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BOOK RUNNER
All communication, inquires and requests for information relating to the IPO of Hascol Petroleum
Limited should be addressed to:
Umair Aijaz, FCCA
SVP / Head
Investment Banking
AKD Securities Limited
Tel:
+92-21-35863512
Fax:
+92-21-35867992
E-mail: umair.aijaz@akdsecurities.net
INFORMATION BRIEF
DISCLAIMER
This Information Brief (IB) has been prepared by AKD Securities Limited (AKDS) Avais Hyder Liaquat
Nauman Chartered Accountants (AHLN) (hereinafter referred to as Joint Lead Managers & Arrangers).
The information provided and opinions herein have been compiled or arrived at based upon information
obtained from Hascol Petroleum Limited (HPL or the Company) documents and / or
communications and / or other sources believed to reliable in good faith. Although, the information has
been verified, to the extent possible, we make no expressed or implied representation or warranty as to
its accuracy, completeness or correctness.
The information is not meant to be a substitute for the recipients personal judgment. All such
information, representation and opinions contained in these documents assume certain economic
conditions and industry developments and constitute only current scenarios. The recipient of this
information is cautioned to exercise his / her own independent judgment and analysis at all times.
This IB includes certain statements, estimates, analysis and projections with respect to the anticipated
future performance of HPL. Such statement, estimates and analysis reflect certain assumptions
concerning the anticipated result, which assumption and / or anticipated results may or may not prove
to be correct. Neither the Joint Lead Managers, nor any of their affiliates have independently verified
these estimates, analysis and projections and accordingly they do not express any opinion or provide
any form of assurance with regard to such estimates, analysis and projections.
The Joint Lead Managers expressly disclaim any and all liability that may be based on any errors or
omissions from, or mistake in assumptions with respect to any information, estimates, analysis or
projections contained in this IB or any other written or oral communication transmitted to any potential
investor in the course of its evaluation of the possible investment.
INFORMATION BRIEF
Table of Contents
Serial
1
2
3
4
5
6
Contents
Transaction Overview
OMC Sector Dynamics
Hascol Petroleum Limited
Profile of Directors
Investment Rationale
Management Projections & Valuation
Page #
04
06
10
20
24
29
INFORMATION BRIEF
SECTION I
TRANSACTION OVERVIEW
INFORMATION BRIEF
Transaction Overview
The purpose of this Information Brief (IB) is to solicit the interest of potential institutional and
individual investors for participation in the Initial Public Offering of Hascol Petroleum Limited (HPL or
the Company).
The Company intends to issue 25 million Ordinary Shares (27.59% of post-IPO Paid-up Capital) through
an Initial Public Offering via the Book Building process at a Floor Price of PKR 20.00 per share. Moreover,
a total of 18.75 million Ordinary Shares (75% of the Issue) will be issued in the Book Building portion and
subsequently 6.25 million Ordinary Shares (25% of the Issue) will be issued in the General Public portion
at the Strike Price determined via Book Building.
HPL was incorporated in Pakistan as a Private Limited Company on March 28, 2001 and was converted in
to a Public Unlisted Company on September 12, 2007. The principal business of HPL is distribution and
marketing of petroleum products along with blending and marketing of foreign branded lubricants
"FUCHS". The Company obtained its oil marketing license from the Ministry of Petroleum & Natural
Resources in 2005 while the commercial operations were initiated in September 2005.
The purpose of this Initial Public Offering is to utilize the raised proceeds in completion of a storage
facility at Machike in the province of Punjab. Further to this, the proceeds would also be used for the
construction and commissioning of 50 retail fuel outlets.
It is also pertinent to highlight that prior to the IPO a pool of strategic investors have purchased
3,875,000 Ordinary Shares of HPL (5.91% of the existing total paid-up capital) from a few existing
shareholders of HPL at PKR 25.00 per share that is at a 25% premium over the floor price of PKR 20.00
per share. This clearly portrays the level of confidence that investors have on HPLs growth trajectory.
INFORMATION BRIEF
SECTION II
OMC SECTOR DYNAMICS
INFORMATION BRIEF
Domestic Oil Marketing Industry Overview
There are thirteen Oil Marketing Companies (OMC) operating in Pakistan including foreign and
domestic players. That said, close to 90% of the market is dominated by four oil marketing companies
with state-owned PSO having the largest market share at 63%. Among these thirteen OMCs there are
two relatively new companies, namely Total Parco Pakistan Limited and Hascol Petroleum Limited that
have emerged as active players and are rapidly gaining further market share.
Following are the current market shares of all OMCs operating in Pakistan:
Company
Pakistan State Oil
Shell Pakistan Ltd
Attock Petroleum Ltd.
Chevron Pakistan Ltd.
Total-Parco Pakistan Ltd.
Hascol Petroleum Ltd.
Byco Petroleum Ltd.
Bakri Trading Co. Pakistan (Pvt.) Ltd.
Askari Oil Services (Pvt.) Ltd.
Overseas Oil Trading Co. (Pvt.) Ltd.
Zoom Petroleum (Pvt.) Ltd.
Admore Gas (Pvt.) Ltd.
