ERRA not to enjoy unchecked powers-Reconstruction

 

ERRA not to enjoy unchecked powers

By Ansar Abbasi

ISLAMABAD: The newly-created Lt Gen Zubair-led Earthquake Reconstruction and Rehabilitation Authority (Erra) would not be enjoying unfettered powers as assumed generally but would be subjected to a notified check and balance system.

According to a notification issued by the Prime Minister’s Secretariat, ERRA’s spending would be audited by the Auditor-General of Pakistan whereas its development programme would require approval of the executive committee of the National Economic Council (NEC).

The authority could, however, approve individual projects that fall within the scope of the approved (by competent body) umbrella programme and do not go beyond the cost determined by the federal government.

Although the ERRA would work as an autonomous organisation, it would operate under a high-powered apex body led by the prime minister and comprising members including the prime minister of AJK, the chief minister of the Frontier province, the minister for Kashmir affairs, adviser to the PM for finance, the deputy chairman Planning Commission and the chairman ERRA.

The general direction, all matter of policy and administration of the authority and its affairs, shall vest with the PM-led council, which may exercise all powers, perform all functions and do all acts and things, which may be exercised, performed or done by the authority.

With regard to its operation in the AJK, the authority has been bound by the notification No F1(4)/2005-Admn dated October 24, to do such activities in consultation with the AJK government.

Moreover, according to the notification, there shall be a board headed by chairman ERRA and including representatives of Planning Division, GHQ, Board of Revenue AJK and NWFP, National Highway Authority, Wapda and PTCL.

The board will submit reports to the council in respect of all its activities on a quarterly basis and will be responsible for the implementation of the approved programmes, projects and policy decisions of the council as well as for the day-to-day operational matters.

The board would enjoy the administrative and financial powers as may be delegated to it by the council. The chairman of the ERRA would also exercise such powers as delegated by the council.

A fund with the name of ERRA Fund shall vest in the authority and utilized by the same body to meet the charges in connection with its function. The fund will consist of such sums as the federal government may from time to time allocate to it in the annual budget, grants etc.

The accounts of the authority, it is said, shall be audited annually by the auditor general of Pakistan. The authority, the notification said, shall complete its mandate within a period of three years, which may be extended as may be considered expedient. The authority, however, shall stand dissolved on the completion of its task.

Established with its headquarters at the PM’s Secretariat, the authority is made responsible for reconstruction, rehabilitation and development of the earthquake affected areas. The authority would formulate a comprehensive umbrella development programme and resettlement plan for affected population in consultation with local communities.

The authority would get approval of its comprehensive development programme from the Executive Committee of the National Economic Council. In its functions, the authority would also be responsible for the execution of the approved projects and development plans in accordance with the time schedule approved by the Council.

The authority would prescribe cost effective technology, building codes, architectural designs, specifications and construction materials for housing and other buildings in the earthquake prone areas to protect against future seismic activity.

The authority would also review building codes of various urban development authorities and recommend appropriate changes to ensure quality construction and to maintain building standards in the country.

The authority would have the powers to undertake work, incur any expenditure and procure equipments for the implementation of the approved development programmes and projects. It could engage staff and experts, consultants, advisers, contractors etc to carry out its assigned work.

The authority could also seek assistance from federal, provincial and AJK government agencies in respect to its job. The notification allows the authority to approve individual projects, within the scope of the approve umbrella programmes, up to a cost determined by the federal government. It can also transfer any project to provincial or AJK government but that too requires the approval of the PM-led council.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Donors pledge $580m quake aid

 Donors pledge $580m quake aid

Promise comes after grim warning; India setting up $25m fund for Pakistan; officials warn only part of new money earmarked for emergency relief

GENEVA: Donor governments promised half a billion dollars of new earthquake aid to Pakistan on Wednesday after UN officials warned that hunger, cold and injuries might kill more people than the quake itself. But millions of survivors with little food or shelter were left guessing how much would reach them before winter snow blankets the remote Himalayan valleys of Azad Kashmir.

The UN recorded an initial $525 million in new aid pledges at an emergency conference in Geneva of around 60 nations on the aftermath of the Dec 8 disaster. The organisation had earlier doubled its appeal target to $550 million.

"We have received new pledges of 580 million dollars," UN emergency relief coordinator Jan Egeland told journalists. Some of the major new donations were announced by the United States, with an extra $50 million, and India, which said it was setting up a special 25-million-dollar fund for Pakistan, UN spokeswoman Elisabeth Byrs said.

The EU also announced an additional 50 million euros for Pakistan in the meeting that had been outlined earlier in Brussels. China was ready to give $500,000 next week for tents, blankets and heating equipment.

Alessandro Minuto Rizzo, deputy secretary-general of the Nato military alliance, which is currently airlifting supplies into Pakistan, also announced the deployment of 1,300 specialist military personnel, including engineers, for the operation.

USAID administrator Andrew Natsios said the fresh American pledge —which comes on top of an initial promise of $50 million, as well as $56 million spent by the US military — was for "emergency needs and reconstruction". "It’s flexible enough to be used for either phase," Natsios told journalists.

Pakistan said it was "racing against time" on Wednesday to save hundreds of thousands of desperate earthquake survivors as UN Secretary-General Kofi Annan pleaded for urgent international aid.

"We needed the money yesterday," United Nations emergency relief chief Jan Egeland told a Geneva news conference. Officials warned that only part of the new money was earmarked for emergency relief like food, medicine and tents, with most being set aside for later reconstruction efforts.

"It is a deadline. This is a line of life or death for tens of thousands if not hundreds of thousands of people in the Himalayas." Egeland said a reconstruction conference would be held in Islamabad on November 18.

Relief workers are racing against time to get people under shelter and to stockpile food to last them through the winter. Some UN agencies had run out of cash, Egeland said, amid a chorus of complaints that the world was not helping enough.

Doctors are having to amputate the limbs of many survivors because they have gone so long without help, he said. Many more lack shelter as night temperatures plunge below freezing, with the full force of winter only a few weeks away.

"This disaster may have the number of people who died after the disaster bigger than those killed by the earthquake," UN chief aid coordinator Rashid Khalikov said at his tent office in the wrecked city of Muzaffarabad.

