Updated Mar 12, 2005



During the week market continued its upward move, but not without high volatility. The new rules of the game introduced by the SECP, aimed at containing volatility, have also not been able to yield the desired result. The bulls seem to be pushing the index beyond 10,000 level. There is no doubt that market has the potential to go far beyond the 10,000 level because present rally is driven by less than six scrips. Once the investors come out of present euphoria and focus their attention on these scrips, the index may go beyond the 15,000 level. On the way the market has to under go technical correction on regular basis.

The local stock market has come a long way since the beginning of 2002, and has in fact risen by close to 9 times as against the level seen at that time. At the local stock market, where the PE multiple has crossed the 15x mark (based on 2005 expected earnings of InvestCap sample universe profits). The universe, of close to 40 companies covering around 75% of the KSE market capitalization has surpassed the 15x level. The PE multiple of 15x is the highest level seen since 1996, when a PE of over 17x (average PE for the whole year) was observed. Dividend yield is currently not a concern, as it has dropped to 4.2% based on 2005 expected dividend

According to newspapers the Government has decided to amend Banking Companies Ordinance (BCO) 1962. Amongst other amendments such as enhancement of penalties, the major amendment pertains to allowing inclusion of perpetual non-cumulative preference shares in the capital structure of banks. News flows indicate that SBP plans to raise the minimum paid up capital requirement of banks to US$ 100 million over the next few years and this amendment would felicitate banks in fulfilling the requirement.

Cement sales in February declined by 13%, following heavy rains and snowfalls in most parts of the country. Off take slow down was expected and is not of any serious concern. More importantly, the month once again saw a 'temporary break-down' of the cement cartel as Lucky Cement sold in excess of its allocated quota. The break-up was short-lived. On a year-on-year basis, February sales reflect an 11% increase to 1.07 million tons. This includes a 12% increase in domestic sales to 0.99 million tons and 2% increase in export sales to 0.08 million tons. For the July-February period, cement sales were up 20% to a little above 10 million tons and according to some estimates should be around 16 million tons at the end of current fiscal year.

The year 2005 promises to be a good year for urea manufacturers. With none of the planned capacities expected to come online this year, another year of urea shortage is on the cards. Initial estimates indicate import of 500,000 tons of urea in the country. With shortage of locally produced urea and high international prices, manufacturers should be able to pass on the impact of increase in fuel and feedstock prices to end consumers. As a result, urea price may increase by 8% YoY. Effect of price increase should not trickle down to urea demand, which is expected to remain buoyant (above 4% on the back of improved farm economics and bumper cotton crop.



Capacity expansions in the form of Fatima Group's fertilizer plant and Fauji Fertilizer's de-bottlenecking are not expected to come online before 2006-07. Engro is currently in the phase of evaluating different options with regards to expansion/ de-bottle-necking of its plants and its decision is dependent on feasibility of the options. Therefore, domestic supply situation of urea should only wary along planned and unplanned shutdowns (Engro has a 28-day planned plant shutdown in 2005). Supply of urea was, however, impacted by an exogenous factor in January '05 due to disruption of gas supply to fertilizer companies (Dawood Hercules and Fauji Fertilizer Bin Qasim). The issue was subsequently resolved and supply was restored after a production loss of nearly 60k tons.

The local automobile sector is one of the top most growing sectors in the country. It has a weight of 3.96% in large scale manufacturing and hence helps overall GDP growth. This growth can be called the reflection of the growing economic activities and unprecedented involvement of different financial institutions in car financing with low interest rates. According to the latest available statistics, auto assemblers sold 75,500 cars in July-February period as compared to 59,100 units in the same period last year, representing a 27.8% increase. Moreover, total car production soared by 25% from 59,500 units in July-February 2004 to 74,000 units in July-February 2005.

Attock Petroleum, the latest addition to listed OMCs in Pakistan, has commenced trading at the KSE at nearly 3.5X offer price and at multiples substantially higher than more established peers. Key reasons for the scrip's phenomenal price performance are: 1) a relatively small free float, 2) possible future market participation by Attock Refinery and 3) overall positive investor's sentiment towards the sector. APL has reported after-tax earnings of Rs 187 million (EPS: Rs 4.67).