Disclaimer: The article below is the work of a participant of Fundamentals of Capital Market training. Sarmaaya.pk holds no liability for the recommendation mentioned.

The oil and gas marketing companies (OMC) one of the most important sectors in the Pakistan Stock Exchange (PSX), accounting for a significant share of the market capitalization and trading volume. The sector is dominated by big companies like PSO and Shell to name a few. Which leaves little room for HASCOL to grow given the conditions of the company and the overall macroeconomic scenario in Pakistan. In this report, we will look at the various aspects of the HASCOL stock on Pakistan Stock Exchange and determine whether its suitable for investment in short and long term.

In a Nutshell

• Analyst Background
• Macroeconomic Profile
• Company Profile
• Business and Management Analysis
• Financial Analysis
• Strength and Weakness
• Summary

Analyst Background:

The research was carried out by Kamal Haider,a participant of FCM (Fundamentals of Capital Markets) course by Ammar Yaseen.

Macroeconomic Profile:

Company Profile

HASCOL iwas incorporated as a private limited company in 2001 and received its oil marketing license from the government in 2005, which allowed it to purchase, store, and sell petroleum products like high speed diesel, gasoline, fuel oil and lubricants. In 2007, the company was converted into an unlisted public company and in 2014, it was finally listed on the Karachi Stock Exchange

HASCOL’s competitors include PSO, Shell, APL and TOTAL. All OMCs either import or purchase petroleum products from refineries in Pakistan. In Pakistan, Government regulates the prices through OGRA and often the OMCs complain of very less margins. The prices are revised bi-monthly and may even surprise OMCs who are sometimes left with inventories bought on higher prices and to be sold on lower ones. The international oil price fluctuations and USDPKR parity also effect the OMCs business model severely.

Financial Analysis:

Growth Factors:

Company’s growth factors depict a very dismal picture; the revenues have fallen from Rs 232.41bn in 2018 to mere 70.97bn in 2022. All the indicators show a declining trend.

Stability Factors:

Since company is accruing huge losses since last 5 years, the stability factors are all ‘Bad’. Most importantly, company owes Rs 104.89bn loan to banks and financial institutions and has no means to repay them (Total assets add up to 43.71bn). A series of negative figures show a very dismal picture of the company. Management claims negotiation in hand with banks for restructuring of loans.

Valuation Factors:

The graph shows the rise and fall of HASCOL stock. It needs a mention that company revenue increased from Rs 10.3 billion in 2009, to Rs 274 billion in 2018. Between 2010 and 2018, the company saw its revenues climb at an astonishing average of 52.7% per year. The empire was built upon short and long term loans at its peak, company was adding 100 retail outlets per annum and was always hunting for prime places (example M2 motorway). Company’s share saw a decline from above Rs 80 in Sep 2018 to Rs 5.24 as of today. While its shares still trade in large volumes as penny stocks, investors have reportedly lost Rs 63bn to this decline.

Business and Management Analysis

Business Factors:

Company is accruing huge losses for the last five years. All the earnings are claimed by the banks to which owes huge sums of money. There have been allegations that company had been involved in selling smuggled fuel products, dumping (selling fuel to other OMCs’ retail outlets on lower price through third party) and maintaining duplicate set of books to avoid detection of wrong doing. Although the chaos in mainly attributed to exchange losses due to massive rupee devaluation in 2018 and drastic reduction in consumption during COVID-19 lockdown era, the company management along with officials from National Bank and Byco Refinery are under investigation by FIA for wrongful use of LCs to draw much needed cash from the bank. Company is a classic example of ‘where there is smoke, there ought to be fire’. The company’s auditors resigned in year 2020 and since then there have been numerous changes in management (CEO, CFO, Chairman etc.). The majority shareholder (Vitol Dubai) has been making effort to rescue the company thru provision of required liquidity, but prospects of an early recovery look remote. Lately, M/s Taj Petroleum has expressed interest in taking over the business of HASCOL and the due diligence is reportedly underway.

Management Factors:

Vitol Dubai Ltd currently holds 40.21% shares of the company. Banks, DFIs and mutual funds hold less than 0.3% shares of the company while remaining shares are held by local as well as foreign individuals and foreign companies. The company has not paid any dividends since 2019.

Strength and Weakness

Strengths:

• Company has a strong network of retail outlets and storage depots.
• Company had an impressive growth record.
• Company has support of a strong international concern which can rescue the company through current turmoil.

Weaknesses:

• Faulty business model.
• Prone to currency risk.
• Highly under debt in a time when interest rates are at their peak.

Summary

HASCOL has had a very impressive build-up to the slot of second largest (behind state-owned PSO). Company’s downfall is mainly attributable to its immense desire to grow even with huge loans. The company management is at fault for considering they could get away with loan default (as many other companies in the past have). Then too many things went against the company simultaneously; rupee got devalued a lot, interest rates peaked to max in recent history and Government maintained strict control of petroleum products. While the management could have waited out to get out of the vicious loan trap, they embarked upon forging books as well as minting more money from banks through connivance of bank officials and a sister company.

The recovery is not foreseeable in near future. Since investors have already lost billions when company share dropped from Rs 80 to 5, it is absolutely not advisable to look at the company for long- or short-term investment. Penny Stock enthusiasts however sometimes lure people claiming that company is bound for a strong reversal. The annual report 2022 however depicts a very sad story; all the earnings are destined to serve debt payments and ordinary share holders stand no chance of gaining from investing in the company.