Updated Aug 27, 2005

The week has ended on a positive note with the KSE-100 index gaining 274 points or 3.74 percent during the week. However, the market remained volatile and daily movement of index was full of surges and average daily trading volume is still low. The result season has started and focus of attention is banking sector. The news concerning transfer of PTCL control to the highest bidder continued to confuse the investors, which was evident from erratic movement of its price. CFS has provided a breather but growing quantum in a few days time also raises some concern. High crude oil prices may be a boom for the OMCs but no one can deny the adverse impact of hike in POL prices on the economy. Cost pushed inflation is eroding purchasing power as well as savings of masses. According to a report the Asian Development Bank and other donor institutions have advised Pakistan government to build up investors' confidence. They have also suggested focusing investor protection through better regulatory regime.

Urea off take in July dipped to 505,000 tons. This was not surprising as dealers had been building up urea inventories in anticipation of a hike in urea price due to the stipulated increase in feedstock rates effective 1st July. The government is following a planned 12.5% phase out in feedstock rates as per Fertilizer Policy 2001). Urea prices at the retail level went up by around 3.4% MoM, as producers gradually shifted the burden on to the farmers. Domestic Urea production at 380,000 was a marginal 3% above the same period last year but insufficient to meet local demand. Imported urea relieved the supply pressure as imports of 154,000 along with last month's carry over inventory absorbed the surplus demand. During calendar year demand for Urea is expected to touch 5.1 million tons and prices are anticipated to soar by 8% compared to last year. Urea production at 380,000 was close to the same period last year, as FFBL's production at 27,000 declined by nearly 48% MoM. Sui Southern Gas Company, FFBL's gas provider, had informed FFBL that it would supply only 55-60 MMSCFD of gas against a requirement of 75 MMSCFD during 5-16 July. FFBL decided to shut-down its Ammonia and Urea plants for a period for maintenance and upgrade, which resulted in a loss of production. The supply shortfall is expected to exacerbate because de-bottlenecking by FFC, FFBL and entry of Fatima Fertilizer will only alleviate the supply situation temporarily. There is room for another urea plant and this gap could be filled by Engro, which has already approached the government to allocate gas for a major urea expansion.

Allied Bank has released its half yearly financial results showing phenomenal growth in profitability and business volume demonstrating its strong growth potential. With the change in management and recapitalization, capital and reserves improved from negative Rs 4.750 billion to positive Rs 11.235 billion. The aggressive marketing has helped in boosting deposits and advances. Deposits grew from Rs 126.4 billion to Rs 143.4 billion and advances registered a growth from Rs 51.7 billion to Rs 93.4 billion. The overall impact on the bottom line was also positive. The bank posted slightly more than one billion rupees profit after tax as against Rs 628 million loss after tax for the corresponding period last year. With this enormous turnaround EPS improved from negative Rs 4.78 to positive Rs 2.33. Yet the most remarkable improvement was massive decline in net NPLs to net advances ratio, coming down from 17% to 6 percent.

Bank Alfalah announced has announced its half yearly results, posting Rs 847 million profit after tax (EPS: Rs 2.82), registering 43% YoY growth. However, QoQ analysis depicts a flat bottom line. Net Interest Income continued to remain strong, posting 79% YoY growth and 23% QoQ growth. However, non-interest income recorded a 32% QoQ decline. In first quarter the bank recorded Rs 173 million capital gains, which boosted non-interest income. However, stable yields on bonds and lack luster performance of the stock market in second quarter restricted the bank from posting any substantial capital gain in the quarter.

ICI Pakistan released its half yearly results recording Rs 656 million profit after tax (EPS: Rs 4.73). An interim cash dividend of Rs 2 per share was also announced. The company exceeded all expectations and registered an increase of 93% in the bottom line fueled by higher margins due to lower cost of sales, benefits of staff restructuring, reduced financial charges and higher other income. The gross margins and net margins of the company were exceptionally high for the first half this year showing growth of 16.7% and 7.4% respectively as against previous years' 14.5% and 3.9%.

Pakistan PTA has a little disappointing result for the first half of 2005. It has posted Rs 393.635 million profit after tax (EPS: Rs 0.26), which is 45% lower YoY than the corresponding period last year. The company had posted Rs 692 million profit during that period (EPS: Rs 0.46). After a buoyant first quarter yielding Rs 478 million profit (EPS: R0.32), the company posted an after tax loss of Rs 85 million. According to the management the crunch came due to disproportionately high volume of export sales (40% of sales were export based in the quarter as compared to only 2% in the preceding quarter), which are not privy to the 15% protection given to domestic sales. Lower realized price on said exports, inactivity on the PSF side and pallid domestic demand as PTA buyers waited on the sidelines for the budget to bring duty relief into play, kept top line growth for the first half limited to 15% YoY. Meanwhile cost of sales was up by 23%, limiting gross margins for the period to 8.6%. Other Income received a one off boost through insurance claim of Rs 225.8 million) while financial charges also benefited through a withholding tax provision reversal of Rs 204 million.