Bad weather in the mountains grounded the vital helicopter fleet at the main airbase near Islamabad on Wednesday. With the known quake death toll at more than 54,000, relief workers had until the end of November to provide shelter, treat the countless injured and supply food, Khalikov said.

"What these communities will have by December 1 is what they will have to live with," he said. "We basically have four weeks to deliver." UN officials said it was unclear how much was going specifically to the global body’s emergency relief appeal. "The good news is that we have very good pledges, but the bad news for us is that too little is committed to the UN’s flash appeal," Egeland told reporters.

Egeland said it was impossible to discern what funds would be going to the United Nations’ appeal for nearly $550 million and what would be going to other emergency efforts or even for reconstruction later on.

He called on all donors who had made additional pledges on Wednesday to specify what their money should be used for as soon as possible. "We hope that much of that money will come to the UN flash appeal, but I’m still worried that there will not be enough because ... of the arrival of winter," said Egeland. "Many pledges are still not specified as concrete commitments to humanitarian organizations," he said. "Only earmarked contributions are actionable contributions for humanitarian organisations."

Toby Lanzer, an aide to Egeland who oversees appeals for OCHA, said almost half of the new pledges $250 million came from the Islamic Development Bank, the financial arm of the 57-member Organisation of the Islamic Conference. He said he had the impression that the bank’s money was for reconstruction—an issue "that we are not focusing on today."

Egeland, however, stressed the need to concentrate on the immediate effort to save lives. "All humanitarian organizations are acutely aware that our window of opportunity for action is closing with the onset of the severe winter," Egeland said. But he said the UN was encouraged by the response.

"With the resources made available today and the commitments that will come in the coming days, we will redouble our collective efforts," he said. "This will help energise further the struggle to reach the earthquake-stricken communities in the Himalayas."

A better picture of the nature of the new pledges is expected within a few days, Lanzer said. "We meet today to prevent a second shockwave of deaths and to prevent further suffering," Annan said after observing a minute’s silence in honour of the victims. "The scale of this tragedy almost defies our darkest imagination," Annan told the Geneva meeting.

Annan said Pakistan’s scramble for aid showed the need for the UN’s planned permanent Global Emergency Fund, which is intended to rush relief to disaster sites at a moment’s notice. UN officials expect the fund to be operational by early 2006.

"We need more resources to save 2 million to 3 million lives, and we need much more resources in the next few days," Egeland said. Salman Shah, Pakistani adviser, urged the donors to speed up their giving. "The more you help and the faster you help us, you will save lives," Shah said.

Annan said every contribution counted: "Every dollar, euro or yen committed today will save lives." He urged donor countries to give generously as they did last year in the wake of the deadly Indian Ocean tsunami. "We saw this generosity at the time of the tsunami. We need it here too," Annan told reporters. "We need the support of governments, private citizens, the private sector. "It is urgent and it is desperate."

"The weather yesterday was very bad—heavy rains and hailstorms and strong winds and there was even snow on the higher mountains," International Red Cross spokeswoman Leyla Berlemont said from Neelum Valley. "They are very, very harsh conditions for the people living without shelter — especially the young people and kids and we still have injured people being treated," she said from Rajkot, a village 7,000 ft up in the mountains. The few roads into the mountains have been blocked by landslides or swept away. Some, like the one up the Neelum valley, will take weeks to repair, leaving helicopters as the main means of delivering food and shelter.

The fleet of aid helicopters, although growing, cannot reach them all, or deliver enough. About 450,000 tents are needed, nearly 100,000 have been distributed and another 200,000 are in the pipeline, said Bob Mckerrow of the International Federation of Red Cross and Red Cross Societies, which doubled its aid appeal to $117 million.

The spectre of disease also cast a pall over the quake zone when a man with a suspected case of highly contagious haemorrhagic fever was airlifted from the shattered Azad Kashmir town of Bagh. "There is a suspected case, but it’s not a reason for alarm or panic," World Health Organisation (WHO) official Rachel Lavy told AFP.

Around five percent of patients in Bagh have bronchitis or pneumonia and more people will perish if immediate help does not arrive soon, according to the medical charity Medecins sans Frontieres (MSF - Doctors Without Borders). "People will die of exposure, they will die of pneumonia. We can feel it in our toes," said the aid group’s medical coordinator for Bagh, Marc Joolen.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Parents retrieve quake children from hospitals

Parents retrieve quake children from
hospitals



ISLAMABAD (IRIN) - Bouncing from one
end of his bed to the other, 10-year-old Muhammad
Shafiq is luckier than most. Having survived the
deadly quake of 8 October in Muzaffarabad,
capital of Pakistan-administered Kashmir, he was taken
to the Pakistani capital, Islamabad, where he
recovered from his wounds only to gain a reputation
for his strong sense of mischief.

But for the past two weeks doctors had been in a
quandary over who he was, much less his parent's
identity and whether they were in fact still
alive.

That all changed on Tuesday, however, when an
uncle arrived from the northern city of Gilgit to
retrieve him.

In the immediate aftermath of the disaster that
killed so many in Pakistan's North West Frontier
Province (NWFP) and Pakistan-administered Kashmir,
scores of children like Muhammad, many of them
badly injured, became separated from their
families. They languished hospitals far away from their
homes in cities such as Islamabad and Rawalpindi
that survived the quake's wrath - but without
their parents or family to accompany them.

Testament to the problem, hospital officials
placed photos of those children's whose identities
were unknown at the entrance of Pakistan's
Institute of Medical Sciences (PIMS), one the country's
most renowned hospitals and a large receiver of
many children like Muhammad - many of whom were so
badly injured, they couldn't barely speak for
themselves.

"Things are better than before," Dr Tahir
Mahmood, an attending physician in the children's ward
of PIMS, clarified. "This was a burning issue in
this country which is now being resolved," he
said, referring to innumerable media reports of some
children being discharged by strangers,
potentially to even abusive situations, while some
hospitals were inundated with offers to adopt the
children from around the world.

But in a country that places such high value on
family, the government was quick to respond. 
Security was beefed up at the entrances to most
hospitals and family members found themselves
compelled to prove their relations with the child in
question.

