bonus on the back of humongous earnings growth
during FY03, while management of the company has skipped the payment
owing to privatization related timing issues.
•The Independence Day holiday also played a major
role in the passive behavior of the market punters whereas most of the
public was not in an active mood after PSO's result announcement.
•The increase in badla rate was the third reason
whereas most of the weak holders preferred to book losses rather than
paying over 16% cost of funding to the badla financiers.
•The Karachi Stock Exchange has sought explanations
from about 7 of its members on two issues:
exposures in badla in terms of their maximum capital limits and
names of the clients for whom they have taken these exposures. At the
time of filing of this report, the market was full of rumors that the
stock exchange authorities have withdrawn these explanations from the
•The central bank has issued a circular to get two
sets of information from all the banks and development financial
institutions on a weekly basis:
level of exposures in the stocks and
level of exposures in the carry-over transactions where these
institutions have to disclose the names of the brokers with whom they
have placed their funds to the tune of over PkR10mn.
OUTLOOK FOR THE FOLLOWING WEEK
Next week seems to be the time of consolidation for
the market. The current correction drive may take another day to
settle down whereas after that market will be consolidating at around
4000 levels. The exchange notices or so-called explanations are
unlikely to make any significant impression over the investors.
However, SBP's more stringent supervisory role in the badla financing
may check the unlimited participation from the financial institutions
in the carry-over financing in the market and lead to a gradual
increase in the rollover rates in the market. In the short term, there
are at least four trigger factors that can inject some bullish
sentiment into the market after an initial consolidation.
1. A few of
the corporate result announcements are expected next week, which will
attract investors interest in the market.
bidding date announcement is also due in the last week of the current
month. The market is already filled with the rumors of August 22nd in
3. The board
meeting date announcement from Hubco is the third factor that can
bring back investors in this market mover.
4. Quite a
few institutional investors who have been waiting for a correction to
re-enter the market may find it appropriate to go on an accumulation
drive at this juncture.
LUCKY CEMENT RESULT EXPECTATIONS
Lucky cement is expected to announce its full year
financial results for FY03 on August 16th. We expect the company to
announce a net profit of PkR265.1mn as against last year's profits of
PkR272.5mn, down by 4.8%. The company may also announce a dividend of
PkR0.65-0.70/share for the year. The drop in the profits is mainly due
to depress cement prices during November-March, where the prices
slipped by more than 25% to PkR165/bag. Major cushion was provided by
demand, which also picked up during the period. However, due to
squeezed margins the company is likely to witness a marginal decline
in its profits. We recommend HOLD on Lucky at its current price.
CEMENT SECTOR UPDATE
During FY03, cement sector has witnessed sharp ups
and downs where 1HFY03 was marred with the cartel violations by two
large cement manufacturers. This resulted in a sharp drop of more than
25% in the cement prices, which fell to PkR165/bag from PkR225/bag in
November-02. This situation coincided with the government's unfreezing
of the old development projects, which created a temporary surge in
the cement demand. The manufacturers' consistent efforts to
re-formulate cartel also gave a hint to the stockists to pile up their
inventories before the cartel restarts its price monitoring function.
This resulted in more than 26% growth in cement dispatches during
November-02 to March-03. In the last quarter cartel recovered,
however, the cement dispatches remained strong owing to exceptional
rains and the government's efforts to revive the construction
HIGHER SALES VOLUME TO PARTIALLY OFF-SET THE LOWER
Lucky witnessed a 36% YoY growth in cement
dispatches in the local market to 1.06mnt and has also exported around
46.7kt to Afghanistan through Chaman and Turkham route. Combining this
factor with the average lower price effect, Lucky is likely to witness
an 18% YoY increase in its revenues in FY03. However, lower price
effect may result in squeezing the gross profit margin by 370bps to
16.3%. This drop is likely to flow to the bottom line where we expect
Lucky Cement to post a net profit of PkR259.6mn as compared to
PkR272.5mn last year, down by 4.8%. We also expect the company to
announce a dividend of PkR0.650.70/share for the year.
Our DCF based value for the stock is PkR24.90. At
present the stock is trading at a 22% discount to this value. Despite
its high level of discount, we expect Lucky to give a market
equivalent performance. We maintain our Hold on the stock.
Mkt. Cap (US $ bn)
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