Pearl Parco (Pvt.) Ltd.
Market
Share (%)
63.30
9.90
9.50
4.40
3.80
2.40
1.60
1.60
0.14
0.10
0.10
0.00
3.16
Listing Status
Listed
Listed
Listed
Branch Office
Non Listed
Under Listing
Listed
Pvt. Limited
Pvt. Limited
Pvt. Limited
Pvt. Limited
Pvt. Limited
Pvt. Limited
(Non OMC)
No. of Retail
Outlets
3,760
798
362
518
260
210
219
47
294
109
12
442
Market
Price*
PKR 345
PKR 210
PKR 508
N/A
PKR 9
-
INFORMATION BRIEF
however is undergoing a deregulation phase within the backdrop of increasing volume demand and
higher reliance on imported products. Consumption of petroleum products has increased at a 1% CAGR
over the last 10 years, led by expanding rural incomes and per-capita incomes. This is despite
cannibalization with the trend in shift to Compressed Natural Gas (CNG) as a transport fuel up till
FY12, which has reversed of late with a severe shortage of natural gas in the country.
Pakistan's oil demand is expected to rise by approximately 7% during the current fiscal year (2013-14)
ending June 30, 2014 on year-on-year basis. The demand would touch 21 million tons against 19 to 20
million tons, on the back of closure of CNG stations and resolution of circular debt problem.
Over the last few years, POL products demand rose by an average 3%to4% per year, but if the country's
growth rate managed to remain between 5% - 6% during this year along with the closure of CNG
stations in Punjab then the subsequent increase in demand of petroleum products is likely increase
rapidly.
The country is a huge oil guzzler as more than 80% of the total demand is either imported in the form of
Crude or Refined products. The product slate is dominated by 9 million tons of Fuel Oil (including 4.5
million tons produced locally) followed by High Speed Diesel with total consumption of 7.5 million tons
(including 4 million tons of imported products). With the shortage of CNG in the market the Motor
Gasoline (Petrol) market has almost doubled from 1.2 million tons to 2 million tons.
With domestic refining capacity at 13.15mn tons per annum, Pakistan produces approximately 9.5mn
tons while annual consumption is close to 20mn tons per year. The deficit is primarily for fuel oil, high
speed diesel and more recently motor gasoline.
At present there are 6 major oil refineries operating in the country:
UNIT: M. Tons
Oil Refineries
Pak Arab Refinery Limited ("PARCO")
National Refinery Limited ("NRL")
Attock Refinery Limited ("ARL")
Byco Petroleum Pakistan Limited ("BPPL")
Byco Oil Pakistan Limited ("BOPL") Under Commissioning
Pakistan Refinery Limited ("PRL")
Capacity
4,500,000
2,710,500
1,916,500
1,740,500
5,800,000
2,298,500
Production
3,216,416
1,834,845
1,710,000
120,332
941,272
INFORMATION BRIEF
increasing core earnings by volumetric growth that eventually boasts their respective market share and
profitability.
In order to stimulate foreign investment, marketing margins for OMCs were revised from an initial
0.51%-2.17% to 3% for all regulated products. Margins were further enhanced to 3.5% in July 2002 and
Pakistan's 2nd largest volume generating product HSD (accounts for 35% of total petroleum products
consumption today) was de-regulated at the principal stage in view of the domestic production deficit.
OMCs were allowed to import HSD and set the retail level price of the product with prices uniform
across the country through a system known as Inland Freight Equalization Margin (IFEM) evenly
spreading the distribution and transport costs of the products across the country onto end retail prices.
During 2002 to 2008, petroleum product pricing included ex-refinery prices based on import parity, with
dealer and distributor margins and taxes taking prices to the ex-depot level. Prices were independently
regulated by the Oil and Gas Regulatory Authority (OGRA). Post 2008, within the backdrop of firmly
high oil prices, the GoP reinstated the reform process to further deregulate the sector.
Marketing margins were changed from a percentage to an absolute basis in 2010 leading to a reduction
in product distribution margins by 20%-25% across the regulated product range. In 2011, the GoP
revised upwards margins on premium motor gasoline and HSD by 32% and 30%, respectively, to
improve core profitability of downstream marketing within the backdrop of circular debt exposure and
PkR depreciation. Imports of premium motor gasoline were deregulated at the principal stage i.e.
allowing OMCs to set the ex-refinery and ex-depot price based on actual product imports excluding
gallop tenders while the GoP continued to monitor HSD prices at the ex-refinery level for refiners. In
2012, the GoP for the first time deregulated HSD prices at the ex-refinery level bringing them in-line
with actual OMC import prices as set by Pakistan State Oil Company Limited (state owned and is the
largest oil marketing company in Pakistan). Currently, margins on HSD and MS are being considered for
an upward revision by the GoP given inflationary pressures amid repeated requests by the industry.
INFORMATION BRIEF
SECTION III
HASCOL PETROLEUM LIMITED
10
INFORMATION BRIEF
Hascol Petroleum Limited
HPL was incorporated in 2001 under the Companies
Ordinance, 1984 primarily to take advantage of the
petroleum sector deregulation and undertake a program for
owning, leasing and renting oil storage facilities as well as
importing petroleum products for its own account.
