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BR Research

Hascol rally still storming

Hascol Petroleum Limited’s share price still got fuel! The stock has been scooting up, beating its peer OMCs and t
Published April 14, 2017

Guscol

Hascol Petroleum Limited’s share price still got fuel! The stock has been scooting up, beating its peer OMCs and the benchmark index. The rally in the stock has been phenomenal, and long; the share price has increased by five times since its IPO in 2014.

There have been some solid factors behind the OMC’s stock performance. First, Hascol’s share price growth speaks volumes of the OMC’s financial and operational performance over the years and the key growth driver has been its volumetric growth. Dealing in petrol, diesel and furnace oil, Hascol is now among the top oil marketing companies of the country in terms of volumes. Moreover, its superior volumetric growth has been outpacing the industry peers, and this growth is likely to continue till FY21 as forecasted by various brokerage firms. The latest financial year, 2016 was another tremendous year for the Hascol. The firm’s sales volumes increased by almost 46 percent year-on-year and profit before tax was in excess of Rs2 billion. The firm ended the year as the third largest OMC in the country in terms of volumes.

Second, Hascol Petroleum has been enjoying the premium due to the deal struck in November 2015, when the global oil trader, Vitol acquired 15 percent of Hascol along with an option to buy another 10 percent in one year, which it has recently availed. Vitol has a leading bunkering and blending facility in UAE.

The same company has acquired Shell’s operations in various African countries.

Also, the rally in share price partly comes from the firm’s reduced weighted average cost of debt; the re-profiling of its Rs2 billion Sukuk at KIBOR+1.5 percent issued to fund its working capital and storage expansion has brought down its cost of debt.

Recently, investor interest in Hascol, and hence the rise in share price, has comes from the announced capital expenditure along with its aggressive retail expansion. By the end of 2017, the retail network is expected to cross 500 retail outlets, while two new storage facilities at Sahiwal and Amangarh will be operational.

In FY16, it also commissioned its ZY terminal at Kemari, which has enabled the company to import larger volumes of motor gasoline. Also Hascol completed the storage facility at Mehmood Kot in 2016, and the pipeline has also been connected with the Papco Pipeline, which has helped the firm to be in a position to receive diesel directly via pipeline from Karachi.

The company has also set up a new joint venture company with Vitol in the name of Hascol Terminals Limited to build 200,000 tons storage facility at Port Qasim. Construction work is in process, and a major part of the facility is expected to come online by the end of 2017.

In 2016 only, the OMC announced its director’s approval of setting up a lube oil blending and grease plant, for which six acres of land has been acquired at Port Qasim for building the plant in collaboration with FUCHS-Germany.

The total cost of the project is set to be around Rs1.8 billion, and the plant will be operational by 2018.

Hascol is also entering the LPG business and has applied to OGRA for LPG Marketing License. The firm will set up a storage facility at Port Qasim to import LPG and sell bulk LPG to third parties. Hascol and Vitol have also started joint venture Company for marketing of LNG in the country where Vitol will be a 70 percent shareholder and Hascol will be a 30 percent shareholder.

With the growth mode on, there is no doubt why the stock has been up and beating the market.

However, with oil prices rising once again, the risk from volatility in the oil market cannot be ruled out. Ramping up supplies and the heavy capex is also likely to strain the firm’s liquidity position. These risk factors can bring the stock closer to the ground; some respite in the rally can already be witnessed.

Copyright Business Recorder, 2017

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