Updated Oct 16, 2004


The market continued its upward movement despite some irritating news. The index managed to close above 5,400 level. The upward move was led by companies belonging to oil and gas sector. According to some analysts the reason for focus on this sector was the forthcoming results in general and higher dividend expectation from state-owned enterprises. In the forthcoming week, investors' attention is expected to remain focused on this sector. However, there seems to be two factors having the potential to adversely impact market sentiments. These are:








rising interest rates and the increase in POL prices, which the government has been resisting some quite some time. Since crude oil prices are not expected to come down, sooner or later the government has to make this unpopular decision.


The company is expected to announce its first quarter results on October 18th, 2004. Elixir Securities Pakistan has projected a net profits forecast of Rs 657 million that translates into an EPS of five rupees. A decline of 8.4% in company's earnings is due to (I) decline in overall prediction (II) non-cash entry of amortization of decomposition cost for POL fields, and (II) "normalized" exploration cost in the quarter. Despite a decline in its overall production, POL is expected to witness a growth of 7.7% in its top-line due to a 37.2% increase in international oil prices. Implementation of IAS-37 is likely to increase POL's amortization cost where it has to make provisions for the decomposition cost of its producing fields. This is likely to be added in its operating cost that will increase by about 16.2%. Although, this will affect the bottom line, it will not affect its cash flows. Some of the exploratory projects were delayed in first quarter of last year due to concerns regarding seismic survey of few fields. This was the major reason for exceptionally low exploration costs in for that period. Consequently, exploration cost during 1QFY05 is significantly higher.


Pakistan's telecom sector is likely to grow at a 19% over the next five years. The teledensity is likely to reach 16%. The growth will come mainly from the cellular segment, (6% fixed line penetration and 9.9% cellular penetration) by 2009. These numbers are fairly attractive and seem promising for new entrants. However, it is believed that only those players with well defined marketing plans and financial muscle would be able to survive. The days of extra-ordinary profit margins in the telecom sector have come to an end, where earnings would be driven by volumes rather than a function of high priced services. This can bring PTCL earnings under pressure. However, some analysts expect the company to witness growth on the basis of (I) aggressive expansions (II) increase in interconnectivity (III) corporate restructuring, which will result in bringing operating efficiencies and cushion falling margins and (IV) growth in cellular operations.



Pakistan Industrial Credit and Investment Corporation (PICIC) in its notice to the stock exchange has disclosed in principal the approval of the merger of PICIC Commercial Bank (PCBL) and PICIC, by PICIC's Board of Directors. The merger is subject to the terms and conditions to be finalized between PCBL and PICIC, approval of State Bank of Pakistan and Shareholders of both the companies. Neither the structure of the merger nor the terms of the merger (including the swap ratio) have been agreed upon at present. PICIC owns 60% stake in PCBL.


The Board of Directors meeting has been scheduled for 19th October for the review of third quarter ended 30th September 2004. The company is expected to post earnings of Rs 790 million that translates into an EPS of Rs 59.46. This includes one time gain arising from sale of its Dalda unit yielding Rs 550 million. This would bring the nine month earnings to Rs 1,434 million (EPS: PKR108). During the third quarter analysts expect earnings of the tea and personal health care segments to improve due to a) higher tea prices and tariff rationalization on tea imports and b) successful launch of new variants in the food and personal health care segment.


At this juncture it may be necessary to revisit the company. The reasons for this are: (I) early repayment of debt is likely to save Rs 140 million financial charges on recurring basis and (II) de-bottlenecking in Polyester and Soda Ash segments. Segment wise performance review shows that during first half of 2004 operating profits of the company declined by 16% due to employee restructuring cost and lackluster performance of its major segments. Going forward, polyester and the soda ash segments are expected to remain under pressure with paints remaining profit-making segment. The company is expected to post earnings of Rs 700 million with an EPS of above five rupees.