"We process the identity of the children very
carefully so they do not land up in the wrong
hands," Dr Anjum Javed, director of PIMS children's
hospital, said, declining to comment on the
situation in other hospitals in the country. "These
children will not be handed over to anybody unless we
get clearance from the government," he claimed.

"We have received calls from all over the world
with offers to adopt these children, but from the
first day our policy has been that these children
are not for adoption," Dr Waseem Khawaja,
assistant director of PIMS, added.

Communications with Muzaffarabad, where most of
the children came from, had improved substantially
and most unaccompanied children had been
identified, Khawaja added.

"Almost 80 to 90 percent of all the children's
parents have been contacted," he said, citing a
strong media campaign and a deluge of photos to
assist them.

"At the moment we have only 14 children
unattended," the hospital official claimed, a significant
improvement over two weeks earlier.

"With the passage of time, we should be able to
locate their parents," he  asserted, adding that
the Pakistani government had assumed full
responsibility of any such children.

"These children will not be handed over to
anyone," he stressed.

But not all children at PIMS have been reunited
with their families. Surrounded by several stuffed
animals and toys donated by outsiders,
five-year-old Yasemin, who arrived on 12 October, cries out
for a glass of water, a request the doctor
declines.

Trapped under her home for days with severe
lacerations and a concussion, her right arm was
amputated at the elbow and she is about to have another
round of surgery.

She's unaware that both her parents and three
siblings perished in the quake. Only her grandfather
and stepmother have survived, but they yet to
come forward to claim her.

Meanwhile, the challenge of assisting survivors
of Pakistan's worst quake in 100 years continues
at hospitals throughout the country.

Since 8 October, PIMS has received 4,598
patients, the vast majority from Muzaffarabad, and
admitted over 1,000, many of them children, flown in by
helicopter or taken overland. To date, the
hospital has carried out almost 450 CAT scans and more
than 18,000 X rays.

"Many patients came in with multiple bone
fractures which will account for that," Khawaja
explained, adding many people were also left paralysed.  

"Unfortunately, most of them will not recover,"
the doctor said.

Also at PIMS, an additional 620 ultrasounds have
been carried out, over 16,000 laboratory tests,
as well as over 2,000 operations - both major and
minor - including more than 20 amputations.

Asked how they were coping, Khawaja maintained
they had no shortage of staff or medicine. "Our
problem is bed capacity, which we have already
increased from 1,000 to 1,400.We can increase it more
if need be," he claimed, referring to the
possibility of opening a larger tented  facility to cope
with the overflow.

"We have received the maximum number of patients,
but will continue to receive more if need be," he
said.

A quick glance outside provides ample evidence he
may do just that, with scores of survivors lying
on beds in corridors and halls from Pakistan's
worst disaster in its 58-year history.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

PAKISTAN EARTHQUAKE: Interview with UN Humanitarian Coordinator, Jan Vandemoortele

PAKISTAN: Interview with UN Humanitarian
Coordinator, Jan Vandemoortele


ISLAMABAD (IRIN) - This month's
earthquake in Pakistan devastated much of the
country's North West Frontier Province (NWFP) and
Pakistan-administered Kashmir, resulting in one of the
largest and most difficult humanitarian relief
efforts ever.

One day before Wednesday's upcoming donor
conference in Geneva, Jan Vandemoortele, UN Resident
Coordinator for Pakistan and recently appointed
Humanitarian Coordinator, shared his thoughts with
IRIN on the disaster and why the international
community must act urgently.

QUESTION: This earthquake has devastated much of
northern Pakistan. Can you update us on the
number of deaths, injuries and damage to
infrastructure?

ANSWER: The earthquake has been devastating. The
latest numbers are 53,000 dead, 75,000 injured
people - but again these are preliminary figures
and are constantly being revised upwards, not
downwards.

Q: Do you expect those figures to go up?

A: Yes, we expect those figures to go up,
unfortunately. You have wild figures of some people
saying they may double. We hope not, but they will
certainly go up.

Q: What are the main challenges you face
logistically?

A: The terrain and the weather are the two
nightmares logistically speaking. The terrain is
difficult to access in normal times. The good news is
that roads have been re-established to the main
towns in the affected areas. We still have a major
nightmare getting into the valleys; the valleys
where not only have the roads been blocked, they
have been washed away and no longer exist.

Q: In terms of complexity, how would you compare
this disaster with others the UN has had to deal
with?

A: Comparisons are not an exact science in those
areas. But anyone who is with me here on the
ground, who has worked in other disasters, they all
tell me this is an extremely bad disaster and very
complex.

Q: Coordination of assistance was initially
reported to be quite slow. What is the situation on
the ground now and what efforts are you taking to
mitigate such criticism?

A: The first reaction is always to get action on
the ground and not coordination, which is
probably good. We had search and rescue teams
immediately on the ground, coordinated by OCHA [The United
Nations Office for the Coordination of
Humanitarian Affairs] in Muzaffarabad within 24 hours.

[However] The coordination has come on stream
amongst the UN agencies and NGOs. The government is
putting up its own infrastructure institutionally
to face the crisis; they have established a
Federal Relief Commissioner, they have established an
earthquake recovery and reconstruction authority.
The first one is for the short-term, the second
one is for the longer term. Things are coming in
place. We have meeting after meeting,
consultation, we have put up databases and web sites. I think
the coordination is up and running.

Q: As winter fast approaches, what are your main
priorities?

A: Priority number one overall is shelter. Tents
and probably emergency shelter, which means that
they are probably going to be people who will not
be able to be put under a tent. The strategy is
to help use the remaining time before winter sets
in to help those people rebuild part of their
dwellings.

The strategy is to deliver as many tents as
possible, preferably give them the choice to locate
the tent where they want. If that proves
impossible, provide camps where people can be received for
emergency shelter. In the mountains, drop off the
tents and send in the troops, light engineering
to assist in quick reconstruction to get through
the winter and set up in the valleys some
reception areas, getting the message out to the people
who are up in the mountains, that if it really gets
bad, there is a place where they can go.

Q: This quake devastated the region, impacting
millions of people. What time span are we looking
at in terms of reconstruction and recovery?

