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  1. The KASB review
  2. Finex week

An exclusive weekly Stock Market report for PAGE by Khadim Ali Shah Bukhari & Co.

Updated on Nov 15, 1999

Market Update

Market sentiment continued to remain subdued over the better part of the week. With the noticeable absence of investors in the rings very much a fact, the KSE 100 continued to roll in choppy waters. Over the week it closed at 1178.05 down by 15.49 points as compared to its last closing at the end of last week.

The KSE 100 tested the 1200 levels on intra-day basis but was unable to break the 1200 levels, signifying the inherent weakness of the market. The KSE 100 has been unable to shrug off this, despite the various policy announcements by the new setup, which should have helped to provide some form of assurance to the investors.

With the announcement by the government allowing NBFl's to conduct repo transactions, the badla rate has dropped considerably. This additional liquidity could yet again spur a liquidity driven rally as we have been witness to many over the recent path.

It seems that the KSE 100 is likely to remain under pressure, largely due to the absence of individual as well as institutional investors. Much of this apprehension could also be attributed to the arrival of the D -day i.e. 16th September, the deadline for the loan defaulters to pay up or face the music.

For the coming week, the KSE 100 is likely to witness initial support at 1165 with major support appearing around the 1150 levels. Initial resistance is likely to be felt around the 1215 levels with major resistance capping the upward movement by 1230 levels.

Sector Review

Rude Awakening

The Monopoly is about to end: With the turn of the century, another great milestone is likely to be broken for Pak Suzuki. Enjoying a near monopoly ever since the government restricted car imports, Pak Suzuki is going to find itself in a level playing field. The ominous signs of which are now very much visible.

Volumes growth declines: During the FY 98-99, Pak Suzuki was unable to sustain previous years volume growth and sales slumped to 31296 units in FY98-99 as compared to 32601 units in the previous year. Despite repeated price increase over the year, the star of the Pak Suzuki Line up, the Mehran, continued to remain the top seller, witnessing a 2% increase in sales over the last year. Similarly Khyber also showed robust sales of 6768 units up 25% y-o-y.

Together these two models account for 73% of total sales of Pak Suzuki for FY 98-99.

Apart from these two, the Baleno was unable to penetrate the more mature market of the 1300 c.c range, rather it suffered a volume decline of 1203 units over FY98-99. This 37% drop in volumes was attribute to two main factors,

1. Introduction of the Suzuki Baleno

2. Increase of almost 30% in price ever since its introduction

This drop in sales is primarily price driven; previously the previous model (Margalla A/c) of the same range was available for PKR 487000 as opposed to the price of PKR 729000 of the Baleno Gxi.

Starting off from sales. The increase in sales was a direct result of the arbitrary increase in car prices across the board by the various manufacturers. Despite having a high deletion levels amongst the local producers, Pak Suzuki has been arbitrarily increasing the prices of its products over the week. With average deletion at 48% for Pak Suzuki as against around 38% for the other two players it should be able to minimize this occurrence especially with the anticipated arrival of three more manufacturers in short span of the next six months.

Increased borrowing: With the planned change in the Khyber likely to take shape in the 3QFY99-00, the company has been forced to undertake additional debt load for the capital in work requirement. In addition the apparent change in government has also stuck up the payments due from the Federal government, given its ambitious National Transport Scheme.

Healthy Dividend Payout: With the mandatory clause 9-A fully implemented, Pak Suzuki was compelled to come out with a higher dividend as opposed to their already set policy of stable dividend payout of 20%. For the FY 99-00, with increased debt load pertaining to the model revamp of Khyber, Pak Suzuki will find it increasingly difficult to come up with attractive dividend payments.

It seems that the management of Pak Suzuki have realized the fact that in order to keep the market share they would have to offer something new for the consumer, in terms of product. Price being the key driving force for the consumer to agree to a decision, it seems that any arbitrary increase in price would further alienate the small car segment, which has already gone awry of the repeated price increases.




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