EUR 4.56 For Business Accounts Only

HASCOL: Organic growth is already priced in; Sell

​We reinstate coverage on HASCOL – the 3rd largest OMC in Pakistan – with a Sell stance and TP of PkR316/sh (downside: 12%). HASCOL enjoys unmatched ability to sustain sales growth momentum and management track record is excellent; however, changing industry dynamics will eventually decelerate growth, which itself will become more expensive to sustain, in our view.

Four main factors that will slow down growth are (i) other OMCs will replicate HASCOL’s storage advantage, (ii) it will potentially be competing with 21 OMCs who have recently obtained OMC license, (iii) chronically shrinking FO market, and (iv) a less diversified sales mix than peers.

HASCOL’s CY17F P/E of 23.6x appears stretched even as 3yr NPAT CAGR is projected at 26% (PEG of 0.91x). We believe that the present pace of earnings growth is difficult to sustain beyond the medium-term, particularly given the risks attached with high leverage to finance the rapid expansion and the working capital constraints of an imports based model.