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Hascol Petroleum (HASCOL): Earnings revised upwards, 'Buy' Stance maintained

• Hascol Petroleum (HASCOL) announced 1Q2018 earnings of Rs5/share during the quarter which was up 74% on the back of inventory gains during the quarter, strong sales growth of higher White Oil Products & lower discounts.  We thus revise up our earnings estimates for 2018/2019/2020 by 40%/5/7% due to higher than expected inventory gains & improved margins on lower discounts.
• HASCOL’s total oil sales volumes improved by 32% to 697k tons which coupled with higher margins followed by lower discounts drove Net sales of the company by  60% during 1Q2018.
• The company market share has also improved to 14% in Mar 2018 during the quarters as compared to 10% in Mar 2017.
• This is mainly driven by aggressive expansion in retail outlet network & increasing storage capacity of the company.
• The company has now total retail outlets of 522  all over the country as of Mar 2018 (498 outlets in Dec 2017) and has a storage capacity of 140,900 tons, making it the second largest player in terms of storage capacity. Construction of 223,500 tons of storage facilities is under process, which will  further support growth in volumes of the company going forward.
• Company’s has its own fleet of oil tankers that ensures smooth supply of oil and also result in cost savings for the company. Current fleet size stands at 70 which is also expanding.
• Hascol Petroleum Limited has started to construct its own Lube Oil Blending & Grease Plant, at Port Qasim. The first phase will be completed in the third quarter of 2018. The plant has total production capacity of 40,000 MT and will result in margin improvement for the lubricant business for the company. The company currently enjoys gross margins of around 20% on its lubes business which will improve to over 25% once the blending plant comes online. The company sold 7,200 tons of lubricant in 2017 which we expect to cross 9,000 tons in 2018.
• Key risks for the bank includes 1) fluctuation in oil prices & exchange losses, 2) currency devaluation, and 3) entrants of news OMCs & slowdown in volumes, as key risk for the company.