A: The relief effort will be the next six months
when we get through the winter. As the spring
comes, things will at least take a sense of
normalcy, economic activity will resume, agriculture,
etc. But the recovery and reconstruction, will take
at least 10 years because the infrastructure is
so devastated. The hospitals have collapsed, the
schools have collapsed, and the roads have
vanished. This is a major effort that will take several,
several years.

Q: Working closely with the government, have you
got any idea as to how much this is going to
cost?

A: There are many numbers that are floating
around. We know this is not an exact science, but the
numbers we have floating around today don't have
much credibility. On the relief side [however],
we already have a bottom number. We believe the
relief effort for the immediate future from all
sources, Pakistani sources and foreign sources, will
probably be between US $1.5 to $2 billion.

This is including the use of helicopters and
airplanes, which is very expensive. The
reconstruction itself will take at least five years as we said
- and will probably take three or four times
longer.

Q: Have donors respond to this particularly
complex disaster generously to date?

A: Well it's picking up. We have seen large
contributions coming from countries such as Turkey,
Saudi Arabia and the United Arab Emirates (UAE). We
have major contributions being made by the World
Bank, the Asian Development Bank (ADB), the US,
UK, and others are in the pipeline. The pledging
to our flash appeal is also improving, but its way
behind the reaction we had with an earlier
disaster of this scale and magnitude, which was the
tsunami.

Q: On Wednesday, donors are meeting in Geneva to
discuss exactly this. What message would you give
them at this critical time in the relief effort?

A: We need to speed up. Money can buy everything
we need - tents, food, blankets, water pumps, etc
- the one thing money can't buy is time. We need
to speed up. That is why we are bringing the
donors together on Wednesday, to explain clearly the
magnitude of the disaster and the logistical
nightmares we are facing with the winter coming in.
We have updated our flash appeal.

It is considerably more because we have now
logistically planned in detail the use of helicopters
- which is about one fifth of the total flash
appeal that we believe is required because we need
to keep the people in the valleys alive. But that
can only be done, with a regular helicopter link
to these places.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Urgent need for emergency radio for quake survivors

Urgent need for emergency radio for
quake survivors

ISLAMABAD (IRIN) - Internews, a
leading international media development organisation,
has called for immediate action to improve the
information flow to victims of the huge earthquake
which hit Pakistan on 8 October, leaving over
53,000 dead and up to 3 million homeless.

"[The] information deficit among the victims of
the quake has grown enormously over last two weeks
and needs to be bridged fast. As a cheap
information medium, radio broadcast stations need to be
built in all the quake-hit districts to address
the ballooning information needs - critical for the
survival of the affected communities in the harsh
Himalayan winter," Adnan Rehmat, country director
of Internews in Pakistan, said in the capital,
Islamabad, on Tuesday. 

Local media in the disaster zone has been badly
affected, with public and commercial radio
broadcast stations and newspaper printing and
distribution facilities largely destroyed.

"In the absence of any alternative media, local
people are unaware of the relief activities being
undertaken. They do not know where to get medical
help, how they should reach relief centres or
where to get food. The lack of information has
aggravated the situation," Owais Aslam Ali, a
spokesman for the Pakistan Press Foundation (PPF), said
from the southern Pakistani city of Karachi.

Internews has already dispatched a radio
production unit with a team of 12 reporters to produce
programmes highlighting the immediate needs for the
people in quake-hit areas in the local languages.
The programmes are being aired through a private
FM station in Abbottabad city in the North West
Frontier Province (NWFP), with a signal that can
reach almost all of the tremor-hit zone of
northern Pakistan and Pakistani-administered Kashmir.

Pakistan's Electronic Media Regulatory Authority
(PEMRA) this week has awarded four emergency
broadcast licences to set up FM stations at various
locations in Pakistani-administered Kashmir.

Internews has been working to extend technical
and logistical support to the four radio stations
to help them become operational as soon as
possible.

"In addition, Internews is also looking to get
funds for distribution of up to 100,000 radio sets
in the quake-hit regions to improve information
access among the quake-affected and the displaced
people in emergency settlements," Rehmat added.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Foreign Investment at KSE

Foreign Investment at KSE

October 26, 2005


After many years, we have been witnessing interest by foreign fund
mangers in local capital markets. The data released by SBP endorse this
fact that money is flowing into the local stock markets from abroad.
Though the foreign portfolio managers missed the bull run of last 3
years (2002-2004), in which the market gained 72% annually, it looks
like that they are now serious in relatively cheaper Pakistan equities.

US$145mn net inflow in 1QFY06

Foreigners that started looking to Pakistan in early nineties had a very
bad experience in late 1990s when after the nuclear blast economic
indicators deteriorated and restriction was imposed on capital outflow.



Foreign funds net inflow was US$2530mn from FY92-00. Then we saw net
outflow of US$156mn between FY01-04. However due to sharp economic
recovery and stable political environment, we observed that FY05 was the
first year of net capital inflows in local bourses when US$154mn was
invested in local equities.



Lately the quantum of investment has increased relatively sharply. In
the last two quarters (Apr-Sep 2005) a net inlow of US$191mn is seen as
per SBP numbers. Infact during the last 3 months US$145mn and in
September a record US$80mn net investment was made in equitires by
offshares investors.



Need for timely and accurate data dissemination

Unfortunately in Pakistan the numbers of foreign portfolio investors in
the stock market is released on a monthly basis by SBP and that too
after a gap of almost 3 weeks.



In neighboring India, that has been in limelight since last few years as
far as foreign investors are concerned, information is released on a
daily basis by SEBI (security and exchange board of India). Moreover
they also show the gross purchases, gross sales and net investments by
foreigners on daily basis.



Indian equities attracted a net investment of US$8.5bn in calendar year
2004 and US$8.2bn in 10 months of 2005. Its time that such detailed
information should also be released in Pakistan so as to reflect an
accurate picture and to control over speculation in the market.



mohammed.sohail@js.com

92 (21) 2431181-8 (ext. 3061)

Also in focus

MCB: 9 months results expectations

The board of Muslim Commercial Bank (MCB) will meet on Thursday October
27, 2005 to announce its 9 months results of 2005. We expect the bank to
record profit after tax (PAT) of Rs5.4-5.5bn (EPS Rs12.76-13.10) as
compared to Rs1.9bn (EPS Rs4.66) in the corresponding period of last
year, a massive growth of 174-181%. We also expect a cash pay out of
Rs1.5-2 with the results.



