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Apr 24 - 30, 2000

Polyester Staple Fibre (PSF) sector has always been in the lime light. Lately the acquisition of Dhan Fibres by Dewan Muahtaq Group, capacity expansion being undertaken by Ibrahim Fibres, increase in PSF demand and reduction in losses of ICI Pakistan's PTA plant, have further consolidated the faith of investors in companies belonging to the sector. On slightly optimistic note, the BMR being undertaken by the textile sector offers prospects for higher margins for large scale PSF companies. PSF was previously considered a substitute for cotton but now it complements cotton and any expansion/BMR and improvement in textile sector will have a positive impact on the manufacturers.

Dewan Salman offers good opportunities for short as well as long term investors mainly due to its large free float. The name itself has been attractive, of course due to a good performance track record, but now due to acquisition of Dhan Fibre. Some of the options now available to Dewan groups are: merging Dhan with Dewan Salman, transfer acrylic fibre unit with Dhan to avail the advantage of its lower debt obligation. The scrip is currently trading around Rs 70 — at a premium — as its fair value is said to be in the bandwidth of Rs 62 to Rs 65. Since the scrip is very liquid and offers an opportunity of making immediate gains but some analysts have very different opinion. They understand that the next bet for Dewan Group is ICI Pakistan's PTA plant. After having acquired Dhan the Group controls nearly 40 per cent of the total market share and has the muscles to drive PSF price if Ibrahim also join them. This may not be a remote possibility as Ibrahim would also like to improve its margin. As such huge losses from PTA operations has become too much a burden for both ICI Pakistan and the parent company and it will be difficult to turn down an attractive offer. But what could be the possible timing is a million dollar question.

Muslim Commercial Bank (MCB) seems to be capable of taking advantage of internal restructuring, large branch network and the newly hired management team. Annual accounts expected to be released in May. Analysts forecast positive earnings surprise, ranging from Rs 550 million to Rs 700 million, resulting in EPS of Rs 3.75 per share. At current price MCB is trading at an estimated PER of 12.5x which may observers saying that it has a potential for re-rating. The current discount to fair-value of its share price seems unwarranted given the expectations of strong earnings growth during the current and the next year. The growth will be accompanied by an improvement in the Bank's balance sheet as well as reduction in non-performing loans. The competitive position has improved as it enjoys an edge over smaller banks, has the advantage of much lower cost of funds and higher capital base. Its efforts to generate more treasury income will play a key role as its enjoys more than adequate Nostro and exposure limits. Conservative credit appraisal policies. plans to have greater focus on consumer banking, the largest ATM network in Pakistan, decline in provisioning requirements, ability to retain its net interest income by enhancing its lending to medium-sized and small clients through its extensive branch network are expected to boost its future earnings. MCB with its large branch network, diversified clientele, lower non-performing loans, dynamic and cost conscious management is well placed to benefit.

Lucky Cement has not only witnessed an increase in trading volume but also hike in price. One may wonder about the basis of this. Analysts understand that though the sector fundamentals may have improved, the current interest is based on a feeling that no GST will be applicable on Lucky due to its location and this advantage will give the unit an edge over other players. However, any such exemption may not be available beyound June 30, 2001. The other point of concern is the performance of the plant and second line not being fully operational in last two years.

Engro Chemical Pakistan review indicates 14 per cent decline in urea sales in the first quarter of the year 2000, DAP sales remained low and magrins remained low, there was 5 per cent decline in net retention price of urea and an unexpected shut down might result in lower capacity utilization. Despite a decent profit earned by Engro Paktank in 1999 no dividend was declared and LPG facility has remained idle due to tariff with the GoP. Therefore, many analysts believe that on the basis of fundamentals the scrip is over valued. If one value Engro considering market PER its fair value based on the year 2000 earnings may be around Rs 73 per share. Historically on an average Engro trades in line with market PER. Realizing that the market float has declined after Dawood Group and employees acquired huge quantities from the market. Therefore, it will take time before the scrip moves to its actual worth.