HASCOL’s miserable 1HCY19

Imports-led businesses have had a bad start to 2019 (or a bad end to FY19 in cases where they follow the fiscal year). Exchange losses have overshadowed any growth in revenues or reduction in other costs. The oil marketing segment’s performance has been marred by exchange losses where smaller players have been hit harder than the big players.

After a glimpse of some recovery in 1QCY19, Hascol Petroleum Limited (PSX: HASCOL) has posted a dismal performance for 2QCY19 and an overall bleeding picture for 1HCY19. On a year-on-year basis, the OMC’s revenues declined by 29 percent year-on-year in 1HCY19, whereas the top line slipped by 45 percent in the second quarter ending June 30, 2019.

Volumetric sales for HASCOL have been hit by falling demand and slower economic growth as well as increased competition due to the entrance of new and smaller players in the segment.  According to some estimates, the overall petroleum products sold by the company dropped by around 60 percent year-on-year in 2QCY19. Product wise, all key products registered a decline in the period under review. It is also expected that the firm’s kept its imports in check to lower the impact of currency depreciation.

Speaking of currency depreciation, HASCOL’s net exchange losses for 1HCY19 were up by 34 percent, year-on-year, and by 58 percent in 2QCY19. Also, the finance cost of the company witnessed over six times increase, which came from increase in long term financing obtained back in December 2018 along with higher interest rate environment. What further dented the bottom-line was the other expense, which was at a staggering level of Rs6.32 billion in 1HCY19 against none in 1HCY18. While it is still not known what exactly was the major reason for such an enormous growth in other expenses, normally other expenses for HASCOL have entailed provisions for doubtful debts, franchise income etc. HASCOL ended up with a loss of Rs11 billion in 1HCY19 versus a profit of Rs1 billion in 1HCY18.

The issue of exchange volatility for the OMCs is likely to be picked up by the government as highlighted by Mr. Nadeem Babar in his recent interview with BR Research; which if addressed will bring some respite.