After Shahid Khaqan Abbasi, took oath as an interim Prime Minister, political uncertainty subsided to some extent. The week ended 4th August witnessed addition of 965 points, taking the benchmark index of Pakistan Stock Exchange to 46,877 points. Average daily traded volumes grew by almost 76%WoW to 349 million shares. The top volume leaders were: ANL, BOP, KEL, TRG and ASL. While major gainers for the week were: PSO, KEL, PTC, UBL and EFERT; the laggards included: HBL, FFC, PPL, INDU, and ABL. Key news flows during the week included: 1) The Government of Pakistan directed for immediate release of Rs20 billion pending subsidy claims to the fertilizer manufacturers and to simplify the process for disbursing pending payments under the subsidy schemes, 2) issuance of fresh guarantee of Rs30 billion by Ministry of Finance to the power sector for settlement of its liabilities, 3) headline inflation for July’17 declining to 2.91% as compared to 3.93% a month ago, 4) NEPRA approved upfront tariff of Rs7.1129/kWh for coal‐fired CPP which will remain applicable till 31st December next year and 5) textile sector expected to receive Rs15 billion as incentives under the export package worth Rs180 billion by the mid of this month. Foreign participation posted continued the negative trend with outflows of slightly more than US$41 million as compared to US$13.15 million a week ago. Easing of political uncertainty and continuation of earnings season may bring further stability in the market. Major companies scheduled to announce the results next week include EPCL, PSO, KEL, PAEL, HBL and EFOODS. Besides, any hike in global oil prices may also bring Oil and Gas scrips in focus.
According to a report by the State Bank of Pakistan, 30% of banks’ exposure pertains to 20 business groups. Growth in credit depends heavily on the appetite of the corporate sector, which currently receives nearly 70% of total bank lending. The penetration of bank credit in Pakistan’s economy is very low as compared to regional and emerging economies. The gap is widening over time. Over the past 25 years, the ratio of private sector credit to GDP has shrunk in absolute terms. Focusing exclusively on the corporate sector, banks have marginalized other niche segments like small and medium enterprises (SMEs), agriculture and housing. This increases the risk for the banking system as reflected in its loan concentration within a few conglomerates. The overall credit growth in Pakistan has remained subdued as a number of big, cash-rich conglomerates have increasingly begun using their own resources to fund growth rather than borrowing from commercial banks.
Engro Fertilizers (EFERT) has posted un-consolidated profit after tax of Rs2.45 billion (EPS: Rs1.84) for 2QCY17 as compared to a net profit of Rs673 million (EPS: Rs0.51) for 2QCY16. According to market pundits, 2QCY17 result were below expectations. This can be attributed to: 1) an 18% increase in distribution expenses due to expensive export sales and 2) significantly higher 42% effective tax rate for 2QCY17. Along with the result, the Company also announced to pay a cash dividend of Rs2.50/share. The significant uptick in 2QCY17 earnings resulted from: 1) strong growth in topline to Rs17.25 billion caused by the increase in Urea offtake to 550,000 tons and 2) a 24%YoY decrease in finance cost on account of swift de-leveraging and low interest rate environment. On a cumulative basis, EFERT 1HCY17 earnings were reported at Rs4.10 billion (EPS: Rs3.08) as compared to Rs2.79 billion (EPS: Rs2.10) for 1HCY16, up 47%YoY.
Pakistan faces various contentious issues that include: 1) declining foreign reserves and 2) rising debt. Though, the incumbent government constantly denies presence of these threats, the reports highlight these threats. According to one of the reports by the central bank, the total liquid foreign reserves held by the country have declined to US$20,283.1 million on 28th July’17. The reserves held by SBP decreased by US$ 305 million to US$14,698 million. While foreign exchange reserves held by the SBP were reported at US$ 14,698.2 million, the net foreign reserves held by the commercial banks were reported at US$ 5,584.9 million. As regards increasing debt, the GoP in the latest auction of Pakistan Investment Bonds (PIBs) has raised Rs54.475 billion, as against the bids received for Rs75.648 billion. The tenor wise acceptance was Rs23.148 billion from 10-year bonds, followed by Rss20.869 billion from 3-year bond and Rs10.457 billion from 5-year bond. While 3-year PIBs attracted the highest amount no bids were received for 20-year bond.
Linde Pakistan Limited has announced that its majority shareholder, BOC Group has decided to offload its entire shareholding of 15.023 million shares at a final purchase consideration of 2.53 euros/share. The purchase consideration has been revised 2.4 percent upwards as in May Linde Pakistan had notified 2.47 euros/share. However, it was subject to adjustment. BOC Group, holding approximately 60 percent of the shares in Linde Pakistan has entered into a binding share purchase agreement with Adira Capital Holdings, Hilton Pharma, Soorty Enterprises, Al-Karam Textile Mills, Siraj Dadabhoy, and Fawad Anwar for the sale of entire BOC Group shareholding in Linde Pakistan. The consummation of the transactions contemplated by the share purchase agreement is subject to the satisfaction of regulatory approvals. It may be recalled that ICI Pakistan in February this year had announced to acquire 60 percent of voting shares of Linde Pakistan. ICI had announced to acquire 15.023 million shares through an agreement with Linde Pakistan owned by the BOC Group, UK and its four nominee shareholders.