In February 2005 HPL was granted a full marketing license by
the Government of Pakistan and since then, HPL has been
engaged in developing a retail network and storage facilities
under the Hascol brand and by 31st December 2013 the
Company had commissioned approximately 210 retail outlets
across Pakistan and this number is expected to reach 291 by
the end of 2016.
The Directors and sponsors of the company have decades of
multinational companies experience in Oil Trading, Retail
Management, Marketing & Supply Chain Management.
HPL management team comprises of well experienced staff
from each segment of the oil industry who have worked in
local and multinational oil companies for many years and
have ability to do things right.
Pattern of shareholding of HPL as at 31st December 2013 is as follows:
Serial
1
2
3
4
Name of Shareholder
Mr. Mumtaz Hasan Khan - Chairman & CEO
Fossil Energy (Private) Limited
Marshal Gas (Private) Limited
Other Shareholders
Total Shares
Shares
34,387,567
12,175,713
8,500,396
10,536,324
65,600,000
%
52.42
18.56
12.96
16.06
100.00
As at December 31, 2013 HPLs investment in its fixed assets amounted to PKR 2,315 million while the
Company operates through 210 retail fuel stations wide-spread across Pakistan. Further to this, HPL has
constructed and commissioned a state of the art storage installation at Shikarpur while another purpose
built installation is currently being constructed at Machike.
HPLs product mix includes petroleum products such as Motor Spirits (MS), Furnace Oil (HSFO), High
Speed Diesel (HSD), Jet A-1, Liquid Petroleum Gas (LPG), Super Kerosene Oil (SKO) and Lubricants.
The Company is currently offering Petrol, Diesel under the Companys own brand name as Tiger Super
and Rocket Diesel and lubricants under the brand name of FUCHS.
11
INFORMATION BRIEF
The Code of Corporate Governance applicable to listed companies is fully in place at the Company and
the following Management Committees and Board Committees actively function towards the
sustainability and growth of HPL:
Product Line:
HPLs product mix includes petroleum products such as Motor Spirits (MS), Furnace Oil (HSFO), High
Speed Diesel (HSD), Jet A-1, Liquid Petroleum Gas (LPG), Super Kerosene Oil (SKO) and Lubricants.
The success of an OMC is dependent on how well its supply chain has been established. The presence of
storage facility at each discharge point of Pak Arab Pipe Line Company System is a necessity. HPL has
very successfully developed supply depots, either through its own sources or through third party
arrangements.
Supply chain is a lifeline of any industry throughout the world. It plays an essential role in ensuring that
the right products are available at the right places at all times; specially, in the country like Pakistan
where the gap between supply and demand is continuously widening.
Storage Facilities:
HPL has developed state-of-the-art storage facilities at
strategic locations that fully cover its retail network. Out of
the 5 functional facilities, the Shikarpur storage facility is fully
owned and operated by HPL while Machike storage facility
would be the second facility to be owned by HPL.
12
INFORMATION BRIEF
The existing storage facilities currently operating under the banner of HPL including the under
construction Machike Facility are as follows:
Unit in MT
Serial
1
2
3
4
5
6
Facility
Port Qasim
Kemari
Kemari Import Terminal
Shikarpur
Machike
Amangarh
Ownership
Long-term agreement - VTT Port Qasim (Pvt.) Ltd.
Long-term agreement - Al-Raheem Trading
Long Term Lease Agreement with Al-Abbas Group
HPL Owned
HPL Owned (Under Construction)
Long-term lease agreement - an option to buy
Capacity
32,400
12,150
15,000
6,500
6,500
1,500
In order to further enhance its capacity the Company is in the process of acquiring a land at Mehmood
Kot, Punjab adjacent to Pak-Arab Refinery Limited. This will facilitate the Company to cover its supply in
the Southern Punjab envelope.
13
INFORMATION BRIEF
Efficient Logistics Network:
HPLs logistics network provides the Company with an
efficient value chain that drives the Logistics department is
the backbone of an oil marketing and distribution company.
Hascol Petroleum Limited does not compromise on quality
and quantity of petroleum products.
HPL is maintaining its logistics policy wherein we ensure the
deliveries of safe and sound condition to the valued
customers. Tank Lorries registered with HPL are duly
calibrated by weights & measures, and designed as per rules
required by 'OGRA' and 'Ministry of Petroleum and Natural
Resources'.
HPL has got 19 registered contractors maintaining a fleet of
1,300 Tank Lorries for Black Oil and 350 Tank Lorries for
White Oil.
HPL all the tank lorries are registered in HPL state of the art
ERP system JD Edwards to control the logistics data and
product movement and time log, as well. The cartage
contractors have to provide the tank lorries as per demand
of HPL Cartage Agreements.
IT Infrastructure:
In 2013 HPL successfully implemented JD Edwards ERP software
which is an integrated system comprising of the following six
modules:
Financial
Procure to Pay
Order to Cash
Inventory Management
Transportation
Advance Pricing
Now all Hascol Installations, depots and warehouses are
connected with the Hascol Head Office in Karachi enabling
Hascol real time information for business controls efficient
customer service and structured MIS of management decisions.