The turnaround of MCB was visible at the start of year 2005 when its
1Q2005 results depicted a growth of 116%. MCB change of focus from
investments activities to lending is now yielding results. MCB has one
of the lowest costs of funds that is 0.9% in 1H2005. Due to floating
rate based lending we expect the spreads of the bank to improve further
in 3Q2005.

For the year 2005 we expect the bank to book PAT of Rs7.9bn (EPS
Rs18.75), a growth of over 200% from last year. The share is currently
trading at PE05 of 7.75x and PBV of 3.41x. We recommend 'Hold' at
current levels for MCB.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Little cash received from world donors so far

 

Little cash received from world donors so far

By Ansar Abbasi

ISLAMABAD: Pakistan has so far actually received a very little amount in cash as foreign aid against pledges of over a billion dollars made by different world capitals and international donors, it is learnt.

The government is shy to share the real amount it has actually received out of the total amount so far committed. However, the State Bank of Pakistan figures are not really encouraging.

Instead the foreign exchange reserves of the State Bank of Pakistan are depleting as the country, hit by one of the worst-ever earthquakes in the world, is not getting the kind of response from the outside world as it should have been in such a situation.

The Public Relations Department of the State Bank of Pakistan (SBP) at Karachi, when contacted, said that on October 8 -- the day when the country was jolted by the earthquake -- the foreign exchange reserves stood at $11.923 billion and came down to $11.736 billion on October 15.

Although the Public Relations Department of the SBP did not give the latest figures of the foreign exchange reserves, a source in the bank revealed that the October 15 figures have further depleted to $11.6 billion as on October 24.

When asked by The News about the total aid received by the State Bank till October 25 in foreign exchange, Wasimuddin of the SBP Public Relations Department said it would not be possible for him. He said the government is competent to announce such figures. A source, however, said the State Bank had received only a few million dollars as aid from abroad until a few days ago.

Wasimuddin, however, said the government might be receiving some foreign aid direct in its account, whose figures according to him are not reflected in the State Bank’s foreign exchange reserves.

In a statement on October 24, the government stated that the total donations and pledges from 71 countries and 159 international organisations including the UN and non-governmental organisations had reached $1.246 billion.

There are, however, no details being shared about the total foreign assistance received in cash so far. The Finance Ministry and the Presidency when approached said that the Federal Relief Commission should be the right agency to comment on the subject. But when approached, the staff of the federal relief commissioner told this correspondent that he was too busy a person to talk to journalists on phone and explain such figures.

Colonel Baseer, public relations officer of Federal Relief Commissioner Maj Gen Farooq Ahmed, was contacted twice. Initially, he promised to provide the required information but later said the information sought could be acquired from the Foreign Office. He categorically said that the commission has nothing to do with such figures and could share the figures of local donations only.

Foreign Office spokesperson Tasneem Aslam when contacted said the Economic Affairs Division (EAD) is the right government agency to talk to on the subject but she hurriedly added that all the concerned officials in the EAD had gone to Geneva to attend UN conference seeking relief assistance for Pakistan.

The spokeswoman said she does not know if the money received by the government should have been reflected in the overall State Bank figures of foreign exchange reserves. When asked if the country has received very meagre amount as aid against the pledges made, she said she does not know the details but she believes that most of the pledges have yet to be transferred. "But they are being transferred," she said.

According to a source, the little transfer of the aid pledged is a matter of serious concern for Pakistan. The source said that a major international donor country and a strong economy has really disappointed many here when the country refused to transfer the pledged money. It rather said that the relief goods already provided to Pakistan would be adjusted against the aid committed. Against the remaining pledged aid, the source said, the country told the Pakistan government that it would send relief goods instead of giving cash.

The country requires an estimated amount of over $5 billion for reconstruction and rehabilitation of the earthquake-hit areas and the survivors. The United Nations is rightly trying hard to shake the conscience of the world community but to no avail. It has deplored that the world community has not immediately responded to its flash appeal for $312 million for initial relief operation.

The UN also shares the Pakistan’s view that besides the relief assistance, the country would also require an estimated amount of over $5 billion for the tough task of reconstruction and rehabilitation.

Meanwhile, an official source said that the government is confident to get positive response from some leading Islamic countries including Saudi Arabia, Turkey and the United Arab Emirate. However, some time-tested friends of Pakistan hardly figure anywhere.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Pakistan's Foreign Private Investment Rises 159% in Q1

Pakistan's Foreign Private Investment Rises 159% in Q1

Foreign private investment in Pakistan has shown a remarkable increase in the first quarter of the 2006 fiscal year.

This was amply clear from the data just released by the State Bank for the period July-September 2005.

According to the data, foreign private investment during July-September 2005 rose US$291 million, or 159 per cent, over the level ($183 million) it achieved in the first quarter of 2004).

Component-wise, portfolio investment increased from $80 million to $145 million, or by 81 per cent, while direct investment increased from $103 million to $329 million, or by 219 per cent.

Major players in the area of portfolio investment were the USA and UK, contributing 61 per cent and 26 per cent, respectively, of total such investment.

In the case of direct investment also USA and UK were the major contributors, though UAE also contributed in a big way.

The respective shares were 26 per cent, 13 per cent and 17 per cent. Other major direct investor nations included Netherlands (6 per cent), Switzerland (5 per cent) and Japan (4 per cent).

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

European Commission proposes ?93.6 million for earthquake relief work

European Commission proposes €93.6 million

aid package  for relief work  

 

 

       ISLAMABAD (24-10-05) – The European Commission is proposing that an additional amount of at least €80 million be made available to address the immediate needs of survivors of the earthquake in Pakistan on 8^th October (€30 million), and to contribute to the costs of rehabilitation and reconstruction (€50 million). This is in addition to the €13.6 million emergency humanitarian aid already released, bringing the total proposed for 2005/6 to €93.6 million ($111.7 million).  The very substantial sum proposed underlines the European Commission’s commitment to Pakistan and to its people. The Commission has approached the budgetary authority (Council of Ministers and European Parliament) with this proposal, and has called for an early response to this proposal so that the EU can continue to act swiftly to help those still suffering the terrible effects of the earthquake. 

