Category
Year 1 Year 2 Year 3 Year 4 Year 5
PREMIER EURO 5
224.8 224.8 224.8 224.8 224.8
Sale Price HI-CETANE DIESEL EURO 5 235.3 235.3 235.3 235.3 235.3
Octane Euro 5 (Lahore)
265.88 265.88 265.88 265.88 265.88
PREMIER EURO 5
217.8 217.8 217.8 217.8 217.8
Cost Price HI-CETANE DIESEL EURO 5 228.3 228.3 228.3 228.3 228.3
Octane Euro 5 (Lahore)
256.98 256.98 256.98 256.98 256.98
Margin Premier
7
7
7
7
7
Margin
Margin HSD
7
7
7
7
7
Margin Hi octane
8.9
8.9
8.9
8.9
8.9
16
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
As per OGRA, current sales and cost prices of PREMIER EURO 5 and HI-OCTANE DIESEL EURO 5 are 224.8
PKR/litter and 235.3 PKR/Litter with a margin of 7 PKR/Litter fixed. Whereas Octane Euro-5 price and
cost is 265.88 and 256.98 respectively with a margin of 8.9 PKR/litter.
The ECC had deliberated upon the Petroleum Division’s summary on July 28 and approved the margins
of dealers at Rs. 7 per liter with the direction that OGRA may review the OMCs’ margins in consultation
with the stakeholders
Estimated cost of capital
Cost of Capital
Rf
Beta
MRP
Km
Re
16.81% <--------1
5.00%
21.81%
21.8%
3Months T-Bill
rate
Build up method was used to calculate the cost of equity. Risk free rate was taken from latest 3
months Tbill rate dated 30.11.2022. Beta was assumed to be as market beta i.e. 1.0. risk
premium of 5% was taken to cater the opportunity cost. A rate of 21.8% was derived based on
aforementioned information as calculated above
Weighted Average Cost of Capital
Weighted Average Cost of Capital
(WACC)
Weight
Cost
WACC
Wd
0.6
15.84%
0.09504
We
0.4
21.8%
0.08724
18.23%
Weighted average was calculated based on 60:40 debts/equity. Equity is an expensive source of
fund as it contains risk premium in it. Debt is inexpensive as compared to equity because of tax
shield effect and since debt ratio is higher resulting in decrease in weighted average cost of
capital as calculated above.
17
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Capital Budgeting Analysis
Operating Cash Flow
EBIT (1-T)
Depreciation
OCF
Initial Investment
WC
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
243,021,721 250,548,387 266,253,522 282,199,502
298,343,928
13,594,810 13,594,810
13,594,810 13,594,810
13,594,810
256,616,531 264,143,197 279,848,332 295,794,312
311,938,738
(1,268,195,600)
939,097,333
(731,804,400) (169,765,347) 227,549,202 173,941,345
273,377
499,805,822
CFFA
(2,000,000,000)
-
86,851,184 491,692,399 453,789,677 296,067,689 1,750,841,892
Operating cash flow was estimated based on the below mentioned formula. Initial investment of
Rs. 2,000M comprises of Rs. 1,268M investment in fixed assets, onetime cost etc as explained in
initial cost section. Working capital of Rs. 169M was more required to cater the need and then it
gradually decreases to Rs. 499M in year 5. Terminal value of Rs. 1,483M was taken as book value
of assets at year 5 along with working capital recovery. It has assumed that assets will be sell off
at book value in year 5 being conservative.
Payback Period & Discounted Payback Period
Payback Period
Discounted Payback Period
Years
CF
Remaining
Time
PV @ 18.23
Remaining
Time
0
(2,000,000,000)
1
86,851,184
86,851,184
1
73,460,757
73,460,757
1
2
491,692,399
491,692,399
1
351,765,148
351,765,148
1
3
453,789,677
453,789,677
1
274,595,606
274,595,606
1
4
296,067,689
296,067,689
1
151,533,845
151,533,845
1
5
1,750,841,892
671,599,050
0.38
757,958,129
1,148,644,644
1.52
2,000,000,000
4.38
2,000,000,000
5.52
Payback period explains the duration it takes for a Company to recover its initial investment.
Discounted payback however, explains the same but with effect of discount rate incorporated.
Payback period of the project is calculated as 4.38 years according to which it should be accepted.
Discounted payback period was 5.52 years which is higher than the life of project i.e. 5 years
hence rejected.
