Updated May 07, 2005



The resulted season has started and most of the volume leaders have posted better than expected results. Improved corporate earnings certainly support the view that Pakistan's economy continues to enjoy strong economic fundamentals. However, the equities market crisis, which has been lingering on since middle of March, allows the critics to say that small investors should stay away from the equities market. According to some analysts, speculators and gamblers may have lost but the real investors are reaping the profit of prudent investment decisions.

Oil and Gas Development Company (OGDC) third quarter results depict a 26% growth in bottom line, emanating primarily from increased oil and gas production and higher crude oil prices. During this period, oil and gas discoveries were made at Dakhni-8 and Pasakhi Deep-1. OGDC's oil and gas output increased by 33% YoY and 17% YoY respectively. Qadirpur plant, operating at full capacity, (producing at 550 MMCFD of gas) led gas production growth while Chanda Oilfield (producing 2,800 BPD of oil) and Bobi Field (producing 3,000 BPD of oil) enhanced oil production. Operational efficiencies resulted in enhanced production from all major oil and gas fields including Dhodak, Dakhni, Kunnar, Tando Allam, Thora, Pasakhi, Sono, Rajian, Uch and Nandpur on year-on-year basis. World oil prices remained high throughout, aiding earnings growth. Arab light crude, the benchmark crude oil blend to value E&P companies in Pakistan, was up 72% YoY. The company realized a price of US$ 36.01 per barrel, as against US$ 33.68 per barrel for 1HFY05 for crude oil. As a result, average price realized for crude oil increased to US$ 34.42 per barrel as against US$ 25.75 per barrel during the corresponding 9 months. Altogether OGDC has made 3 discoveries since the start of FY05, with 2 of those discoveries made in 3QFY05. The oil and gas discovery at Dakhni-8 in January and at Pasakhi Deep-1 in February, in addition to the gas discovery made at Jhal Magsi in December 2004, is expected to increase oil and gas production by 1,000 BPD and 37 MMCFD respectively once commissioned. There are 6 other development projects in progress, which are expected to be completed in next couple of years, boosting oil, gas, and LPG production by 4,810BPD, 340MMCFD and 130TPD respectively. Analysts expect OGDC to post full-year earnings of Rs33.590 million (EPS: Rs 7.81). They also expect the company to pay dividends of Rs 6/share.



Fauji Fertilizer Company announced its results for the first quarter on April 26, 2005, reporting an after tax profit of Rs833 million (EPS: Rs2.46) and distributing 25% cash dividend along with 15% bonus shares. This depicts a handsome growth of 18% YoY. Higher urea sales and higher other income were the main contributors towards this growth in profitability. Gross margins of the company fell from 41% in 1Q2004 to 39% in 1Q2005, despite a price increase of Rs15/bag by the company during the period. The decline in gross margins was mainly on account of the increase in fuel gas prices by Rs15/MMBTU (from Rs182.09 to 197.11 per MMBTU) announced in February 2005. Industry urea sales during the period were very encouraging and grew by 36% to 1.158 million tonnes as compared to 852,000 tonnes in 1QCY04. Urea sales of FFC also rose by 10% to 551,000 tonnes during the period including 29,000 tonnes of imported urea. This extraordinary growth in urea off-take was mainly on account of speculative buying by the dealers who were foreseeing higher urea prices in future due to shortage in supply for the upcoming Kharif season. Analysts believe that the growth in urea off-take will normalize in future and full year growth will be around 4%. Total urea imports during the year are expected to be around 400,000 tonnes. Abundant supply of water, easy accessibility to farm credit, higher crop support prices and bumper cotton crop, all these factors suggests a very positive future outlook for the agricultural and consequently fertilizer sector in Pakistan. Agricultural growth during the current fiscal year is expected to be above 5% and this growth is likely to continue in the years ahead. Analysts also believe that urea off-take will grow at a CAGR of 4% for the next 3-4 years. This positive situation on the agricultural front bodes very well for the company as it is the biggest player in the sector. Urea prices are also expected to remain firm due to shortages on the supply side and extremely high international urea prices (over Rs850/bag). This will allow local manufacturers to comfortably pass on the impact of future increases in feedstock and fuel gas prices to end consumers. Future expansion plans of the company include de-bottlenecking of both plant I and II (Goth Machhi) and plant III (Pak Saudi) which will increase the total production capacity of the company by approximately 250,000 tonnes. Currently, feasibility studies are being undertaken for the project and the new capacities are not expected to come online before 2006.