Commissioner for External Relations Benita Ferrero-Waldner said: “With millions now homeless, and practically all infrastructure destroyed, the challenge of reconstructing lives and livelihoods in the aftermath of this terrible natural disaster will be with us for many years. Pakistan can count on Europe as a friend and reliable partner not only in this moment of crisis, but also in the long years of hard work to come”.

European Commissioner for Development and Humanitarian Aid Louis Michel declared: “We are facing an enormous humanitarian catastrophe and with winter just around the corner, a second humanitarian disaster looms for the four million people without a roof over their heads and the 70,000 injured people needing medical attention. For all humanitarian organisations, it is a race against the clock. Aid funding must be significantly increased to speed up the purchase and delivery of tents, blankets and other assistance as well to boost the transport capacity of humanitarian agencies.”

Humanitarian Aid

As the humanitarian funds available to the Commission for 2005 have been exhausted, the Commission is seeking to draw down an extra €30 million from the emergency reserve of the European Union budget. This requires the approval of the budgetary authority.  The Commission hopes and expects that the Parliament and Council will recognise the urgency of the situation and move as quickly as possible to unblock these additional funds to provide humanitarian assistance for hundreds of thousands of earthquake victims in

 

 

Pakistan. As the humanitarian needs will continue to exist over the next months, further humanitarian funds may be required in due course.

The funds, to be channelled through the Commission’s humanitarian partners (NGOs, Red Cross/Crescent and UN agencies) will be used to meet a wide range of humanitarian needs including shelter, medical support, medicines, household items, hygiene kits, water supplies and sanitation.

 

Reconstruction

Though professional needs assessments are not yet available, it is certain that very substantial funds will be required to reconstruct housing, medical facilities, schools, roads, water pipes and all basic infrastructure. The Commission is proposing that €50 million be made available for reconstruction.

The Commission has identified €20 million in unspent funds at the end of 2005, which can be allocated to reconstruction in Pakistan. An additional €10 million is being sought from the Emergency Reserve in 2005.  A further €20 million should be found in 2006.

Professional needs assessments will be essential to maximising the impact of international aid to reconstruction in Pakistan, and ensuring that work is properly co-ordinated. The Commission is participating in this work through its Delegation in Islamabad and ECHO field teams, in co-operation with the World Bank and the Asian Development Bank.

 

For more information:

http://europa.eu.int/comm/external_relations/pakistan/intro/index.htm

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

SSGC, PPL & NML result preview

SSGC, PPL & NML result preview

October 25, 2005

With some of the key companies result to be announced this month, we at JS Research continue to give result expectations of key companies. In this piece, we are presenting pre-result coverage of SSGC, PPL & NML.

SSGC: 1QFY06 EPS expected at Rs0.40-0.45

SSGC board will meet on October 26, 2005 for announcing its first quarter FY06 results. We expect the company to post net income of Rs268-302mn (EPS Rs0.40-0.45) compared to Rs336mn (EPS Rs0.50), a decline of 10-20%. Our earnings estimate is based on the assumption that the company will make provision for unaccounted for gas (UFG) loss due to higher than target gas losses. OGRA has set 5.75% target UFG losses for the current fiscal year where as the actual numbers during FY05 for SSGC was 7.5% versus target of 6.0%. In line with its historical trend SSGC is not expected to announce an interim dividend with the results.

 

Recommendation: 'Sell' maintain for SSGC

SSGC is currently trading at FY06E PE of 13.0x and offers a dividend yeild of 6.8%. With official UFG target of 5.75%, set by OGRA for FY06, our full year earnings expectation for the company is Rs1.7/share. OGRA is targeting a UFG loss level of 4% within the next 5-years and we believe company earnings are likely to remain under pressure in the near future. We maintain our 'Sell' stance on SSGC.

 

PPL: 1QFY06 EPS expected at Rs3.25-3.50

PPL board is scheduled to meet on October 27 to announce company's 1QFY06 results. The company is likely to post a nominal year-on-year increase of 12-20% in earnings, to Rs2,230-2,400mn (EPS Rs3.25-3.50) during 1QFY06. This is despite the negative earnings impact from Pasni-2 dry well.

 

As per upstream accounting rules based on 'successful effort' method, the company is likely to expense drilling cost incurred on Pasni-2 well in the 1QFY06, since the drilling has proved unsuccessful. PPL holds 70% operating stake in the block and based on total cost of US$31mn for drilling of Pasni X-2, we expect a negative before tax impact of US$21.7mn (Rs1.3bn) for PPL. Adjusted for the tax rate, we expect an after tax impact of US$9.8mn (Rs586mn) with negative EPS impact of 0.85/share.

 

Recommendation: 'Hold' maintained for PPL

At current market price of Rs199.15, PPL share is trading close to our fair value for the stock and we recommend 'Hold'.

 

Nishat Mills: 1QFY06 EPS Rs2.00-2.20 expected

Nishat Mills board meeting is scheduled to be held on October 26 to announce its 1QFY06 (Jul-Sep 05) results. We expect Nishat Mills to post net profit in the range of Rs291-320mn (Diluted EPS Rs2.00-2.20) compared to Rs300mn (Diluted EPS 2.06) during the corresponding period of last year. Gross margins are expected to depict 420bps improvement to 18.1% as against 13.9% previously on the back of low cotton prices during the period. We have not incorporated dividend income in 1QFY06 on its DG Khan's holding as its book closure is in 2QFY06. DG Khan has announced Rs1.5 per share cash dividend for FY05. This will result in additional EPS of Rs0.65 for Nishat Mills in 2QFY06.

 

Recommendation: 'Buy' for NML

At current level of Rs92.75, Nishat Mills is trading at FY06E PE of 12.x. Nishat's portfolio value on yesterday prices arrived at Rs67 per share. We have, however, assumed 20% discount on its portfolio value. Using sum-of-parts valuation method, we recommend 'Buy' on Nishat Mills at current level. 