18
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Net Present value
Net Present Value
Years
0
Cash Flow
PV @ 18.23
(2,000,000,000) (2,000,000,000)
1
86,851,184
73,460,757.34
2
491,692,399
351,765,148.4
3
453,789,677
274,595,606.2
4
296,067,689
151,533,844.5
5
1,750,841,892
757,958,128.6
NPV
(390,686,515)
IRR
11.62%
Net present value (NPV) explains the difference between inflows and outflows of the project on
a discount rate. The NPV of the project at a discount rate of 18.83% turned out to be negative at
Rs. 390M according to which the project should be rejected. IRR explains the rate where NPV
becomes 0 which is 11.62%. According to IRR the project follows the same decision i.e. rejection
because IRR is less than Weighted average cost of capital (11.62% < 18.23%).
Free Cash Flow to Company
Free Cash Flow to Company
OCF
NWC
CAPEX
FCFF
1
256,616,531
(169,765,347)
86,851,184
2
264,143,197
227,549,202
491,692,399
Years
3
279,848,332
173,941,345
453,789,677
4
295,794,312
273,377
296,067,689
Share Valuation at year 5
FCFF 5
G
WACC
Value at Year 5
# of shares
Market Price per share
5
311,938,738
499,805,822
811,744,560
811,744,560
5%
18.23%
6,136,563,054
80,000,000
76.71
Free cash flow to Company explains the free cash available to the Company after meeting
necessary requirement in terms of working capital and CAPEX. FCFF of the Company grew from
86M to 811M over the years.
19
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Valuation of Company at year 5 turned out to be 6,136M based on constant growth rate of 5%
and WACC of 18.23% assuming market rate remains at higher side. Market value per share of
Company comes out to be Rs. 76.71 per share against book value of Rs. 20.36 per share.
Ratio Analysis.
Liquidity Ratios
Liquidity Ratios
1 NWC
2 Current Ratio
3 Quick ratio
4 NWC to sales
Formula
NWC= CA-CL
CR= CA/CL
(CA – INV.)/CL
NWC/Sales
Year 1
269,236,967
1.58
1.20
0.02
Year 2
313,327,065
1.57
1.02
0.02
Year 3
367,875,771
1.70
1.22
0.02
Year 4
432,219,527
1.96
1.51
0.03
Year 5
767,320,824
NA
NA
0.04
Liquidity ratios explains the Company’s ability to meet its short term obligation. It tells how
lucrative the Company position is at a point and time. Commonly used ratios are current ratio
calculated by dividing current assets over current liabilities. Quick ratio determines in the same
method as current ratio but it excludes the inventory. Over all a consistent trend has been
observed in the liquidity ratios with improvement over the years. This is mainly attributable to
efficient management of resources by the Company.
Net working capital more than doubled over the years because Company was prudently utilizing
its debt and consistently paying off its debt obligations over the years.
Activity Ratios
Activity Ratios
1 A/R TO
2 Days Sales AR
3 A/P TO
4 Days AP
5 Inv TO
6 Days Sale Inventory
7 Operating Cycle
Cash Conversion
8
Cycle
Formula
Sales/Avg AR
365/AR TO
CGS/Avg AP
365/AP TO
CGS/Avg Inv
365/ Inv TO
Days Inventory + Days Receivables
Year 1
NA
NA
NA
NA
73.58
4.96
NA
Year 2
10.35
35
NA
NA
61.12
5.97
41
Year 3
10.77
34
NA
NA
55.61
6.56
40
Year 4
9.96
37
NA
NA
71.59
5.10
42
Year 5
9.79
37
NA
NA
85.29
4.28
42
Operating Cycle - Days AP
NA
41
40
42
42
Activity ratios explain Company’s management of its working capital. Receivables remains
consistent in a range of 35 to 37 days. Inventory days showed mixed trend which at starts
increases and then decrease due to utilizing funds in paying off the debt obligations. Operating
20
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
cycle and cash conversion cycle remain at same level because Company build inventory on cash
only.
Profitability Ratios
Profitability Ratios
1 GP Margin
2 Operating Margin
3 EBT Margin
4 Net Profit Margin
6 Earnings per share
Formula
Gross profit/Sales
Operating Profit/Sales
EBT/Sales
Net Income / Sales
Net Income/Outstanding shares
Year 1 Year 2 Year 3 Year 4 Year 5
1.14% 1.04% 1.08% 1.11% 1.15%
1.07% 0.97% 1.01% 1.04% 1.07%
1.03% 1.18% 1.40% 1.61% 1.84%
0.63% 0.79% 1.00% 1.22% 1.45%
1.15
1.49
1.99
2.55
3.18
Profitability ratios explains how efficient is the Company in generating profit at different levels
against its revenue. Overall a consistent trend has been observed with slight upward and
downward due to fixed margins defined by the government. Operating margins also remains
consistent because of efficient utilization of fixed expenditures. EBT margin improves from
1.03% in year 1 to 1.84% in year 5 because of lower finance cost since Company was
consistently paying off its debt.
