levels of liquidity and results of most of the
pivotal stocks. However, this week political uncertainty was finally
discounted, triggered by news of a coalition between ARD and MMA.
Consequently the market remained very volatile during first half of
the week. Since the last two days of trading were the beginning of the
holy month of Ramazan, the stock market remained slow and lackluster.
MARKET THIS WEEK
The market was very volatile this week with both
bulls and bears flexing their muscles. The KSE100 Index ('Index')
declined by 68 points from 2,295 points at the end of last week to 2,227
points at the end of this week. Panic due to political uncertainty
caused market to swing considerably during the first half of the week
and volumes remained high. However, the last two days of trading were
very slow and volumes declined considerably. The average daily volume
this week was 231mn shares, as compared to 318mn shares last week.
PTCL remained strong throughout the week and the
traders are hoping to see some performance from the stock in the future.
OMC stocks remained volatile and PSO and Shell closed the week PkR10 and
PkR29 lighter, respectively.
The badla market remained active and rates remained
high especially during the first three days of trading, as badla
providers took advantage of the volatile market.
OUTLOOK FOR THE FOLLOWING WEEK
We believe that the market will continue to remain
volatile until the new government sets in. After the formation of the
new government the direction of the market will largely depend on which
party comes into power. We believe that investors should refrain from
any long-term positions until the political scenario gets more settled.
DAILY DRAMA
Rumors about a possible ARD and MMA government, along
with the market finally discounting the prevailing political
uncertainty, prompted panic selling. The Index declined by 91 points on
Monday and closed the day at 2,204 points. Shares lost value across the
board and PSO and Shell touched their circuit breakers. Volumes remained
high at 253mn shares, indicating that, unlike other corrections in the
recent past, sellers were plentiful.
With the ARD-MMA deal being delayed, optimism
prevailed again on Tuesday and the Index regained over half of the
previous day's losses and rose by 54 points to close at 2,258 points.
There was heavy buying in all key stocks and most of them closed sharply
higher. Trading volumes rose by 55% to 393mn shares largely due to
massive buying in PTCL and Hubco.
Political uncertainty, delays in formation of a new
government and the MMA factor made the investors restless on Wednesday.
Consequently, the bears came to the forefront for the second time during
the week and the Index dropped 35 points to close at 2,223 points. Most
stocks remained in pressure as there was considerable profit selling.
Thursday being the first day of fasting, trading
activity predictably remained slow. In addition, the political stand-off
dissuaded any fresh positions by investors and punters alike, and
volumes declined significantly to 147mn shares. Due to marginal rise in
a few key stocks namely PTCL, Engro and FJFC, the Index closed 5 points
higher at 2,228 points.
Trading was extremely lackluster on Friday and the
trading volumes plummeted to 65mn shares. Most shares declined
marginally and as a consequence, the Index declined by 1 point to close
the week at 2,227 points.
CEMENT
SECTOR: TURNING AROUND
The market was quick to discount the turnaround in
the sector that started taking place in 2002. Two factors namely (I)
higher capacity utilization on the back of higher exports towards
Afghanistan, and (II) massive cost savings via sector's conversion to
coal are responsible for this out performance. However we feel that this
out performance is unlikely to continue in future. At best, the cement
sector will perform in line with the KSE 100 index. However, a few of
the companies are likely to out perform the sector, which are
recommended viable for investment at current prices. Our top buys are DG
Khan and Lucky Cement.
First quarter of FY03 marked a complete turnaround
for the overall cement sector as evident from the reported results of
the companies. For group analysis we picked five companies randomly,
which includes Cherat, DGK, Lucky and Pioneer Cement. The consolidated
revenue of these companies, witnessed a boost of 20% during the period
under review while the gross margins improved from 15.5% in 1Q02 to
19.8% in 1Q03. This is due to demand flow from Afghanistan, which
however, was not as much as expected but improved the capacity
utilization of these companies. Also shift of plant operations from
furnace oil to coal helped these companies to improve their gross
margins.
With significant top line growth, the companies were
able to reduce their debt burden, which resulted in a sharp decline of
22% in the financial charges leading to a net profit of PkR138.6mn in
1Q02 from a loss of PkR11.1mn in 1Q01.
CEMENT SECTOR PERFORMANCE IN FY02
FY02 was a year of change where the cement sector
started making profits from the second half of the year. The over all
demand from domestic market declined by 1% during the year while the
capacity utilization increased from 57.6% to 65.0% due to the export of
cement to Afghanistan. Local prices remained with in the range of
PkR210-220/bag, which were at the same level as the year before. On the
other hand, the sector's margins improved significantly in the second
half due to the shift of focus of the cement manufacturers from fuel oil
to the cheaper alternative of coal, which according to an estimate,
reduced the cost of fuel utilized in the production process by 60-65%.
The exports to Afghanistan remained the main
attraction as far as investors are concerned due to which the cement
stocks also performed well during the year on the stock exchange.
However, with Iran providing cheaper cement to the country, the demand
for Pakistani cement declined. As a result of this the cement sector not
able to boost capacity utilization more than 60-65%. According to a news
report, the prices offered by Pakistani exporters are within the range
of US$27-32/tonne against a cost of approximately US$30/tonne, while
prices offered by Iran are much lower due to their economies of scale
and better cost efficiencies. Due to the reason only 140,000 tonnes of
cement was exported to Afghanistan during January-August.
Due to the above factors, the financial performance
of the sector improved dramatically from the third quarter of FY02
marking a complete turnaround, where 21 companies posted a consolidated
profit of PkR6.7mn against losses of PkR266mn till second half of the
year. Shift of plants to coal also improved sector margins, which
supported the sector to reduce its debt burden and hence the financial
charges also witnessed a decline. This resulted in a substantial growth
in the bottom line of the sector.
MARKET ROUNDUP |
| .. |
LAST WEEK |
THIS WEEK |
% CHANGE |
|
Mkt. Cap (US $ bn) |
9.41 |
8.64 |
-8.81 |
|
Total Turnover (mn shares) |
1591.77 |
11152.25 |
-27.61 |
|
Value Traded (US$ mn.) |
1066.15 |
848.98 |
-20.37 |
|
No. of Trading Sessions |
5 |
5 |
|
|
Avg. Dly T/O (mn. Shares) |
318.35 |
230.45 |
-27.61 |
|
Avg. Dly T/O (US$ mn) |
213.23 |
169.80 |
-20.37 |
|
KSE 100 Index |
2294.63 |
2227.34 |
-2.93 |
|
KSE All Shares Index |
1429.10 |
1390.27 |
-2.71 |
