Updated Aug 06, 2005



The report of the Task Force, set up to study the March crisis of the equities market, has been released. The initial reaction of the stock market was negative. The uncertainty is growing about the possible measures by the Securities and Exchange Commission of Pakistan (SECP). The report unambiguously stated that withdrawal of funds from badla market was one of the major triggers for the crash at the stock market. However, it remains to be seen as to how the SECP responds to the recommendations. The Task Force has also highlighted weaknesses at the KSE as well as SECP and suggested capacity building exercises at both the institutions. The SECP has sent notices to all individuals involved in 'wash trades' and insider trading. In a related development, the SECP has been asked to make a detailed inquiry into the events of March by the National Assembly Standing Committee. The uncertainty about the possible future developments is likely to keep market sentiments bearish.

The State Bank of Pakistan (SBP) has marginally increased yields on Treasury Bills of 3-month, 6-month and12-month tenors in the latest auction. The 3-month cutoff was raised to 7.82%, the 6-month to 8.09% and the 12-month to 8.79%. The total amount realized was Rs 58.475 billion against a target of Rs 75 billion. The bids received amounted to Rs 91.775 billion. It is believed that short-term rates have peaked off. Additionally, demand for private credit has slowed down significantly in the last three months. Going forward, analysts expect short-term interest rates to show a decline.

Kot Addu Power Company (KAPCO) has been listed at the stock exchanges recently. However, the company is playing very important role as an IPP as well as producer of electricity. KAPCO produced 8,135GWh during last financial year, which came to around 9.5% of total power generated in the country during the year. Also, when taken as a ratio of total power generation by WAPDA and IPPs (excluding KESC) this figure comes to around 11% of total generation. When looked at from the perspective of production of total thermal power in the country during the year, KAPCO's share was around 16.7%. Amongst the IPPs, KAPCO maintained its heavyweight status. In fact, it produced around 32% of the total power generated by the IPPs. This compares very favourably with KAPCO's market share of 27.5% amongst IPPs during 2003-04.

The first adventure of Pakistan's company of offshore drilling has gone sour as it ended up with a dry hole at its offshore Pasni well. Pakistan Petroleum held 70% stake and Mari Gas had 25% share in the block. Analysts estimate an impact of Rs 790 million on PPL's bottom line and Rs 283 million on Mari gas from dry hole cost. The project faced both cost and time over run, stretching drilling time to over 165 days as against 110 days planned and cost surpassed US$ 30 million against a budget of US$ 20 million.

Pakistan Telecommunication Company has scheduled an Extra Ordinary General Meeting on 8th August. Amongst some changes becoming necessary after its privatization, a major change is expected in the composition of Board of Directors, which is to be reduced to nine members from the current fifteen. The new board will comprise four nominees of the government and five nominees of Etisalat. A significant development is that an agreement has been reached between employees' action committee and the management of PTCL over peaceful handover of the company. The formal handover of PTCL to Etisalat is expected once it pays the remaining amount of the bid.



Cement demand has reported 4% YoY growth in domestic sales and 2% YoY drop in exports during July. To start with July dispatches fail to provide a direction for the full year owing to high monsoon rains and floods in different parts of the country, coupled with supply constraints owing to de-bottlenecking at some plants in Northern Zone. Analysts estimate cement dispatches to grow by 16% during FY06 with 15% growth in domestic sales and 25% growth in exports (mainly to Afghanistan). The estimates for demand growth are based on the assumption that the best is over for cement demand which has peaked off and it will start growing at a decelerated rate. On the supply side, it is expected that Lucky North Line-I (3000tpd) will come on-line in August, Pioneer Cement (4000tpd) in October, Saadi Cement (1800tpd) in December, Bestway (5700tpd) in December, Lucky North Line-II (5400tpd) in December and Lucky South (8400tpd) in March 2006. These additions coupled with the ongoing de-bottleneckings at some of the existing plants will increase industry supply to 24 million tons by the end of FY06, translating in to a 49% increase. The months to come will also pose some major challenges for the cement industry. More precisely, pressure from government, upcoming expansions, sustainability of the cement cartel and rising costs would be the key challenges faced by the industry, which will have a medium to long-term negative impact on cement industry.

Shell Pakistan surprised the investors by posting higher than expected profit for the year ended 30th June 2005 and announcing stock dividend. The company posted Rs 2,451 million (EPS: Rs 69.90) profit after tax profit as compared to Rs 1,508 million (EPS: R43.01) profit after tax for the previous year. This shows a growth of 63% in the bottom line. The most surprising element was the announcement of 25% stock dividend along with Rs 27/share final dividend, taking full year cash payout to Rs 35/share. Shell's top-line growth of 24% during the year was due to better margins and higher volumes. The increase in prices of energy products also improved gross margins of the company. Shell's volume of aviation fuel sales jumped mainly due to exports to Afghanistan. In lube business, though Shell has lost its market share marginally to PSO, volumes remained stable. Competition in the lube business is expected to heat up in the post NRL privatization scenario, with Attock Group getting aggressive in the southern region. Shell's financial charges have increased mainly due to higher working capital financing. The benefit of transportation cost saving from commencement of white pipeline project has started to accrue to the company, which has mitigated the effect of rise in financial charges.