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Mini budget brings bull rule as index gains 400 points; auto sector in the limelight

During the week ended 21st September 2018 trading at Pakistan Stock Exchange (PSX) was reduced to three days, on account of Ashura holiday on Thursday and Friday. During the three days trading, the benchmark Index gained 400 points, up 0.98% WoW. The major contribution in this gain came after the announcement of Mini Budget by the incumbent government; the Index gained 718 points in a single trading session.

Much of the Index gain was contributed by automobile assemblers and automobile parts and accessories manufacturers. The sector attracted investors’ attention due to removal of ban on buying motor vehicles by non tax filers. Auto stocks remained under severe pressure during the first quarter of the current financial year as the said ban adversely affected sale of automobiles. Further, pharmaceutical sector helped the Index to remain in green due to relief provided on the import of medical equipment etc. Foreigners remained net seller with selling US$12.6million worth of shares during the week as compared to the selling of over US$26 million a week ago. Insurance companies and mutual funds emerged net buyers.

The major news affecting the market during the week were: 1) in a surprising development, Current Account Deficit (CAD) for the month of August 2018 was contained at US$600 million, considerably down by 72% MoM. However, CAD was up 10% YoY during first two months of the current financial year and 2) the Islamabad High Court suspended the prison sentences of former prime minister Nawaz Sharif, his daughter Maryam Nawaz and son-in-law Mohammad Safdar in the Avenfield corruption reference.

On Monday, 17th September 2018, some TREC Holders and members of PSX Stockbrokers Association challenged an exorbitant and unilateral increase in IT Charges by Pakistan Stock Exchange (PSX), before the Honorable Sindh High Court. The TREC Holders raised the point that the increase in IT Charges was against the law and the contract between the parties. Although, the counsel for the PSX was present during the hearing and was offered an opportunity to defend its stance, the Honorable Court ordered that the Pakistan Stocks Exchange (PSX) could not collect the increased IT Charges and that the same may be, in the meantime, deposited in Court with the Nazir in a profit bearing scheme.

Earlier, in these pages potential threat for cement industry were highlighted. A review of the quarterly results of a major player indicates these apprehensions coming true. D. G. Khan Cement (DGKC) has reported better than expected 4QFY18 consolidated earnings mainly due to huge tax credit, on account of investment in new cement line in Hub, Balochistan and adjustment of deferred taxes. However, profit before tax was down 66%YoY. Two other worth noting points as regards to 4QFY18 accounts were: 1) other operating expenses going up by a 754%YoY and 2) an increase in other income by 245%.


According to a report by Topline Securities, DGKC booked one-time impairment and at the same time recorded one-time income on one of its power plants, thereby netting off any material impact on the bottom-line. Consolidated revenues were down 2% YoY in 4QFY18, mainly due to 3% decline in sales from cement operations. Cement sales were down on the back of flat dispatches and lower net retention prices. Gross margins were considerably down to 19% in 4QFY18 owing to 1) decline in cement margins and 2) higher production cost of DGKC’s associate company in dairy business. Rising input costs like higher coal prices and increase in transportation expenses put pressure on cement margins. Financial expenses grew by 105%YoY during the outgoing quarter on the back of increase in debt levels and increase in interest rates. The brokerage house considers: 1) decline in cement prices, 2) increase in gas and coal prices and 3) lower than expected local cement demand as key risks for DGKC.

Kohinoor Textile Mills announced 4QFY18 result posting EPS of Rs3.60 up 112% YoY. However, the full year earnings of the Company were down by 25% YoY. The Company received a tax credit of Rs248million during the quarter under review. The hike in profit can be attributed to 1) higher sales, rising by 11% YoY, 2) reduction in admin expenses by 14% YoY and 3) other expenses declining by 85% YoY. However, financial cost increased significantly during 4QFY18. The Board of Directors of the Company approved distribution of one rupee dividend per share among the equity holders for the year ended 30th June 2018.

Gul Ahmed Textiles Mills released its 4QFY18 result, posting EPS of Rs2.37 as compared to EPS of Rs1.73 for the corresponding period last year. Better earnings are a result margins improving to 23% and higher sales by 17% YoY. The bottom-line of the company remained under pressure because of 1) a 32%YoY hike in distribution costs; 2) other expenses took a quantum leap of 328% YoY and decline in other income. The Company also announced cash dividend of Rs2.50 per share.

Mughal Iron & Steels Industries announced its 4QFY18, posting an EPS of Rs1.36, up 30% YoY. Higher earnings can be attributed to reduction in other expenses by 21% and margins increasing by 12%. Though, decline in other income was by 61% YoY and increase in financial charges by 57% YoY hurt the profits of the company. Expansion in respect of steel bar re-rolling mill and furnaces has been extended till second quarter of CY19, as disclosed in material information to PSX by the company. However, the Company announced cash dividend of Rs2.20 per share.

The Board of Directors of Shield Corporation approved an investment of Rs4million out of total capital of Rs40million in a private limited company to harness demand for health and hygiene products in rural areas. Reckitt Benckiser Pakistan will be one of the shareholders.

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