14
INFORMATION BRIEF
All of HPL regional offices, Installations & depots are connected online for the Video Conferencing with
HPL management at Head office.
Hascol has built its own state-of-the-art data center for the centralized and safe storage of Company's
valuable data with inside and outside firewalls to ensure data security and safety.
Retail Outlets:
HPL has a large network of retail outlets in all corners of the country. With over 210 retail outlets in all
four provinces of the country HPL has invested more than PKR 2 billion in their expansion venture
through dealers and its own investment.
Attached to the retail outlets HPL is also operating a network of convenient store with a brand name
"Hasmart". HPL have 42 Hasmart, 40 Tyre - Care and 15 Express Wash nationwide to cater the needs of
its customers.
15
INFORMATION BRIEF
The detail of current retail outlets with respect to location is as follows:
Province
Retail Outlets
Sindh
Baluchistan
Punjab
Khyber Pakhtun Khua
Azad Jamu & Kashmir
Total
72
7
98
30
3
210
34.30%
3.30%
46.70%
14.30%
1.40%
100.00%
HPL has a sole strategic agreement with FUCHS international to manufactures/import, distribute and sell
FUCHS branded lubricating oils and greases in Pakistan. A company that combines tradition with
progress is best poised to meet the challenges of the future.
HPL is the only local company with International Lubricant Brand
.i.e. FUCHS Germany that gives a great strength to HPL's lubricants
product line. In addition to its strong sales through 210 retail
outlets, HPL also operates in high street market, commercial and
industrial sector. It is also the market leader for supplies to
Pakistan Army with sales well over PKR 1 billion (2.5 million liters).
HPL has the proprietary product rights to cater for lubricant for
Pakistan Army's indigenous tank, Al-Khalid.
16
INFORMATION BRIEF
Historical Financials of HPL (2011 2013):
(PKR in millions)
Description
Fixed Assets
Current Assets
Equity (Including Revaluation Surplus)
Current Liabilities
Sales (in Thousand Liters)
Sales
Gross Margin
Operating Profit / (Loss)
Finance Cost
Profit Before Tax
Profit After Tax
Earnings per Share
Break-up Value per share (with Revaluation)
Break-up Value per share (w/o Revaluation)
Current Ratio
*Financial Year January to December
17
2013
2,286
6,707
1,444
7,630
2012
1,724
2,595
1,065
3,067
2011
877
1,136
460
1,686
619,923
57,441
1,320
548
110
438
392
341,738
29,775
996
393
101
292
218
259,910
19,584
699
257
202
43
82
5.97
22.02
16.55
0.88:1
3.33
16.24
10.20
0.85:1
1.94
7.01
6.71
0.67:1
INFORMATION BRIEF
Key Agreements:
1. Currently HPL has fuel supply arrangements with all
refineries in Pakistan.
2. HPL has hospitality agreement with PSO for the storage
and handling of products at, Machike, Chakpirana and
Sihala.
3. HPL is engaged in a sole strategic agreement with
FUCHS International for the manufacture, import
distribution and sale of their products in Pakistan.
4. HPL is in contract with OOPL as it blending partner for
lubricants in Pakistan.
5. HPL is in contract with Sui Sothern Gas Company (SSGC) for the supply of LPG.
6. HPL is in contract with Marshal Gas (Pvt.) Limited for the supply of LPG.
7. HPL has signed a Technical Services Agreement (TSA) with an International Operator, to start
aircraft refueling services in Karachi.
PKR 200mn will be utilized for capital expenditure on the completion of Machike Storage
Facility which includes purchase of pipelines, gensets, pumps, electrical equipment etc.
PKR 100mn will be utilized for the setting up and commissioning of new / under
construction retail fuel stations
The remaining proceeds will be utilized for working capital requirements of the Company
Future Prospects:
Pakistan economy is in a growth mode and energy is a very essential ingredient, more trucks will move
across the country for trade and there will be more cars and motorcycles on the road.
The expected growth rate of the of the economy is between 3% to 4% and the in efficiency of state
owned OMC will create a space for new market entrant with thin cost structure, efficient supply chain
management and good corporate governance.
HPL has doubled its sales volume and profitability on year to year basis. During the last three years this
growth has resulted in a market share from 1% to 2.4% up to October 2013 (Source OCAC Report), from
2014 and onwards within 2 years the company has a target to achieve a volumes of 1,000,000 MT with a
market share of 5%.
18
INFORMATION BRIEF
This growth will be achieved by HPL backed by the following strategic steps:
19
INFORMATION BRIEF
SECTION IV
PROFILE OF DIRECTORS
20
INFORMATION BRIEF
Profile of Directors
Mr. Mumtaz Hasan Khan Chairman & C.E.O
Mr. Mumtaz Hasan Khan has over 50 year of experience within
the oil industry. He started his career with Burmah Shell Oil
Storage and Distribution Company in May 1963. In January
1976 Mr.Mumtaz resigned from the post of International Sales
Manager to join Pakistan Services Limited as Managing
Director. Pakistan Services Limited was the owning company of
four Intercontinental Hotel (now known as Pearl Continental
Hotel) in Pakistan at that time. In 1980 Mr. Mumtaz left
Pakistan Services Limited and moved to London.