 
Indus Motor declared 1QFY06 EPS of Rs5.93

Indus Motor announced its 1QFY06 results today. In line with our expectations, net income of the company arrived at Rs466mn (EPS 5.93), showing 26% increase over 1QFY05 earnings of Rs368mn (EPS Rs4.69). While sales volume showed 8% decline from 9,086 to 8,328 vehicles due to lower capacity utilization amidst plant maintenance, the rupee sales of the company grew by 9% and reached Rs7.1bn in 1QFY06 reflecting the impact  of price hike by the company. As anticipated, other income of the company registered 240% increase to Rs211mn (after tax impact of Rs1.75 per share) amidst higher interest rates on bank deposits. We maintained our 'Buy' stance on Indus Motor currently trading at FY06E PE of 5x.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Result previews of a mix of local, multinational, and government cos

Result previews of a mix of local, multinational, and government cos

 

October 25, 2005

Two Nishat Group companies, two govt. companies and one listed MNC are ready to announce their results in the coming days. We have presented our earning expectations for these in our report today.

D.G. Khan expected to announce Rs400mn after tax profit (EPS Rs2.17)

D.G.Khan Cement is due to hold its board meeting on Oct 27,2005. We expect it to announce PAT of Rs400mn (EPS Rs2.17) for 1QFY06, which would mean a growth of 43% in the bottomline from 1QFY05’s Rs280mn. The growth in bottomline once again comes from increase in sales along with a higher gross margin available to the company on the back of price increase. The company was able to sell 526k tons of cement in 1QFY06 compared to 484k tons in 1QFY05. We expect D.G.Khan to have retained (net sales per ton) Rs3,406/ton in 1QFY06 compared to Rs2,669/ton in 1QFY05 (YoY: +28%), to help raise gross margin from 37% to 43%.

SSGC to announce Rs302-336mn PAT (EPS Re0.45-0.50) in 1QFY06

SSGC will hold its  board meeting on October 26. We expect SSGC’s PAT to be in the range of Rs302-336mn (EPS Rs0.45-Rs0.50) compared to Rs336mn (EPS Re0.50) during 1QFY05. Despite the increase in average fixed assets, the company may not be able to improve its profitability significantly due to increase in financial charges and lower non-operating income. According to the FY05 annual report, SSGC has a long term loan of Rs7bn which was Rs3bn in FY04, which could increase its financial charges in 1QFY06. The company’s bank deposits  also declined which may result in lower interest.

Unilever to announce PAT in the range of Rs1.30-1.36bn (EPS Rs98-102)

Unilever is expected to announce its results for 9M2005 on October 26. We expect the company to post PAT in the range of Rs1.30-1.36bn (EPS Rs98-102) as compared to Rs1.64bn (EPS Rs125) in 9M2004. This will translate into a decline of 18-21% YoY. Last year, Unilever booked a profit of approx. 945mn on the sale of Dalda which inflated its earnings. Operating performance of the company is expected to remain strong, on the back of improved gross margins, which are expected to increase from 31% to 35%. This is primarily due to sell off of the low margin Dalda business. No dividend is expected, as the company announces dividend in the second and last quarters.

Nishat Mills to announce PAT in the range of Rs421-436mn  (EPS 2.90-3.00)

Nishat will hold its board meeting on Oct 26 to announce its 1QFY06 results. We expect Nishat to post PAT in the range of Rs421-436mn (EPS Rs2.90-3.00) as against Rs825mn (EPS 5.68) in 1QFY04. This would be a decline of 47-49% YoY. This decline is due to lower other income as compared to last year, where Nishat booked a huge capital gain of Rs426mn on the sale of its shares of MCB. Operational performance is expected to remain strong, due to reasonable cotton prices, and focus of the company on value added products. Our expected profit includes dividend income of approx. Rs120mn (EPS impact Re0.78) on account of dividends announced by D.G. Khan and Nishat Chunian with their FY05 results.

PTCL expected to post Rs5.61-5.87bn (EPS Rs1.10-1.15) profit in 1QFY06

PTCL’s board is meeting on Oct 27 for its 1QFY06 results. We expect PTCL to announce profit after tax of Rs5.61-5.87bn (EPS Rs1.10-1.15) for 1QFY06. This would represent a slight decline against Rs6.28bn (EPS Rs1.23) earned during 1QFY06. We expect PTCL to show stable revenues, but burgeoning operating costs are likely to keep profitability in check. A slight increase in dividend from Ufone (amounting to Rs700mn) is likely to provide some support to profitability. There was speculation regarding a possible interim dividend with 1QFY06 results, however, since the board is meeting before the official deadline for privatization, we don’t expect any interim payout.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Child beggars line roadsides

Child beggars line roadsides

BATTAL- (IRIN) - Five-year-old Shahzeb
cannot read the notice he holds up. Scrawled on a
piece of white cardboard are four large letters
in English. They read simply, 'HELP'.

"My big brother made this notice for me. I go to
school but we haven't yet learned to read
English," Shahzeb explained. The mischievous grin that
lights up his face as he talks suggests that
despite the cold and the fact he has had no cooked
meal for many days, he is rather enjoying his new
task.

Shahzeb sits with dozens of other small boys and
girls along the roads leading out of Balakot, 90
km from the capital Islamabad, in North West
Frontier Province (NWFP), and from Mansehra towards
Battagram and Shinkiari, hoping to attract the
attention of passing relief teams.

Their number grows daily and many now call out
for "amdad" (aid) whenever a vehicle slows,
extending their hands to collect money, packets of
biscuits and other items.

Many of the children sip at small cartons of
juice, an item many had never seen before the quake.
"It's very nice. It tastes sweet and it's nicer
than water," says Zakia, 10, helping her younger
brother, aged two, insert a straw into a packet of
mango juice.

While these children are often watched over by a
family elder, it is feared their actions might
lead to organised begging. Lucrative child beggary
rackets exist in all large cities and many
smaller towns in Pakistan, but until now the
mountainous areas further north have been spared this
criminal activity.

"It's really not good to get children used to
begging. It's exploitative and even in these
desperate times it's not what is required," said Ryan
Williams of child-rights group Save the Children,
which is setting up shelters for child quake
victims.

Qayyum Muhammad, a shopkeeper in Battal, agreed.
"People are now just using their children to get
what they can," he said. "It's not dignified and
it's not good."

However, the practice is increasing by the day.
With schools across the region still closed
because of continuing aftershocks, roadside begging has
turned into a game for many children.

