Updated Aug 03, 2002


The KSE index closed 0.2% lower at 1779, relative to last week's closing level of 1783. The market remained listless, and institutional investors were conspicuous by their absence. In spite of the fact that companies have begun to declare their results, with a few declaring a positive earnings surprise, it has only been speculators who decided to make an entry 


to book the gains that a mid-week mock rally provided. Though we continue to feel that current levels are ideal to make an entry since even blue chip stocks such as PTCL and Hubco offer attractive yield. However, the market requires assurances on the political front, which are quite unlikely to materialize over the immediate term.


The week's theme was a lack of interest by institutional investors whose presence is necessary for any decisive movement in the market. Average daily volumes declined even lower than last week's 58mn to 33mn shares this week. This was reflective of the indifference attitude of the investors. A mid-week rally was brought on by a fleeting bout of speculative activity. Market heavyweights PTCL and Hubco ended the week 0.3% and 0.4% lower. The stocks that were able to inspire some interest were Fauji and Engro, which declared 1H02 results and cash dividends. Though Engro ended the week 3.1% lower, Fauji gained in value by 2.0% by the end of the current week.


In the intermediate there does not seem to be any trigger that could lead the market to break out of its lethargy. Even though this is the season for financial result announcements, investors are more concerned with the political scenario. Keeping this in view, we believe that next week is unlikely to bring much excitement to the market. Though we continue to feel that current levels are ideal to make an entry since even blue chip stocks such as PTCL and Hubco offer attractive yield. However, the market requires assurances on the political front, which are quite unlikely to materialize over the immediate term.


On Monday, though as the trading session commenced there seemed to be initial interest where the intraday high was 1787. However, there was little follow up support and the market remained listless in general and declined by 5 points from opening levels to close at 1778. Volume leaders during the day were Hubco, PSO, PTCL, PTA and, on the back of dividend expectations, SNGPL.

Short-term hopes of an imminent rally in the KSE Index following earnings and dividend surprise seemed dashed on Tuesday when the fertilizer companies Engro Chemical and Fauji Fertilizer declared their 1H02 results. Both companies demonstrated improved performance as well as reiterated our views of better prospects for FY02 for fertilizer companies. The market though initially gung-ho, at least as far as speculators were concerned, seemed to wane after the result announcement. The market, which had initially given positive signals by climbing nine points, retraced its path and closed under one point higher.

On Wednesday, however, the market did gain over eight points to close the day at 1788 levels. News that tea from Bangladesh would be imported duty free up to 10,000 tons per annum resulted in Levers gaining PkR6 during the day. There was particularly interest in the fertilizer stocks. However, the consensus opinion was that the relief was merely provided by speculators covering their positions. Institutional investors were conspicuous by their absence.

The above views were reiterated the following day when investors squared their position and booked their profits bringing the rally of the day earlier to a premature end. The index closed just over four points lower than the day before where most of the key stocks finished the day lower. Hubco declined by 0.6%, PSO by 0.4% and Fauji by 1.2%.

As if to make amends for their relative absence on Wednesday, the bears ensured a decline in the market by eight points on the last trading day of the week where the KSE index closed at 1779 levels. This was, however, generally anticipated as speculators would be compelled to close their positions at the end of the week and investors would be willing to wait until after the weekend to make any fresh investments.


The improvement in the performance of the fertilizer sector in 1H02 as against 1H01 is due to I) higher off-take of urea II) the ability of the urea manufacturers to pass on cost increases to the final consumer III) the 1H01 performance was extremely poor largely due to demand decline as a result of drought like conditions.

The latest numbers for the two largest fertilizer companies in the country i.e. Engro Chemicals Limited and Fauji Fertilizer Company Limited (FFC) renewed the interest of the investors in both the companies. The fertilizer sector 1H02 performance was not only considerably better than 1H01 but the growth reflected in 2Q02 largely offset the dismal numbers for 1Q01. This write-up, aims to recap the performance of the sector in 1H02 overall as well as at a company level.


Total off-take for urea demand during 1H02 amounted to 1,900 thousand tons as compared 1,740 thousand tons in 1H01, reflecting an increase of 9%. However, during 1Q02 the off-take for urea declined by 11% as compared to 1Q01, primarily due the extremely dry winter experienced and the pessimism of the farming community with regards to the water situation. This decline was more than offset by the 36.6% increase in urea off-take during 2Q02, which increased to 1,005 thousand tons against 736 thousand tons during 2Q01.

The reasons for such a phenomenal rise in urea off-take during 2Q02 are obvious: I) improvement in the water situation with the water levels in the rivers and dams being the highest in almost two years and; II) further expectation of timely rains during the kharif season. The off-take of urea increased by over 50% in June 2002 as compared to June 2001. We believe that this unprecedented increase was partly due to the expectation of the market that the urea prices would be increased further after the feedstock prices increased according to the Fertilizer Policy 2001.

The projected urea off-take for the remaining (July-September) kharif season by NFDC is expected to be about 5.5% higher than the same period last year, with the total demand for urea during kharif season 2002 projected by the same to be 2.18mn tons, 18% higher than kharif season 2001. Consequently, in our opinion the total quantity sold by the two key urea producers i.e. Engro and FFC should also increase, with a proportion of this increase already reflective in the 1H02 performance.






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