He established Hascombe Limited, which started trading in Crude Oil and Petroleum Products.
Hascombe bought petroleum product from Middle Eastern sources and sold to international trading
companies like Shell and Elf. Hascombe was also a major supplier of petroleum products to Pakistan
during 1991 till 1996.
In 2005 Hascol was granted an oil marketing license by the government of Pakistan in Pakistan. Hascol
has established a network of 200 Petrol Pumps all across Pakistan including Azad Jamu and Kashmir.
Mr. Mumtaz Hasan Khan is currently also serving as Chairman of Sigma Motors (Sole distributor of Land
Rover vehicles in Pakistan).He is a Trustee of the Foundation of Museum of Modern Art (FOMMA)
located in Karachi and the member of the Expert Energy Group which prepared Pakistans first
Integrated Energy Plan in 2009.
21
INFORMATION BRIEF
Dr. Akhtar Hasan Khan Director
Dr Akhtar Hasan Khan is a former civil servant. He retired as Secretary Planning for the Government of
Pakistan. Dr. Akhtar holds a Masters in Public Administration from the University of Harvard and a PHD
in economics from the TUFFs University in USA. Dr. Akhtar served as Secretary Education, Additional
Secretary Finance, Additional Secretary Commerce and additional secretary ministry of production. Dr.
Akhtar has served on the board of public organization such as Pakistan International Airline, National
Development Finance Corporation, Pakistan Automobile Corporation and Chairman of the Pakistan
Ghee Corporation. Dr Akhtar is the author of several publications; his recent book was called the
impact of privatization in Pakistan. He is a Director of Sigma Motors Limited.
Mr. Najmus Saquib Hameed Director
Mr. Najmus Saquib Hameed is the honorary Vice Chairman and C.E.O of Layton Rahmatullah Benevolent
Trust (LRBT). LRBT is one of the largest charitable organizations in Pakistan providing free eye care to
over 2 million patients through a network of 17 hospitals annually. He has over 47 year of experience in
Senior Management position with multinational organization such as Unilever and Pakistan Tobacco
where he retired as Chairman of the Company. Mr. Najmus Saquib holds a Master in International
Relations and was a gold medalist at Institute of Business Administration (IBA). He has served as
Chairman of the Cigarette Manufacturers Association and past Chairman Board of Governor at the Indus
Valley School of Art and Architecture, Karachi. Mr. Najmus Saquib Hameed is currently serving on the
board of NIB Bank Limited and Sigma Motors Limited.
Mr. Farooq Rahmatullah Director
Mr. Rahmatullah is law graduate from the University of Peshawar. He joined Burmah Shell and Oil
Distribution Company in 1968. Mr. Rahmatullah worked in various capacities with the organization i.e.
Chemical, Human Resource, Marketing, Supply, Distribution and Retail. In 1994 Mr. Rahmatullah was
transferred to Shell International London as Manager Business Strategy Division. He looked after various
portfolios covering 140 countries. In 1998 he was transferred back to Pakistan as Head of Operations
Shell Pakistan. Mr. Rahmatullah was also looking after Middle East and South Asia (MESA).In 2001 he
was appointed managing director Shell Pakistan Limited a post he retired from in June 2006.
Mr. Rahmatullah is credited with being the founding member of PAPCO (Pak Arab Pipeline Company
limited). He has also served as the Director General of Civil Aviation Authority, Chairman of the Oil and
Gas Development Authority, Chairman of LEADs. Since 2005 he has been chairman of the Pakistan
Refinery Limited. He is currently serving on the Board of Director of Faysal Bank Limited, Society of
Sustainable Development, and Resource Development Committee for the Agha Khan Hospital. He is also
the Group Founding Member of the Pakistan Human Development Fund and a member of National
Commission of Government Reform and Member of the Pakistan stone Development Company. He is
the Chairman of Pakistan Refinery Limited and Non-Executive Director of Faysal Bank Limited.
22
INFORMATION BRIEF
Mr. Liaquat Ali Director
Mr. Liaquat Ali is a Chartered Accountant by profession and a fellow member of the Institute of Charted
Accountantsof Pakistan (ICAP). He has over 18 years of experience in leasing and investment banking
field and has completed numerous transactions including restructuring of companies, merger and
Acquisition.
Mr. Liaquat Ali is a member of one of the leading Chartered Accountant firm Avais Hyder Liaquat
Nauman Chartered Accountants (AHLN). AHLN is a member of RSM international which is the 7th largest
network of accounting and consulting firms in the world[1]. AHLN has offices in Lahore, Karachi,
Peshawar, Faislabad, Islamabad, Quetta and Kabul (Afghanistan). He is also a member of the benevolent
fund committee of ICAP.
