Updated Sept 27, 2003



The index fell by over 5% WoW on the back of mostly negative news during the week. The week started off quite badly, with the rise in T-Bill yields and COT rates on the back of the expected PIB auction on October 4. As the week progressed, negative noises from the MMA with regards to the government's constitutional amendment package that was to replace the LFO




played  a very negative role on market sentiment. This sentiment was offset to a certain extent by the better than expected PTCL results, speculation on Hubco's CEO statement regarding higher payouts in future and the announcement of Lucky Cement's plans to expand capacity. The Presiden's well-received UN speech, followed by announcements with regards to the privatization dates of PSO and NBP helped the market post a positive change on Thursday. However, these gains were partially offset due to the Indian response to the President's speech and the rumor of another delay in PSO's privatization.

Market activity decreased sharply during the week as indicated by average daily trade volumes which decreased by nearly 18.6% WoW to 350mn shares.


The expected result announcements from SSGC and the remaining cement companies along with the downturn in Pakistan-lndia relations and the presentation of the auto sector Task Force's report to the Federal Cabinet promise to generate excitement during the week. However, the most important factor that will affect the market next week will be the jumbo issue of PlBs due on October 4. We have already seen yields begin to rise this week and investors begin to liquidate their holdings in order to free up liquidity so as to be able to take part in the auction. This trend will continue during the coming week and will affect the market negatively.


Thanks to de-regulation in the telecom sector and the launching of the de-regulation policy, the sector has become extremely vibrant these days. There is a continuous news flow in the sector, which is helping most of the stocks within the sector to outperform the benchmark KSE 100 Index. In our this week's sectoral theme, we have gathered most of the developments in the sector.

•In an effort to make "Telecom Deregulation Policy" more attractive, the government released annexure of the policy. In this annexure, projections for PTCL's revenue and profits have been given based on a sensitivity analysis, showing an expected fall of 32-55% in PTCL profits over the period of next two to three years, implying that PTCL profits are likely to be shared by the new entrant. However, we think otherwise. In our opinion PTCL is unlikely to witness such sharp fall in its revenue owing to interconnectivity charges and relatively protected tariff structure.

•In line with the increasing awareness of telecom deregulation, companies involved in other businesses are also participating in the process by investing in the telecom infrastructure. In line with its construction plan for white oil pipeline, PARCO and PAPCO are now installing (STM-4) Optic Fiber Cable System (OFS) from Port Qasim, Karachi to Mahmood Kot (Punjab). This can be further expanded to the NWFP province where the old PARCO oil pipeline already exists. According to the company after meeting the communication requirements of White Oil Pipeline, optic fiber system will have suffficient spare capacity for commercial usage. Therefore PAPCO and PARCO both have invited expression of interests (EOls) from the interested parties who want to have a joint venture to utilize the network. This system is expected to be fully functional in 3QCY04. Apart from this, Pakistan Railways has also invited Eols for installation of WLL network, recently. We also expect other utilities to come up with these solutions as well. In our opinion, this not only will improve telecom infrastructure within the country but will also provide easy solution to any new entrant who can lease or directly invest in these project for DLD telephony.

•A new digital TV transmission system has been launched with a brand name of SUN TV which will broadcast 50 channels through digital wireless system. Southern Network (SN), which was formally known as SPTV is now commencing its operations under the new management. The company is also planning to offer boadband Mobile Internet Service just after launching SUN TV. Management of SEPCOL is the major sponsor behind this company.

•Interestingly, Federal Information Technology and Telecommunications Minister Awais Leghari claimed that cellular policy draft will be available to the investors for review by the end of next month. We tend to differ with this as we believe that cellular policy draft earliest should not be expected before next 34 months. Our view is based on the fact that the ministry was looking for a consultant for drafting a policy for the cellular industry last month. Even if they have hired one, consultant will take some time to first understand the local market and then will come up with a policy draft, which in itself is a lengthy process. In our opinion, such statements from the Minister are just to defend the up roaring criticism from the general investors on the Deregulation Policy.



•According to the chairman PTA, the regulator is likely to issue two more GSM based licenses in the near term. This along with new WCLM operators is likely to reduce cellular mobile phone calling charges by more than 50% while connection charges will also be reduced by 20%. However, it is quite early to assess the impact of WCLM on GSM operators; we believe WCLM will carve out a reasonable share particularly in the pre-paid segment. Overall, in the medium term, we believe that operators who emerge leaders in terms of cost control, brand equity and financing capability will dominate the growth.

•Following the footstep of PSO, the management of PTCL is now ready to restructure the organization to improve not only the operating efficiencies but the image of the company as well. PTCL is preparing a report on the performance of higher officials and employees of the company. Based on this report, PTCL management may announce a downsizing scheme as well in the near term to trim its excess labor force. This, however, is unlikely to bring any immediate impact on PTCL, but is likely to bring positive impact in the longer run. We are of the opinion that the company is now on the right track and such steps are quite vital for PTCL to maintain its profitability in the deregulated environment

•PTCL has signed a new pact with British Telecom (BT) for uplink services of fiber link bandwidth following the expiry of the similar contract with the SingTel. Reportedly, British Telecom is likely to charge US$50,000pa for the similar services for which SingTel was charging US$200,000pa. Almost a reduction of 300% in contract annual fee is likely to compensate the company an expected reduction in revenues from domestic ISPs, due to huge reductions in bandwidth rates recently. We are of the opinion that the direction adopted by the company is likely to be more beneficial, where PTCL is now concentrating towards cost efficiencies.








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