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The 21-day long sit-in that resulted in the Law Minister’s resignation, kept the market under pressure, breaching 40,000 psychological barrier for the third time, but managed to close the week ended 30th November at 40,010pts, down by about half a percent. Apart from challenges on the political front, investors chose to remain on the sidelines ahead of the MSCI rebalancing on 30th November. Foreigners offloaded US$39.54 million worth of equities during the week as compared to a net outflow of US$6.28 million a week ago. That said, positive news flow on the macro front (successful Eurobond/Sukuk issuance in the global market) led to some recovery towards the end of the week. Average daily trading volumes recovered to 129.91 million shares (up almost 21%WoW).

The volume leaders were: KEL, TRG, ENGRO, ANL and SNGPL. Key news flows impacting the market during the week included: 1) GoP raising US$2.5 billion through issuance of 5-year Sukuk and 10-year Eurobond, where cut off yields were 5.625% and 6.875%, respectively, 2) Supreme Court starting hearing NAB’s appeal regarding re-opening of the Hudaibiya Paper Mills case, 3) fertilizer off take remaining strong with commencement of Rabi season, with October 2017 urea/DAP rising to 375,000 and 387,000 tons, 4) ECC approving additional sugar export quota of one million tons with a subsidy of Rs10.70/kg, 5) OGRA proposing a revised tariff for gas utilities where it seeks to apply the WACC based return on T&D networks (at 10.76/11.31% of their net regulated assets) instead of fixed ROA based returns previously. While gainers were: KEL, UBL, ENGRO, NBP and MCB, laggards included PSMC, HASCOL, KAPCO, CHCC and PPL.

Analysts expect market sentiments to improve going forward as the political uncertainty subsides following the end of ‘Dharna’ episode. The outcome of OPEC’s meeting remains a key checkpoint for the investors with the market participants widely anticipating an extension of the current arrangement. Also of key importance will be KEL’s tariff review hearing by NEPRA scheduled on 5th December 2017.

The State Bank of Pakistan (SBP) decided on last Friday to keep the interest rate unchanged at 5.75%. The central bank stated that the prospects of achieving the 6% GDP growth target continue to be strong due to the availability of cheaper money and higher credit off-take by the private sector. The SBP said robust economic activity was supported by broad-based increase in the industrial output, gains in factors supporting the production of major crops and growth in private-sector credit offtake. The interest rate has been kept unchanged since May 2016. The central bank also said that there was healthy growth in the tax collection by the Federal Board of Revenue (FBR) during the first quarter of 2017-18, posting a growth of 22% as compared to a modest increase of 4.5% during the first quarter of 2016-17.

Nishat Mills Limited (NML) has always been a darling of AKD Securities, but its latest report tells a different story. The brokerage house has revisited investment case of NML, incorporating recent developments (FO based plants closure, rising coal prices) leading to decline in portfolio value and weakening of core textile margins. NML’s listed portfolio value has declined 17.8% FYTD, both power and cement cumulatively comprises of 61% of the total portfolio. Power sector portfolio companies have seen 9%FYTD correction on the closure of FO based plants, while its key strategic investment in the cement sector witnessed whopping 34% decline on account of rising coal prices (up 13.4%FYTD). The rising input costs (energy and labor) have also put pressure on overall textile margins.


Citing no significant improvement during the year, brokerage house has revised gross margins to 12.8%, consequently bringing down itsFY18/FY19 earnings forecast to Rs14.88 and Rs17.03 per share respectively. Textile sector remains under pressure, despite GoP extending export subsidy in the range of 4 to 7 percent. NML’s core earnings failed to depict any significant improvement, on the contrary declined by 40%YoY during 1QFY18. While revenues were up 11.7%YoY (1QFY18 textile exports grew 8.7%YoY), gross margins continued to decline on account of increasing input costs and stagnant final product prices. Though, the fundamental pressure remains, the brokerage house feels particular attention should be given to the developments on company’s auto venture, in partnership with Hyundai motors that can possibly trigger price performance.

According to the latest data released by National Fertilizer Development Corporation (NFDC), total fertilizer offtake during October 2017 declined to 916,000 tons as compared to 942,000 tons sold during October 2016. Urea sales were reported at 375,000 tons during the month under review on account of high demand Rabi season. DAP offtake on the other hand remained on the lower side, sliding by 19%YoY to 387,000 ton during September 2017 on account of higher sales in the earlier months. On the export front, companies were able to export another 108,000 tons of urea during October 2017, taking total export to 530,000 tons against an allocated quota of 600,000 tons.

On a cumulative basis, fertilizer sales posted encouraging growth of 21%YoY to 7.58million tons during 10MCY17. Near-term outlook of fertilizer industry hinges on: 1) ongoing Rabi season offtake, 2) international pricing dynamics helped in boosting urea prices to US$282/ton, after touching a low of US$190/ton in July’17, posting an increase of 48% and 3) normalization of inventory level, declining to 690,000 tons.

EFOODS 3QCY17 results were surprising with the company posting profit of Rs200million, as against a loss of Rs145million during 2QCY17. This sequential improvement was reflective of: 1) improvement in gross margins on account of price increase during June this year and 2) discipline on the expense side. That said, fundamental outlook otherwise remains bleak as the company continues to struggle on multiple key fronts due to persistent revenue shrinkage and increasing costs. To this end, continuously rising international milk powder prices, stiffening up of competition (both in the whole milk and tea whitener) amid increasing price differential between packaged and loose milk can continue exerting pressure.

Analysts expect the company to close CY17with earnings at Rs573million (EPS: Rs0.79) against Rs2.3billion (EPS: Rs3.12) for CY16. While operating environment remains challenging, product initiations under the new management remain the only bright spot. However, no significant improvement has been witnessed as yet.

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