Mr. Sohail Hasan Director
Mr. Sohail is a Chartered Accountant and a member of the Institute of Chartered Accountants in England
and Wales and the Institute of Chartered Accountants of Pakistan. He was a partner in a leading
accounting firm A.F.Ferguson & Co for over 35 years and has also served as its senior partner. He has
served as the member of the Provisional Financial Commission Punjab and is currently a member of the
Corporate Law Review Commission of Pakistan. He is a Non-Executive Director of Habib Metropolitan
Bank Limited.
Mr. Saleem Butt Chief Operating Officer& Executive Director
Mr. Saleem Butt has achieved a diversified 22 year career in Finance, Corporate Affairs, Supply Chain,
Sales, Management, Human Resource, I.T and ERP implementation. Mr. Butt started to work as a
Chartered Accountant for a firm which is now a part of Price Waterhouse Coopers. He then worked with
various Shell Group of companies in Pakistan and overseas for 14 years. He was then offered a position
with Emaar Pakistan a subsidiary of Emaar PJSC, U.A.E as Chief Operating Officer (COO).
Mr. Butt is a Chartered Accountant and holds a Bachelor Degree in Commerce from the University of
Karachi. He received his fellowship from the Institute of Chartered Accountants of Pakistan in 2004. He
also serves as non-executive director on the boards of Pakistan Refinery Limited, TRG Pakistan Limited
and Sigma Motors Limited.
23
INFORMATION BRIEF
SECTION V
INVESTMENT RATIONALE
24
INFORMATION BRIEF
Investment Rationale
Growth Story: HPL has taken a time span of approximately 8 years to turn itself into a fully developed
OMC. The sponsors of the Company have mostly invested the capital from their own resources and have
now made the company capable running as a profitable and sustainable entity which can clearly be seen
through the financial highlights of the Company.
The construction of back-end (storages) and front-end (retail outlets) facilities has been a game changer
for HPL as the functionality of these facilities have brought the Companys sales volumes at an optimum
level and further volumes can be generated as well. In addition to this, the local and the international
brands such as FUCHS AG attached to the Company now carries significant business value and today HPL
is known for its quality products and services.
The below given table shows average throughput of OMCs in liters for the period from July to
September 2013 which clearly depicts the growth potential that HPL has in order to increase its market
share backed by an efficient and strategically placed storage network:
Internationally Renowned Lubricant Provider: The Company has a strategic agreement with Fuchs
Lubricants, one of the largest global manufacturers of lubricants based out of Fuchs Petrolub AG with its
headquarters in Mannheim, Germany. This agreement allows HPL to manufacture, import, distribute
and sell branded lubricating oils and greases in Pakistan.
Share Premium: A pool of strategic investors have recently purchased 3,875,000 Ordinary Shares of HPL
(5.91% of the existing total paid-up capital) from existing shareholders of HPL at PKR 25.00 per share
that is at a 25% premium over the floor price of PKR 20.00 per share. This clearly portrays the level of
confidence that investors have on HPLs growth trajectory.
25
INFORMATION BRIEF
Fuel Supply Arrangements: HPL has established fuel supply arrangements, with all domestic refineries
including Pak-Arab Refinery, Attock Refinery, Pakistan Refinery Limited, Byco Petroleum Pakistan
Limited and National Refinery. Apart from the fuel supply arrangements, HPL has developed a wellmanaged supply chain structure through which its products are transferred to all parts of the country.
The Company has also entered into the import market and has imported 3 cargos of Fuel Oil and Motor
Gasoline during the current year. The Company has also set up a fully integrated import supply chain at
both Kemari and Port Qasim.
Shield Against Circular Debt: HPL has carried a very defensive commercial sales strategy during the past
3 years due to the rising issue of circular debt pertaining to the Oil & Gas and Power sectors of Pakistan.
As an antidote to this risk, HPL has always secured its receivables from commercial sales to IPPs and
other debt burdened institutions through irrevocable financial instruments. As a result of these prudent
measures HPL has remained unharmed by the risk of circular debt and the resultant liquidity crunch
faced by most OMCs.
Strategically Placed Storage Facilities: The Company, under agreements with other OMCs, uses 5
different storage facilities that are strategically located in different oil supply hubs of the country. Apart
from this, HPL has recently commissioned its own storage Facility in Shikarpur, Sindh which is currently
being fully utilized by the Company while HPL will also commission another storage facility at Machike in
Punjab this year. The operational support of these purpose built state-of-the-art storage facilities will
provide significant volumetric growth in the sales of High Speed Diesel & Motor Spirit. With the shortage
of CNG in the country during the last 3 years the country-wide volume of Motor Gasoline has doubled.
HPL has hired a storage facility at Kemari on long-term basis to manage the imported products and
imported its first cargo in December 2013. The import facilities for fuel oil, motor gasoline and High
Speed Diesel have placed the Company strategically in a very strong position for the security of its
supplies.
Sponsor Profile & Management Prowess: The main sponsor of HPL, Mr. Mumtaz Hasan Khan, has an
experience of over 50 years in the Oil industry and has been associated with reputable brand names
such as Burmah Shell. Over the years HPL has gathered a team of well experienced team of individuals
who have significant expertise in the oil industry. The Company has a strong emphasis on recruiting and
retaining the best professionals who play the pivotal role in this business model. The Management has a
cumulative experience of 175 years pertaining to the Oil Marketing industry.
