of a terrorist attacks in Murree & Taxila and
Hindu killings in occupied Kashmir. Instead, interest in major shares
coupled with dividend payout by companies like Dawood Hercules, and
improvement in ICI's lH02 results, helped to renew investor interest and
bring the positive upswing in the KSE-100.
THIS WEEK'S PERFORMANCE
The KSE-100 commenced the week with the continuation
of the previous week's dull performance and the volumes of the first two
days of trading remained low with the KSE-100 index reflecting marginal
declines. However, during the latter half of the week, the KSE-100 broke
the narrow range in which it was trading for over a month, to cross the
psychological barrier of 1800 points and close the week at 1815.76
Volumes picked up during the latter half of the week
with the ADV increasing from 32.65mn shares during the previous week to
52.89 shares this week. Although volumes have increased, they are still
very low when compared to normal trading patterns at the KSE. We believe
that volumes are likely to increase further in the following weeks.
The average daily volume in carry over transactions
increased marginally this week to 122mn shares as against the previous
week. The COT volumes have been low for the last few weeks indicating
that there are fewer speculative buyers in the market.
OUTLOOK OF THE COMING WEEK
We believe that there may be some price sensitive
news in important shares next week, like possible book closure
announcements by PTCL and PSO or a higher than expected dividend
announcement by PTCL which would trigger a rally and push the market to
1850 point levels. We therefore expect the market to continue its
current positive trend in the following week.
THE DAILY DRAMA
Although the market opened the week on Monday with an
increase in volumes traded from 16.893mn shares on Friday to 28.842mn
shares, institutional investors failed to show interest. The attacks on
the missionary school in Murree caused some panic in the market, but due
to short covering at lower levels, the KSE-100 declined by 3.16 points
to 1,782.56 points.
The stock market remained lackluster on Tuesday, as
institutional investors continued to remain uninterested in the market.
Although there was no major impact of the terrorist attacks the day
before, it made the investors wary indicated by the decline in trading
volumes to 26.792mn shares. The KSE-100 closed a fraction lower at
In spite of negative news of Hindu killings in
Kashmir, the trading session of Wednesday was upbeat. After a month of
low levels of trading and lack of institutional interest, volumes
increased to 70.51lmn shares with investors covering positions at lower
levels. Some institutional interest broke the market's prolonged bearish
spell and the KSE-100 closed the day at 1,793.20 points, an increase of
12.51 points. Adamjee Insurance was the stock of the day, the volumes of
which increased to 4mn shares as against the previous three months ADV
of 1.11mn shares.
Following the previous day's sentiments, Thursday
trading continued to be upbeat. Heavy buying in PTCL coupled with
dividend announcements by Dawood Hercules and a few textile companies
along with ICI showing high YoY lH02 earnings growth, all resulted in
pushing the KSE-100 index to beyond 1800 levels to 1801.47 points with
volumes increasing to 73.80mn shares.
Friday was again a good trading day with volumes
rising further to 94.72mn shares and the KSE-100 increased by 14.29
points to close at 1,815.76 points. One of the major gainers was PSO
which gained nearlv 2% on expectation of book closure announcement next
Gillette Pakistan is a subsidiary of the Gillette
Company, U.S.A. It is involved in the sale of a diversified range of
products including alkaline batteries, household appliances, toiletries
for men, toothbrushes, and other personal care products. The company
enjoys a market leader position in the shaving systems and disposable
razors markets in the country.
Gillette was previously involved in the manufacturing
of 7 o'clock razor blades in Pakistan, however, it closed its operations
at Hub in F`Y98. This was part of the global restructuring program of
the parent company.
Gillette Pakistan is the only Trans-National
Corporation listed on the KSE since 1988, which had not been able to
declare dividends until FY99. In fact the company had been posting
losses during the first six years of its operations, which had resulted
in huge accumulated losses that were wiped out only in FY00.
•The steady growth in YoY earnings flows from top
line growth for the company. Sales increased by 14% in FY00 and 23% in
FY01. However, a notable change in sales is that Gillette Pakistan has
stopped exporting since FY00, as a result of the management's decision
to stop manufacturing in Pakistan.
• We believe that in general historic revenue
growth has been an offshoot of new product introduction in the Pakistani
market. However, in our opinion, the fact that Pak-Afghan and Pak-Indian
borders were effectively sealed off in 4Q01 would have resulted in a
reduction in smuggled products manufactured in India and brought in from
Pakistan's borders. Smuggling of cheaper Indian made blades and even
Gillette's own products from Dubai are a cause of real concern for the
company. In fact this year's 1Q results show that, with the resumption
of Afghan Transit Trade, the problem of smuggling has again become
serious and had an adverse affect on sales.
•Gillette's cash gross margins improved in FY00 but
then declined the following year. This may be attributed to the
depreciation of the Rupee (following SBP's decision to float the rupee
in June 2000) and increase in customs duty and central excise duty on
some of the imported items. In the Federal Budget for FY02, the GoP
increased the import duty applicable on purchases for Gillette to 30%
from 25%. As a result, cash gross margin declined to about 40% in FY01.
•Gillette has been increasingly focusing on its
marketing and sales strategies and through aggressive marketing has been
able to improve sales, where over the last two years it has spent over
PkR80mn in advertising and sales promotion.
•Even though marketing costs remain high for
Gillette, SG&A expenses have declined in proportion to sales. This
is primarily due to the fact that the company had been concentrating on
internal restructuring so as to reduce costs. As a result, EBITDA
increased by 4.2% in FY00 and 21.4% in FY01
•Financial expenses have declined noticeably over
the period. Since the company does not report long- term finances on its
balance sheets, this indicates a decline in reliance on external
•Gillette's tax rate last year was 27%. Our talks
with the company lead us to believe that the tax rate is calculated
based on 6% of imported value. We believe that the provision for
taxation is likely to be calculated at near the above rate over the next
From the above analysis, we note that Gillette has
focused not just on top line growth but also made efforts to expand
margins by reducing costs. In our opinion, the following factors are
earnings drivers for the company:
Increase in sales follows
•Launching of new diversified products as well as
improvements in older products.
•Setting up an effective distribution network and
monitoring the market.
•Emphasis on advertising and sales promotion
Reduction in costs achieved through
• Monitoring of costs, which has led to lower
selling and administrative expenses in FY01 as compared to FY00.
• Gillette stopped local manufacturing in FY99 as part of a global
restructuring plan. Manufacturing locally was expensive relative to
importing finished products. Hence the closedown of operations at Hub
has had a positive impact on margins.
Mkt. Cap (US $ bn)
Total Turnover (mn shares)
Value Traded (US$ mn.)
No. of Trading Sessions
Avg. Dly T/O (mn. Shares)
Avg. DlyT/O (US$ mn)
KSE 100 Index
KSE All Shares Index