Asset Utilization
Asset Utilization
Formula
1 Total Assets Turnover Sales / Total Assets
2 Fixed Asset Turnover Sales/FA
Year 1 Year 2 Year 3 Year 4 Year 5
7.52
12.20
7.70
13.75
8.32
15.58
9.16
17.76
10.79
20.40
Asset utilization ratio explains the Company efficiency in generating revenue against its assets.
Overall a rising trend has been observed over the year due to consistent improved market
position and better marketing Company was able to generate more revenue against same level
of assets.
Financial Leverage
1
2
3
4
5
6
7
8
Financial Leverage
Debt Ratio
LTD to equity ratio
Equity to Total assets
% of TA financed by CL
% of TA financed by LTL
% of TA financed by OE
Interest Coverage Ratio
Cash flow coverage
Formula
Total debt / Total Asset
Long term Debt/ Equity capital
Total equity/Total Assets
CL/TA
LTL/TA
OE/TA
EBIT/ Interest Expense
OCF / Interest Expense
Year 1
0.54
0.63
0.46
24%
29%
46%
1.02
1.70
Year 2
0.49
0.40
0.51
28%
21%
51%
1.12
2.01
Year 3
0.39
0.19
0.61
27%
12%
61%
1.50
2.62
Year 4
0.25
0.00
0.75
25%
0%
75%
2.23
3.78
Year 5
0.00
0.00
1.00
0%
0%
100%
4.28
7.09
21
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Financial leverage explains Companys’ position to meet its financial obligations. The debt burden
ratios were consistently decreasing since Company was consistently paying off its debt
obligations both long term and short term. At year 5, the Company stands debt free since it has
paid off all debt through the cash flows of the Company.
Interest coverage ratio and cash flow coverage explains Company ability to meet its debt
obligations. Overall a rising trend has been observed as Companys’ earnings were consistently
improving and finance cost was decreasing resulting dual effect in improving
Return on Capital
Return on capital
1 ROIC
2 Return on Assets
3 Return on equity
ROE Calculation (Du
Pond)
4
Return on equity
Formula
EBIT(1-T) / Total capital invested
Net income / Total Assets
Net income / Total Equity
Net income / Sales
Sales / Total Assets
Equity Multiplier (TA/OE)
NI/Sales x Sales / TA x Equity multiplier
Year 1
8.07%
4.77%
10.28%
0.63%
7.52
2.15
10.28%
Year 2
7.49%
6.06%
11.81%
0.79%
7.70
1.95
11.81%
Year 3
8.40%
8.32%
13.61%
1.00%
8.32
1.64
13.61%
Year 4
9.56%
11.17%
14.84%
1.22%
9.16
1.33
14.84%
Year 5
11.55%
15.62%
15.62%
1.45%
10.79
1.00
15.62%
Over all the rising trend has been observed in the ratios. total invested capital remains constant
and earnings were consistently improving results in increase in numerator. Return on assets
tends to increase more over equity because Company has heavily invested in its working capital
which was over the time decreases due to paying off debt.
Market Measures
1
2
3
4
Market Measures
Book value of equity
# of shares (‘000)
Market value
Market Value per share
MV/BV
Formula
Total equity / OS shares
Year 1
11.15
80,000
Year 2
12.64
80,000
Year 3
14.63
80,000
Year 4
17.18
80,000
FCFF(1+g)/WACC-g
Market value / OS shares
Year 5
20.36
80,000
6,136,563,054
76.71
3.77
Over the years, Company book value of equity increased to Rs. 20.36 from 11.15 because of retention of
100% profit. Market value of Company turned out to be Rs. 76.71 per share at year 5 because of higher
earnings and good position in the market.
Scenario Analysis
Revenue
Worse case
13,008,540,016
Base case
14,453,933,351
Best Case
15,899,326,686
22
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
COGS
Gross Profit
Admin Expenses
Operating Profit
Other Income
Other Expenses
Finance Cost
Profit Before Tax
Tax
Profit after Tax
(15,718,811,623)
(2,710,271,607)
(9,900,000)
(2,720,171,607)
142,482,713
(14,527,150)
(166,465,602)
(2,758,681,647)
(62,909,558)
(2,821,591,205)
(14,289,828,748)
164,104,603
(9,000,000)
155,104,603
158,314,126
(13,206,500)
(151,332,366)
148,879,862
(57,190,508)
91,689,355
(12,860,845,873)
3,038,480,813
(8,100,000)
3,030,380,813
174,145,538
(11,885,850)
(136,199,129)
3,056,441,371
(51,471,457)
3,004,969,915
Scenario analysis explains the condition of business based on economic scenarios i.e. worse case
and best case normally. For worse case, all expenses were increased by 10% and all revenues
were down by 10% resulting in loss of Rs. 2,821M in worst case scenario and a profit of Rs. 3,004M
in best case scenario.
