Morning Briefing for March 31, 2014 – Standard Capital

Karachi, March 31, 2014 (PPI-OT): Hascol Petroleum- General Public Subscription | Do not subscribe in IPO

Given appetite shown by high-net worth in book building process HPL was able to record strike Price of Rs 56.5/sh which is beyond Standard Capital’s expectation.

According to Standard Capital, during book building process carried on March 4 and March 5, 2014 the under writer has issued 18.75 million shares at strike price of Rs 56.5/sh (inclusive of share premium of Rs 46/sh) Now remaining 6.25 mn ordinary shares (25% of total size) is being offered to general public through Initial Public Offering (IPO) at Rs56.5/sh (strike price determined through book building process). The IPO can be subscribed from April 08, 2014 to April 09, 2014 during banking hours.

Hascol financial highlights:
HPL is an oil marketing company with 210 outlets all over the Pakistan. During CY13 company reported net profit of Rs 391mn converting to basic EPS of Rs 5.96/sh (Diluted EPS of 4.32 as per Standard Capital’s working). Furthermore during CY13 company’s net sales were doubled to Rs 49.2bn against Rs 25.9bn in CY12. Wherein gross profit and EBIT were reported as Rs 1.36bn and Rs 570mn respectively in CY13.
Industry comparison:

Oil Marketing Industry Fundamentals

Key ratios Industry    PSO    APL      HPL

PE             10.51   9.51   1.40     9.46

Ex P/E          5.75   6.93   8.34    11.30

PBV             1.50   1.47   3.27     3.55

ROE            15.2%  18.1%  33.3%    36.1%

ROA             2.9%   2.6%  13.5%     4.2%

Source: www.scstrade.com

While comparing HPL with industry and other peers, Standard Capital sees that at this price (Rs 56.5/sh) HPL seems little expensive given premium price. Based on diluted EPS HPL yields expected PE of 11.3x which is much higher than the other peers and double of industry average expected PE of 5.8x. Likewise In term of PBV comparison HPL spells out higher PBV of 3.5x much higher than the industry average PBV of 1.5x.

At a premium of Rs 46.5/sh and given peer analysis PE analysis alongside future forecast – Standard Capital signal investors not to subscribe the issue of HPL.