I am delighted that the South Asian Summit is being held in Lahore. It should bring awareness to a lot of companies regarding the advantages of being listed on the stock exchange and thereby improve corporate governance. From Hascol's own experience, I can confirm that listing on the Stock Exchanges in Pakistan has improved the visibility of the company in the eyes of the public, the Government and financial institutions. The advantages of being listed far outweigh the minor irritants resulting from compliance with strict regulatory framework.
A new player surfaces on the oil marketing sector The company always secures its trade debt from commercial sales to IPPs and other debt-burdened institutions through irrevocable financial instruments, thereby shielding itself from the circular debt menace.
While Pakistan State Oil, Shell Pakistan and Attock Petroleum have been the major oil marketing companies, Hascol Petroleum is now elbowing its way into the sector. The company was incorporated in 2001 and granted a full marketing license by the government in February 2005. Hascol came in full public view last year when its initial public offering fetched Rs 1.4bn. It was listed on May 14, 2014.
Its book-building process was six times oversubscribed, and the strike price was set at Rs 56.50. At the close of trading last Monday, the stock was tagged at Rs 110.80-providing a return of 99% in a span of one year. Taking advantage of booming equity market, more companies have come forward to mobilise resources from the capital market.
Yet, there is no strong group that is backing Hascol Petroleum. "Attock Petroleum is under the fold of the Attock Group. Shell International takes care of Shell Pakistan; the government holds a major stake in PSO; and Parco supports Total,"said a sector expert.
Hascol seems to be a team effort of oil professionals. Its chairman and CEO, Mumtaz Hasan, holds the largest equity in the company. The chairman is believed to offer his personal guarantees in securing bank borrowings.
But the company has a strategic agreement with Fuchs lubricants, one of the largest global manufacturers of lubricants and an associate of Fuchs Petrolub AG, which is based in Mannheim, Germany.
"This agreement allows Hascol Pakistan to manufacture, import, distribute and sell branded lubricating oils and greases in the country," said an analyst at Taurus securities. The company had also acquired a 28.85pc stake in Pakistan Refinery Limited last July, according to a stock exchange filling.
With total assets of Rs 15bn, the company nonetheless appears to be moving forward. It primarily deals in three major products: motor spirit (MS), high speed diesel (HSD) and furnace oil (FO).
"Market watchers say it has been able to rapidly increase its market share from less than 1% a couple of years ago to 6% by the first quarter of 2015, according to public information available.
Hascol has gradually ramped up its presence in Punjab and Sindh and expanded its retail network," said a senior analyst. It has also worked to improve its infrastructure to support uninterrupted supplies to its outlets by building storage facilities in Shikarpur in sindh and Machike in Punjab. This has helped the company achieve higher per-outlet sales.
Some suggest it is not bad to be a small player, as they can more easily overcome financial constraints seen in the OMC sector owing to their lower inventory-holding period (which minimizes inventory losses), greater sensitivity to recent margin hikes for petrol and HSD, and the ability to increase their market share.
An analyst at Taurus Securities highlighted that Hascol is immune to the hazards of the circular debt, which has plagued other OMCs, particularly PSO. "The company's main FO customers are Nishat's independent power producers and Liberty Power. It has maintained a very defensive policy to minimise the risk of burgeoning receivables."
The analyst pointed out that the company always secures its trade debt from commercial sales to IPPs and other debt-burdened institutions through irrevocable financial instruments. "Resultantly, it remains unharmed from the circular debt menace."
Hascol earned a profit-after-tax of Rs 273m in the quarter ending March (1QCY15), which translated into earnings-per-share of Rs 3.02. This was up 46% from net earnings of Rs 187m and eps of Rs 2.07 in 1QCY14.
In his report to shareholders, CEO Mumtaz Hasan said the company's first quarter performance was "outstanding both in items of volume growth and profitability". He observed that a major achievement was fine-tuning the company's supply chain management to ensure that its inventory losses were kept to a minimum.
"Work is also proceeding at a fast pace on the completion of our Daulatpur Depot, which will hopefully be fully operational in the second quarter of 2015. With the completion of this depot, we will be in a position to improve our supply chain dynamics in central Sindh, thereby boosting our HSD and MS volumes and profitability," he asserted.
Muhammad Affan Ismail, an analyst at BMA capital, pointed out that the company's volumetric sales have grown at 14% compounded annually for the past three years. Sales and earnings are expected to gain further momentum owing to the company's expanding retail outlet network, reduced prices of motor fuel, and improving industrial activity.
"Hascol's strong cash balance - Rs 2bn by end-March - and its steady operating cash generation would also ensure timely completion of key projects, mainly the lubricant and grease plant and LPG stations etc.", he added.
The company is determined to excel and shine as a bright precedent in the industry. It is indeed an honourable moment as the very first locally produced product, Blitz, emerges from the Hascol family. From design esthetics to product performance, each and every aspect is aimed at delivering the best. The addition of Blitz to MCO will further strengthen the company's position and therefore substantially increase its market share.
The competitive pricing will give the company an edge over their competitors and the sales are expected to soar beyond expectations. Available at a very reasonable retail price of Rs 220, the product is set to give a tough competition to other market players who are offering their products at higher margins.
Hascol Petroleum expects to launch Blitz simultaneously all over Pakistan by the mid of June, 2015 and hopes to exceed all expectations. It is an incredibly great feeling to launch a product that is 'Made in Pakistan'!
Another outstanding achievement of the company is its attempt to expand its retail business in the country by acquiring 20 new fuel stations located on the Lahore-Islamabad Motorway. Hascol Petroleum Limited has entered into an agreement with Motorway Operations and Rehabilitation Engineering (Private) Limited, a subsidiary of Frontier Works Organisation (FWO) to take legal possession of 20 retail outlets on the Lahore-Islamabad Motorway.
The retail outlets will be upgraded to international standards and will be equipped with state of the art equipment and facilities. With the addition of these outlets, the Hascol brand will get a tremendous boost in Central Punjab and will have a positive impact on the sales volume and profitability of the company. As a promotion, the company offers its customers a discount of Rs 2 per liter at all Motorway retail outlets. The future looks very promising for Hascol Petroleum and the best is yet to come.
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