Recent Growth Track-Record: From 2010 onwards the Company has roughly doubled its sales volumes
at year on year basis. This growth has resulted in an increase of market share from 1.00% to 2.50% up to
October 2013. (Source: OCAC Oil Report)
Year
Sales of HPL
2010
PKR 9,202,000,000
2011
PKR 19,583,000,000
2012
PKR 29,775,000,000
2013
PKR 57,441,000,000
26
INFORMATION BRIEF
The current network of the Company has the capacity to further enhance the sales volumes after
completion of the Machike Storage Facility based in Punjab.
Growing Retail Network: The Company has a wide-spread network of 210 retail outlets across Pakistan
through which POL products are sold. The company plans to add 50 more retail outlets by the end of
this year, moreover the Company plans to add 91 fuel stations by the end of 2016 which would further
boast HPLs sales of HSD and MS. The province-wise break-up of HPLs 210 operational retail outlets is as
follows:
Avg. Monthly
Motor Fuels
Sale / Site
Province
No. of Sites
Quantity (Liters)
Punjab
101
111,619,392
92,095.21
Sindh
70
130,574,793
155,446.18
Khyber Pakhtun Khua
26
4,833,402
15,491.67
Baluchistan
07
3,596,000
42,809.52
Azad Jammu Kashmir
06
914,000
12,694.44
210
251,537,587
318,537
Attractive Floor Price: The floor price of PKR 20.00 per share represents an attractive discount of
64.70% on CY13 P/E Multiple of HPL i.e. 3.35 times versus the P/E Multiple of KSE-100 Index i.e. 9.49
times (Source: Bloomberg).
Moreover, we have also undertaken relative valuation based on comparison of HPL with leading oil
marketing companies of the country. For relative valuation we have considered Attock Petroleum
Limited, Pakistan State Oil & Shell Pakistan Limited. The following table highlights the financial highlights
and trading multiples of the above mentioned OMCs in comparison with HPL:
Indicators
Retail Outlets
Sales (PKR in 000')
PAT/ (LAT) (PKR in 000')
Shares (No. of shares)
EPS (PKR per share)
Market Price (As at 31-Dec-13)
Shareholder's Equity (PKR in 000')
Book Value (PKR per share)
PSO
SHELL
APL
HPL
3,760
798
362
210
1,294,503,247
244,316,875
191,181,800
57,441,365
12,557,945
(2,082,531)
3,906,534
391,407
246,987,217
85,609,886
69,120,000
65,600,000
50.84
(24.33)
56.52
5.97
333.22
190.43
499.69
20*
61,887,604
6,175,590
14,043,457
1,443,695
250.57
72.14
203.18
22.01
P/ E Ratio
6.55
N/A
8.84
3.35
P/ B Ratio
1.33
2.64
2.46
0.91
30-Jun-13
31-Dec-12
30-Jun-13
31-Dec-13
27
INFORMATION BRIEF
The floor price of PKR 20.00 per share represents an attractive discount of 56.49% based on CY13 P/E
Multiple of HPL of 3.35 times versus the Average P/E Multiple of the above mentioned OMCs of 7.70
times. Based on the above given peer comparison, HPL has an estimated value of PKR 45.94 when
viewed in line with the average P/E of 7.70x for PSO & APL.
Furthermore, when comparing the CY13 P/B Multiple of HPL of 0.91 times with the Average P/B Multiple
of the above mentioned OMCs of 2.14 times, the P/B Multiple presents a discount of 57.48%. Based on
the average P/B of 2.14x for the above mentioned OMCs the projected value of HPL is estimated to be
PKR 47.17.