Worst Case
Year 0
EBIT (1-T)
Depreciation
OCF
Initial Investment
Working capital
CFFA
NPV @ 18.23
IRR
(1,268,195,600)
(731,804,400)
(2,000,000,000)
(2,000,000,000)
(9,347,987,054)
NA
Year 1
(2,655,125,603)
14,954,291
(2,640,171,312)
(2,640,171,312)
Year 2
(2,655,125,603)
14,954,291
(2,640,171,312)
(2,640,171,312)
Year 3
(2,655,125,603)
14,954,291
(2,640,171,312)
(2,640,171,312)
Year 4
(2,655,125,603)
14,954,291
(2,640,171,312)
Year 5
(2,655,125,603)
14,954,291
(2,640,171,312)
(2,640,171,312)
1,268,195,600
731,804,400
2,000,000,000
(640,171,312)
NPV turned to be negative amounted Rs. 9,348M in worst case because of loss in net income. IRR
cannot be calculated in this case because of negative cash flows.
Best Case
Year 0
EBIT (1-T)
Depreciation
OCF
Initial Investment
Working capital
CFFA
NPV @ 18.23
(1,268,195,600)
(731,804,400)
(2,000,000,000)
(2,000,000,000)
8,676,343,537
Year 1
3,141,169,044
12235329
3,153,404,373
3,153,404,373
Year 2
3,141,169,044
12,235,329
3,153,404,373
3,153,404,373
Year 3
3,141,169,044
12,235,329
3,153,404,373
3,153,404,373
Year 4
3,141,169,044
12,235,329
3,153,404,373
Year 5
3,141,169,044
12,235,329
3,153,404,373
3,153,404,373
1,268,195,600
731,804,400
2,000,000,000
5,153,404,373
23
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
IRR
158%
NPV turned to be positive amounted Rs. 8,676M in best case scenario because of significant
increase in profitability of the Company. IRR tuned out to be 158% and project to be accepted
based on that.
Sensitivity Analysis
Case 1
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
EBIT after tax
Depreciation
366,902,670
366,902,670 366,902,670 366,902,670 366,902,670
14954291
14954291
14954291
14954291
14954291
OCF
381,856,961
Initial
Investment
Working
capital
(1,268,195,600)
1,268,195,600
(731,804,400)
731,804,400
(2,000,000,000) 381,856,961
NPV @
18.23
IRR
381,856,961 381,856,961 381,856,961 381,856,961
381,856,961 381,856,961 381,856,961 2,381,856,961
53,812,388.01
19.09%
Sensitivity analysis explains the impact of change in a single variable on Companys’ profitability.
In the above case, the rental expense was eliminated resulting in a positive impact on net
present value of the Company. The reason was that land value will remain the asset of the
Company and the initial profitability of the Company remains on the higher side.
24
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Conclusion and Recommendation
The purpose of this project is to evaluate the business based on capital budgeting techniques so
that one can take well informed decision if investing in this business. Cash flows were estimated
based on market surveys from different fuel pump representatives.
Capital budgeting techniques were used to estimate the project cash flows and following were
the results;
Method
NPV
IRR
Payback
Disc. Payback
PI
AAR
(390,686,515)
11.62%
4.38
5.52
0.805
16.20%
Decision
Reject
Reject
Accept
Reject
Reject
Reject
Out of six techniques, only the payback period is tuned to the point where the project can be
accepted. Other than that, all methods do not support the business cash flow for the tenor of 5
years.
In final words, we can say that this business model will be feasible in the following
circumstances.
1. Business model execution years must be more than discounted payback period, i.e. at
least six years to make NPV positive.
2. If we wanted to execute the business plan over 5 years period, Land for the fuel filling
stations must be owned by the Business itself.
3. In the current economic scenario, higher discount rates present the value of cash flows
coming out to be lower, if the discount rate is around 7-8% then this business model will
be feasible over 5 years period.
25
AL-BARKA FOSSIL FUELS PRIVATE LIMITED
Bibliography
https://www.brecorder.com/news/40189197
https://www.sbp.org.pk/ecodata/kibor/2022/Nov/Kibor-23-Nov-22.pdf
https://www.sbp.org.pk/ecodata/mtb-bid.pdf
https://profit.pakistantoday.com.pk/2022/07/28/ecc-approves-increase-in-dealers-margin-on-ms-hsd/
https://www.ceicdata.com/en/indicator/pakistan/oil-consumption
https://tribune.com.pk/story/2374437/auto-industrys-future-bright-as-more-players-enter
https://www.psopk.com/en/fuels/fuel-prices
26