HASCOL in distress

Hascol Petroleum Limited (PSX: HASCOL) has only recently announced its financial performance for 2019 (CY19) – not that the market was eagerly waiting for it. The company that enjoyed significant growth from 2014 till 2017 and became the largest oil marketing company in the private sector in terms of oil storages nationwide had a very tough 2019. The company’s market share fell from 12 percent in FY18 to 10 percent in FY19 to 7 percent in FY20. In the last six months of 2019, the company’s market share in total POL products stood at 6 percent, more than half of what it was in the similar period a year before (13 percent from July-Dec 2018).

The decline in market share is a depiction of HASCOL’s falling volumetric sales – the largest decline has been witnessed in furnace oil, but the company has faced lower high speed diesel and motor gasoline sales as well. Besides the industry-wide contraction in volumes due to slower economic activity in 2019, drastic decline in volumes for HASCOLs has been due to shortage of working capital to procure the product, and thus lower sales revenue.

In CY19, the OMC’s revenues fell by 34 percent year-on-year primarily due to the same reason. Lower revenues affected HASCOL’s bottomline, that went deeper into losses from a loss after tax of Rs215 million in 2018 to over Rs25 billion loss in 2019 – further supported by higher other expenses and finance cost. This was due to fluctuation in the international oil prices, market volatility and local economic conditions coupled with massive devaluation of Pakistani Rupee causing an increase in product cost.

A key challenging factor for HASCOL has been its heavy reliance on imports of petroleum products, which gave rise to exchange losses and the inventory losses combined with the unperformed cargoes in 1QCY19. Also the company had to resort to higher short term borrowing that resulted in high financial charges.

While the volumetric growth will continue to pose some challenge for the OMCs including HASCOL going forward in the wake of COVID-19 induced slowdown in the country, the company’s medium to long term Capital Reorganization Program to overcome financial challenges in 2019 could help it overcome some financial constraints. At the beginning of 2020, the company raised Rs7.91 billion from corporate and retail shareholders to improve working capital.