Multiples
P/E
P/B
28
Average
Multiple
7.70x
2.14x
HPL (CY13)
EPS PKR 5.97
BVPS PKR 22.01
HPLs Projected
Price
PKR 45.94
PKR 47.17
INFORMATION BRIEF
SECTION VI
MANAGEMENT PROJECTIONS
&
VALUATIONS
29
INFORMATION BRIEF
Management Projections
HASCOL PETROLEUM LIMITED
PROJECTED BALANCE SHEETS
Balance Sheets
Amount in PKR '000
2013 (A)
2014 (E)
2015 (E)
2016 (E)
2017 (E)
2018 (E)
2,308,238
2,587,971
2,922,970
3,193,316
3,119,369
7,054
5,643
4,515
3,612
2,889
2,311
32,372
25,898
20,718
16,574
13,260
10,608
3,026,241
354,491
319,042
287,138
258,424
232,582
209,323
2,702,155
2,938,554
3,235,340
3,471,927
3,368,099
3,248,484
Stock-in-trade
3,177,692
3,578,063
4,674,853
5,846,939
6,001,056
8,298,955
Trade debts
2,088,097
2,736,166
3,739,883
4,872,449
5,648,053
7,054,112
464,647
441,415
419,344
398,377
378,458
359,535
40,585
44,644
49,108
58,929
70,715
84,858
41,025
47,179
54,256
62,394
71,753
Current Assets
54
35,674
864,680
1,264,161
1,131,186
1,540,853
2,818,562
3,398,769
6,671,429
8,105,473
10,061,552
12,771,802
14,979,239
19,267,982
9,373,584
11,044,027
13,296,892
16,243,729
18,347,339
22,516,466
73,685
20,520
18,399
16,813
4,508
50,174
57,700
66,355
76,308
87,755
100,918
58,333
25,000
163,636
90,909
(0)
139,286
85,714
42,857
90,872
99,959
109,955
120,951
133,046
146,350
436,701
412,854
282,545
258,515
237,613
251,776
Current Liabilities
Current Portion of Liabilities Against Assets Subject to Finance Lease
Finance Under M ark-up Arrangements
46,987
31,482
493,013
197,205
138,044
96,631
67,641
47,349
-
PAIR - (100)
41,667
HBL - (70)
70,000
PAIR - (350)
75,000
145,833
-
145,833
-
175,000
-
175,000
-
175,000
-
150,000
150,000
150,000
150,000
150,000
6,368,590
7,126,809
8,595,955
10,457,467
11,363,365
14,088,308
Accrued Interest
16,569
18,226
20,048
22,053
24,259
26,685
381,362
407,479
455,107
379,015
337,495
368,977
7,493,188
8,077,035
9,504,988
11,280,166
12,117,761
14,856,318
TOTAL LIABILITIES
7,929,889
8,489,889
9,787,532
11,538,681
12,355,374
15,108,094
NET ASSETS
1,443,695
2,554,138
3,509,360
4,705,048
5,991,964
7,408,372
656,000
656,000
906,000
906,000
906,000
906,000
Shareholders' Equity
Share Capital
Further issue at Rs 10/ share (25m shares)
Share premium - Old
Share premium of Rs 10/ share (25 m shares)
3,300
-
250,000
3,300
3,300
3,300
3,300
3,300
250,000
250,000
250,000
250,000
250,000
5,901,949
Accumulated profits
426,019
1,038,712
1,996,185
3,194,123
4,483,290
358,376
356,125
353,875
351,624
349,374
347,123
1,443,695
2,554,138
3,509,360
4,705,048
5,991,964
7,408,372
30
INFORMATION BRIEF
HASCOL PETROLEUM LIMITED
PROJECTED PROFIT & LOSS ACCOUNTS
Profit & Loss Accounts
Amount in PKR '000
Description
2014 (E)
2015 (E)
2016 (E)
2017 (E)
2018 (E)
Sales - Gross
76,823,122
97,504,087
118,562,926
128,846,213
151,455,929
66,597,535
84,525,748
102,781,537
111,696,061
131,296,298
Cost of Sales
(65,032,134)
(82,566,407)
(100,446,724)
(109,148,115)
(128,555,807)
Gross Profit
1,565,401
1,959,341
2,334,814
2,547,946
2,740,492
(621,784)
Administrative Expenses
(229,706)
Operating Profit
713,910
Finance Cost
(106,795)
Other Income
Profit Before Taxation
Taxation
Profit After Taxation
EPS
(639,705)
(249,201)
1,070,435
(101,692)
(705,548)
(275,858)
1,353,407
(125,652)
(763,697)
(306,121)
1,478,128
(154,395)
(797,313)
(340,398)
1,602,781
(132,036)
94,631
101,756
107,621
114,792
123,481
701,747
1,070,499
1,335,377
1,438,525
1,594,226
89,053
113,027
137,438
149,358
175,568
612,693
957,473
1,197,939
1,289,167
1,418,659
6.76
10.57
13.22
14.23
15.66
GP Margin
2.35%
2.32%
2.27%
2.28%
2.09%
NP Margin
0.80%
0.98%
1.01%
1.00%
0.94%
Current Ratio
1.00
1.06
1.13
1.24
1.30
28.19
38.73
51.93
66.14
81.77
24.26
34.83
48.05
62.28
77.94
31
INFORMATION BRIEF
Valuation Snapshot
Weighted Average Cost of Capital
Risk Free Rate
M arket Risk Premium
Beta
Cost of Equity
Terminal Growth Rate
17.92% Ke = Rf + (Rm-Rf)Beta
2.00% Sustainable Growth Rate
Tax Rate
Cost of Debt
Debt to Equity
WACC
FY14F
FY15F
FY16F
FY17F
FY18F
1,418,659
612,693
957,473
1,197,939
1,289,167
Add: Depreciation
106,913
96,752
129,323
148,349
137,529
(276,344)
(619,909)
(439,070)
(23,829)
(983,594)
Terminal Yr.
69,416
66,099
81,674
100,357
85,823
(386,646)
(431,751)
(399,670)
(74,402)
(44,402)
126,033
68,665
570,195
1,439,643
614,015
626,296
108,751
51,104
365,883
796,795
293,119
Terminal Value
Terminal Growth Rate
2.00%
Terminal WACC
15.94%
626,296
4,493,335
2,145,032
DCF Valuation
NPV of Forecasts (PKR)
1,615,652
2,145,032
3,760,684
32
(157,642)
3,603,042
90,600,000
39.77