Updated May 03, 2003


After taking a 2.6% correction last week, the KSE 100 Index restarted its upward thrust whereas it was up around 2.3% to close the week at 2925. The overall sentiment through out the week remained upright on account of quarterly result announcements as well as positive statements on the political front. Average trading volume was 18% down WoW to 162m shares, which clearly shows a relatively cautious approach from the market participants. SNGPL and PIA were the stars whereas both closed their weeks with 5.9% and 4.6% respectively. FFC also gave a positive surprise to everyone by giving above expectations dividend number despite a decline in profits. 





The market outlook for next week is very much dependent on four factors: First the market is anxiously building up its hopes that government can still privatize PSO within the current FY. Though we believe that it is very much possible, however, with just 8 weeks to June 30th, there is likelihood that this privatization may be pushed into July 03. Second, the ongoing talks between government and the opposition on LFO will also affect the market sentiment, as any breakdown of this talk would mean that the current political government might have to face strong resistance in the assemblies where it is operating with a very thin majority. Thirdly, the recent softening of stance from both India and Pakistan may also affect the market in a decisive manner. We are of the opinion that this issue has the ability to push the market beyond 3000 levels. Fourthly, the negative statements from the WB and IMF will also have their repercussions on the market sentiment as till now, the biggest achievement was Pakistan's commitment with the economic reforms pushed by these IFIs. Thus with these four mixed factors, we foresee a very mixed outlook for the market for next week.


PTCL maintained its upward thrust in its profitability. The 3QFY03 results clearly indicate that the company may come up with a PkR3.0 per share cash dividend along with the final results for FY03.

FFC results were definitely not so good, though the management has tried to compensate the shareholders with a high payout. With a substantial portion of noncash expenses, this payout is justifiable on management part.

MCB kept its tradition of growth alive in 1Q03 result announcement. Surprisingly the bank also came up with a hefty payout.

Pakistan Oilfield announced tremendous growth in its first three quarter earnings where the company has been able to earn 7% higher profits in first nine months of the current FY compared to last full year profits.

Both IMF and World Bank came up with negative statements regarding slower performance of the government on the reform process. Reportedly both have delayed their immediate funding to Pakistan on account of some slippages. Though this is a significant negative development, we are of the opinion that the current economic management team would be able to please the IFIs through immediate steps.

ADB has also came up with a confirmation that the government is likely to come up with a detailed plan to gradually phase out the subsidies currently available to the fertilizer companies via cheaper gas.

The CBR also maintained its growth trend in the revenue collection with a 14% YTD growth in the revenue collection for first ten months. Despite this improvement, the body has to collect another 24% of the total revenue target in the remaining two months.

The week saw another marginal decline in interest rates whereas the cut off yield on 6 monthly SBP paper came down by 4bps to 1.68%.

POL prices also continued their downward thrust when OCAC came up with another 1-2% decline in prices across the board.

PSF manufacturers announced another PkR3/kg cut in product prices to PkR60 per kg. This was an effort to pass on the cost reductions to the end consumers.

The car manufacturers have finally agreed to make a cut in their prices. Though they have announced that this reduction will be effective from June 1st, we keep our fingers crossed till this finally materializes.

Despite concerns raised by PPIB, Wapda has entered into a revised power purchase agreement with Kohinoor Energy.


Index levels are still in the process of establishing support at the higher end of its historical range. We maintain that over the immediate short-term the market is overbought and likely hood of another negative spell could be under way. Resistance around 2950-2991 is still a key congestion zone and to defy negative momentum developments a sharp volume break of 3000 would have to take place. Downside moves would head towards 2800 and 2700.


In our latest edition on fertilizers, we have attempted to analyze respective fuel efficiencies of the three large urea plants. FFC is by far the most efficient, and in the current scenario of declining margins and decrease in gas subsidies, we believe that fuel efficiency is likely to be the key to profitability. We have also given our projection .for the demand for Kharif 2003 and analyzed the off-take during Rabi 2002-03. We estimate urea and DAP demand to rise in the tune of 3% and 8% respectively.


The chart below shows that Fauji Fertilizer Company is by far the most fuel-efficient plant in the country, whose fuel usage per unit of urea is almost 20% lower than that of Engro. Pak Saudi Fertilizer Company on the other hand is the most fuel consuming, with fuel usage being approximately 90% higher then FFC unit of urea.

After merging the two companies, the management of FFC is focusing on improving product quality and the fuel efficiency of the PSFL plant. According to the management, the product of PSFL should be at par with that of FFC within this year, while fuel efficiency programs should be completed by the end of FY2003. We concur with the management's time frame.

Engro's management has taken considerable steps to improve fuel efficiency of the plant in FY2002, as a result of which we have seen a drastic 9.10% decline in the cost of fuel per ton produced. As a result, we believe that going forward Engro's fuel efficiency, which was a major cause of concern in the past, is not likely to be a problem.

Dawood Hercules Chemical Limited, is also a fairly fuel efficient plant, but since it purchases fuel from SNGPL, its cost of fuel per ton produced is higher than that of FFC and lower then Engro.


The message is quite clear. Among the three companies, Engro has already done its efforts to achieve cost efficiency while Dawood cannot do anything owing to its locational limitations, as it has to purchase gas from SNGPL. Though FFC is already the most efficient plant, it also has an uphill task of converting the inefficient Pak Saudi into an efficient plant. Since management is already working on this project and we believe in the management's capability to achieve this, FFC as a whole has a potential to become more efficient.

This analysis fits into our fertilizer sector view pretty well. We are concerned about the sustain ability of the current high sector margins in the medium term. And in our view only those companies will be the winners who will reduce their costs. To much of our comfort, Engro did this exercise and it is already in its share price. FFC is trying to improve its newly acquired Pak Saudi plant and market has yet to discount this improvement. We maintain our liking for FFC while we stick to a Neutral weight for the sector.








Mkt. Cap (US $ bn)




Total Turnover (mn shares)




Value Traded (US$ mn.)




No. of Trading Sessions



Avg. Dly T/O (mn. Shares)




Avg. Dly T/O (US$ mn)




KSE 100 Index




KSE All Shares Index