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Last updated: Friday 23 Dec, 2005-12.30 P.M (PST)



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updated: Fri - Sun 23-25 Dec, 2005




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Updated Oct 15, 2005

AKD Investments is launching a closed-end Index Tracker Fund with a total size of Rs 750 million, out of which Rs 500 million have already been raised through pre-IPO. This will be Pakistan's first index tracking fund. 25 million shares at par value of Rs 10/share will be offered to the general public on 19th and 20th October, while another 25 million shares have been allocated under the green shoe option, in case of over subscription. The investment objective of an Index Tracker Fund is to imitate the performance of a specific stock market index or sector index (KSE-100 index in this case). The fund does this by holding the same equities in the same proportion as the index it tracks or in a representative sample of the equities. This type of fund is managed passively, meaning the fund manager makes no decisions about what to invest in, shares are only bought or sold when the index changes. An advantage of investing in an Index Tracker is that the fund will never perform worse than the stock market. The disadvantage is that it will continue to follow the market when it goes down. Due to its passively managed nature, this type of fund should cost less to invest in than an actively managed fund. Costs are comparatively lower since index funds generally hold securities for longer periods (changes should only occur if the underlying index composition changes). Fund managers can also forego the cost of research. However, in the case of AKD's Index Tracker Fund, advisor fees as mentioned in the prospectus can be up to 3% of average annual net assets for the first 5 years. This is higher than for most other local funds which charge 2% of net assets. The primary benefit of investing in an index-tracking fund is that it allows small investors to diversify their portfolio. It is an effective tool for asset allocation, especially for investors who desire some exposure to equity or wish to allocate assets between debt and equity without necessarily having to select specific sectors or stocks. Index tracking funds also remove the fund manager from the equation, so quality of decision-making by the fund manager is no longer part of the investment decision.

According to analysts ICI Pakistan offers a lot of upside potential. The present bullish sentiments regarding the stock are led by a strong turnaround in profitability of the company driven by 1) management's bottom line centric focus to cut costs and improve operational efficiencies, 2) a 22% enhancement of the soda ash capacity and 3) asset modernization and de-bottlenecking of the PSF plant. There is a visible shift in company's strategy - continuously looking for ways to reduce costs and improve bottom line rather than focusing on top line growth alone. Asset modernization, plant de-bottlenecking and capacity expansions are going to improve operating efficiencies. As a result, operating costs, as a percentage of sales, are expected to go down over the years. All the segments of ICI Pakistan are poised to show strong growth at the back of favorable industry fundamentals with strong growth potential in the soda Ash, petrochemicals and paints business.

Maple Leaf Cement will hold its Board meeting on 19th October to approve and release its first quarter results for the current financial year. The company is expected to post Rs187-190 million profit after tax for the quarter. This would mean a growth of 27-29% compared to the figures for the corresponding period last year. Growth in profitability is expected to be at the back of higher dispatches and higher retention prices. Grey cement dispatches have grown from 324,200 tons to 357,600 tons, whereas white cement sales seem to have remained around 9,000 tons. Retention price is also expected to have increased by around 12% from Rs 3,021/ton to Rs 3,382/ton. However, in spite of higher retention prices, gross margins are expected to remain the same at around 29.8 to 30% because of higher cost of goods sold. Higher cost is the result of higher coal price and the use of its wet process line, which increases the cost of production. The company has upgraded its capacity from 1.46 million tons to 1.50 million tons through a de-bottlenecking. Work on the new cement plant has been commenced. The project cost is estimated to be around Rs 10 billion, for which a mix of equity and debt has been proposed. Along with this 50% right shares were issued generating Rs1.62 billion and Rs 540 million were generated through issue of preference shares. An aggregate amount of Rs 6.67 billion was generated through three different banks and consortiums, bringing the total amount to Rs 8.8 billion. The rest will be generated through earnings and accumulated profits. The estimated cost of project has been raised from Rs 8.5 billion to Rs 10 billion, which will have a negative impact on financial charges going forward as a higher amount of debt would have to be sought. Debt of around Rs 6.6 7 billion has already been planned. The new plant will take increase the capacity to 3.7 million tons compared to present capacity of 1.5 million tons.

According to the latest statistics car assemblers have sold 36,200 cars in July-September 2005 as compared to 28,900 in the same period last year, representing a 26% increase. Moreover, total car production soared by 29% from 28,000 in 2004 to 36,000 in 2005. Suzuki Mehran's sales improved from 7,500 to 8,700. New Honda City witnessed a sharp jump in sales, which increased to 4,600 from 2,000. The volume leader in the above-1300cc segment, Toyota Corolla, witnessed drop in sales from 6,000 to 5,000.


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