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A weekly review of fundamentals enjoyed by the blue chips

By SHABBIR H. KAZMI
Updated Sep 18, 2000

The highlight of the week was the approval by the Board of Directors of SSGC for the sale of its LPG business and rejection of bids received by Board of Directors of PSO for its LPG business. While the decision by PSO Board may force the Privatization Commission to go for bidding for the second time, it also indicates the autonomy of the PSO Board in managing company's affairs.

The KSE-100 plunged due to profit taking in HUBCO, as expected. The notices issued by the Securities and Exchange Commission of Pakistan (SECP) also created some uneasiness among all the brokers. The IMF front remains obscure as no clear picture has emerged as yet apparently brokers expect too early a reply ignoring the lengthy procedure followed by the Fund.

According to reports POL demand in the country increased by 6 per cent to 17.4 million tonnes during the financial year 1999-2000. Demand growth was driven by increase in furnace oil demand which constitutes 45 per cent of the total POL market. HSD offtake grew by 5 per cent during the year owing to a shift in consumer preference from gasoline to diesel. If the current disparity continues the growth in diesel will be much higher.

PSO remains the market leader catering to 72 per cent of the total market. However, it has been consistently loosing its market share in almost all POL products mainly to Shell. Its most significant loss was in the lubricants segment. In this segment Shell has clinched the first position. Shell has been consistently increasing its presence in the retail market currently claiming 21 per cent of the market share.

Unlike in the recent past when prices had been the main earnings driver, the future growth in earnings will mostly be determined by the ability of an oil marketing company to increase its sales volume. With demand almost stagnant capturing greater share will be the key to volume growth.

CHERAT CEMENT

Cherat is one of the more efficient units and has the potential to reap the benefits of improved industry fundamentals due to its low financial charges. Most of its debts would be paid off by the year 2002. While there are expectations of earnings growth for the year ending June 30, 2000, profitability in the following years is bound to remain stagnant due to persistent increase in crude oil price. The imposition of sales tax on cement manufacturers will provide some relief as it will enable the companies to claim sales tax credit on furnace oil. Sales volume for the year 2000 is expected to decline as capacity utilization were adjusted to lower level due to the instructions of trade association. However, the profit margin are expected to be higher due to improved price of the product in the local market.

PAKISTAN PAPERSACK CORP

The Company has declared 25 per cent dividend for the year ending June 30, 2000 which is lower compared to the dividend paid last year. Due to reduction in sales gross profit also came down. As operating expenses and financial charges were more or less at the previous year's level, profit before tax also reduced. However, the increase in other income improved the profit. The Company also transferred Rs 23 million to general reserve whereas Rs 25 million were transferred to this head in the previous year.

BALOCHISTAN GLASS

The unit which remained closed for a long time has once again started production. For the year ending June 30, 2000 the Company has posted operating profit of over Rs 7 million whereas it had posted Rs 12.3 million operating loss for the previous year. The other income of Rs 13.7 million has no comparison with that of Rs 1.8 million for the previous year. The company also amortized Rs 5 million start-up expenses. It had accumulated losses of Rs 73 million at the end of June 30, 1999 which reduced to Rs 58 million as on June 30, 2000 due to a profit after tax of Rs 14.9 million. The Company is not expected to declare any dividend for next 3 to 4 years. However, this period may come down if the new management is able to solicit some large export orders which may not be easy keeping in view the international markets of glass bottles.

OTSUKA PAKISTAN

The Company is a leading manufacturer of IV solutions. The improved earnings for the year ending June 30, 2000 enabled the Company to increase its dividend pay out from one rupee for the previous year to Rs 1.5 for the period under review. While there was an increase in administration and marketing expenses financial charges reduced by more than 50 per cent. Taking the advantage of higher earnings the Company also transferred Rs 15 million to general reserves.

TRI-PACK FILMS

The Company by registering 15 per cent growth has declared Rs 1.25 dividend for the year ending June 30, 2000. While the increase in operating profit was 11 per cent, operating expenses increased by 29 per cent. However, net margin increased from 16 per cent for the year 1999 to 19 per cent for the year under review due to a sharp decline in financial charges.

MOVEMENT AT A GLANCE

SCRIP

HIGH
(Rs.)

LOW
(Rs.)

TURNOVER
 (SHARE MN)

CLOSING 
PRICE

PTCL

26.65

25.75

98.27

25.75

Hub Power Co

19.55

18.25

232.39

18.25

ICI Pakistan

14.15

13.35

55.74

13.35

Shell Pakistan

318.10

298.90

0.09

298.90

Pakistan State Oil

177.80

175.00

62.59

175.00

Sui Southern Gas

15.00

14.70

1.81

14.70

Sui Northern Gas

14.75

14.35

19.74

14.35

Source IP Securities