By SHABBIR H. KAZMI
Updated Feb 26, 2001

The market seems to be once again witnessing selling pressure. While some analysts try to correlate it with a general perception that Pakistan would not be able to meet some of the targets proposed by the IMF, the ground realities are not as disappointing as being portrayed. The movement of KSE-100 index shows technical correction which was over due.

The leasing sector in Pakistan faces various impediments. The sector has an excessive number of small players, poorly capitalized and a victim of deteriorating credit lease portfolio. While most of the players tend to blame external factors for their less than commendable performance, a few have emerged better performer. They have managed to increase size and quality of their lease portfolio. The companies which did not act 'prudently' in an attempt to solicit business face shrinking spread as well as heavy provisioning. With the entry of non-leasing companies in leasing business, the competition is further fuelled. However, the real issue facing the sector is increasing the paid-up capital by the deadline fixed by the SECP.

SIGMA LEASING

JCR-VIS has reaffirmed BBB (Triple B) for medium to long term entity rating and A-2 (A-Two) for short term entity rating of Sigma Leasing. The rating for TFCs has also been maintained at A- (A minus). The affirmation of rating is based on the Company's remarkable performance — enjoying a unique feather in its cap, no default and no rescheduling over last three years. The Company aims at further consolidating its position. The Company has also started issuing COIs to meet its future requirement of funds. The branded COIs, Tahaffuz, have maturity ranging from three months to five years with an indicated rate of return from 13 to 16 per cent. The profit is paid on maturity in case of three-months COIs and on for all others on quarterly basis. Tahaffuz, as the name denotes security, also offers attractive return. The remarkable performance, commitment of sponsors and professional management is expected to attract attention of investors to further enhance value of their investment. While the scrip is traded above par the Company has paid 20 per cent dividend for the last two consecutive years. In December 2000, out of total 32 leasing companies shares of only three companies, other than Sigma, were traded above par value.

ASKARI LEASING

The Company has announced its half-yearly results for the period ending December 31, 2000. While there was a 39 per cent increase in lease income, a 46 per cent increase in administrative expenses reduced the profit growth to 4 per cent only. The most noticeable feature was a nearly one and half times (143%) increase in allowance for potential lease losses. While complete details are not yet available, there seems to have been a large increase in funds mobilization, this is evident if one looks at the trend of interest rates during the period. It appears that the Company has attempted to mitigate the squeeze on its interest margin by driving volumes. It remains to be seen whether the strategic decision to aggressively court individual customers and small business will pay-off over time. However, the prospects for higher provisioning may put further pressure on full year results.

IBRAHIM FIBRES
According to a KASB report, "Ibrahim Fibres' phenomenal earnings, exceeding expectations, has again driven home the fact that companies with strong fundamentals are capable of capturing the full advantage of positive sector dynamics." Sales grew by 25 per cent due to a robust PSF market. While there are indications of bumper cotton crop, its prices maintained upward, more or less, trend as the consumption also increased. This enabled the PSF manufacturers to pass on cost increase to end consumers, thus protecting their own margins. The reduction in cost of goods sold, increase in other income and a 72 per cent reduction in financial charges brought about a jump of 28 per cent in net profit. The Company decided to plough back the earnings for 200 per cent expansion due to come on-line by middle of the year 2002. There is a strong earning forecast once expanded capacity comes on line.

PAKISTAN STATE OIL

Oil marketing companies enter a new era of competition due to liberalization of furnace oil and diesel. Despite the fact that PSO has the largest market share as well as storage facilities, it is expected to face tough competition from Shell and Caltex — the two companies intend to handle import of these two products jointly. As such the GoP has given a signal to furnace oil user companies, power plants in particular, to gradually switchover to gas consumption which may effectively bring down its import over the months. Looking at the fundamentals for the sector, future profitability of these companies will largely depend on volume handled — mostly dependent on number of outlets and quality of service. While Shell is making massive investment in revamping its outlets, PSO may not be able to do the same as its privatization is on cards.

MOVEMENT AT A GLANCE
SCRIP	HIGH (Rs.)	LOW (Rs.)	CLOSING  PRICE	TURNOVER  (SHARE MN)
HUBCO	22.25	20.95	21.50	404,356,500
PTCL	21.40	10.65	19.70	208,871,000
PSO	158.75	141.25	142.60	96,342,900
Ibrahim Fibres	20.75	18.95	19.55	15,163,500
Shell Pakistan	304.25	283.30	285.00	887,400
Askari Leasing	9.40	9.20	9.20	62,000
Sigma Leasing	10.10	10.10	10.10	—
Source: Invest Capital & Securities