"We also compete to see who can collect the most.
It is good fun," says Wali, 11, before racing off
to grab a carton of milk offered by the driver of
a passing jeep. He keeps the items he has
collected in a tattered rucksack he will take 'home' at
the end of the day to his family's plastic tent,
set up a short distance from the road.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Village of the dead

PAKISTAN: Village of the dead



JABRI KAILASH-(IRIN) - The village of
Jabri Kailash is draped in an eerie silence,
every house flattened. The settlement is about 50 km
from Balakot, close to the epicentre of the
devastating regional earthquake that hit earlier this
month.

A lone goat hops over the piles of debris in the
village, as if searching for the people who once
lived here. All the 4,000 inhabitants of Jabri
Kailash are unaccounted for - and presumed to be
dead.

If anyone survived, there's no sign of them, more
than two weeks after the quake. Some accounts
suggest a single survivor, a young man, walked away
from the vanished village to Balakot. Others say
no one was left alive. "The village went to sleep
on 8 October and never woke up," says Rahim, from
the village of Rajwal, in the same area.

A few household items, a broken chair, a
discarded scarf, a few rustling papers, dot the rubble at
Jabri Kailash. No one has attempted to shift the
piles of stone and mud and concrete, under which
many bodies still lie. Relief workers have not
entered the village. After all, no assistance can
be provided to the dead.

Jabri Kailash is one of many villages that were
totally destroyed in the quake that has killed
more than 50,000. Another village, Kond, in the
Bisham area of Shangla district has also completely
vanished. While desolate heaps of rubble mark many
areas scattered across the hills of Mansehra,
Battagram and Shangla district, it is thought in
some cases survivors may have walked away to seek
help or reach out to other humans.

It also seems grimly obvious that, once the
debris is eventually removed, the bodies underneath
will add to a death toll that continues to grow as
new areas are accessed in one of the world's most
difficult terrains. Above, the sun-drenched,
towering Himalayas look down on the ruins of crumbled
settlements where entire families and clans have
been wiped off the face of the earth.

"We know entire villages have been wiped off the
face of this planet. It is impossible to say how
many, but this has happened both in the Mansehra
area and in Pakistan-administered Kashmir,"
Pakistan military spokesman Major-General Shaukat
Sultan said.

The impact of the losses on communities is still
to emerge. "I am alone. All my children and
grandchildren are dead. Who will care for me now?"
asks Farooq Khan, 78, in Balakot where he has
travelled down from his home village in Shangla
district.

Farooq is frail and suffers from a weak heart. In
traditional society across Pakistan, children,
particularly sons, care for elderly parents or
grandparents. In their absence, there exists no
social network to which the aged can turn to for help.

The same issues will arise for many single
mothers left with children to care for; for men whose
wives have died leaving them alone to raise
infants and for young women with no families left to
arrange weddings and engage in the protracted
negotiations this often involves.

In some communities all the children and almost
all the women, are reported to be dead. The fact
that many men from the area work in bigger towns
or cities, returning to villages only during
holidays, accounts for the profile of victims and adds
to the social problems that will spring up within
communities in the years to come.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Kasmir Earthquake: Preparing for the unknowable

Kasmir Earthquake: Preparing for the unknowable

The Economist, UK
http://www.economist.com
October 13, 2005

Why the Kashmir earthquake happened and what might be done

Background: Kashmir

Pakistan's earthquake measured 7.6 on a scale known as the moment magnitude. This measure, a successor to Richter, allows seismologists to compare the energy released by different earthquakes. At each step of the scale, about 32 times more energy is released than at the previous step. It has no upper limit, but the largest recorded earthquake was in southern Chile in 1960 and measured 9.5.

Earthquakes happen mostly where the earth's tectonic plates collide. In Pakistan, quake activity is mainly concentrated in the northern and western sections of the country, along the boundary of the Indian, Iranian and Eurasian plates. The Indian plate is moving north at about 5cm a year, resulting in a force on the southern edge of the Tibetan plateau—the force that generates the Himalayas. As a result, earthquakes occur along the Himalayas all the way to Myanmar. (The movement of the Indian plate also caused the devastating Sumatra-Andaman earthquake and tsunami late last year.)

In recent years, Pakistan has not suffered as greatly from earthquakes as its neighbours in the Himalayas, Afghanistan, Nepal, China and India. Its biggest earthquake in living memory occurred in Quetta in 1935, with 30,000 deaths. Nevertheless, Kashmir is seismically active on both sides of the border, with many regular, though less damaging, quakes. In 2002 in the Gilgit-Astore region, 100km (63 miles) north of Muzaffarabad, large earthquakes made about 16,000 people homeless.

Across the Himalayas there is what seismologists call a “slip deficit”—a lack of earthquakes to release the stress that is known to be accumulating. The Kashmir quake was in just such a region, where a great earthquake was overdue. Nevertheless, Roger Bilham, of the University of Colorado, says it is doubtful that the Kashmir quake released more than one tenth of the cumulative energy stored there. Furthermore, in the past half-century the Himalayan region has seen fewer powerful earthquakes than might be predicted from historical records. The most notable area of concern is the central Himalayan Gap, a 600km-long central arc of the Himalayas. Mr Bilham believes this area has the potential to generate several earthquakes of magnitude 8 or more, and is the most vulnerable (in terms of potential loss of life and damage) of the regions that could produce a great earthquake. The whole of Nepal is also a worry.

The Kashmir quake may be the worst recorded in the Indian subcontinent. Its deadliness was linked, among other things, to the weakness of buildings, the depth of the quake, the density of population, the fault and soil types, and the intensity of the shaking. The Bhuj earthquake, only 100km from the border of Pakistan, was of similar magnitude but killed 18,500.

Because of population growth and density in the Himalayas, hundreds of thousands may be at risk—particularly in India, where the government and the United Nations Development Programme have identified 38 cities with more than half a million people located in the most seismically active regions. A way has to be found to reduce the deadliness of quakes in the most vulnerable areas.

Yet earthquakes cannot be predicted accurately enough to know when people should be evacuated. It is all the harder in the Himalayan region, with hidden underground faults that are poorly monitored by seismic instruments. That leaves two options, other than fatalism: to put up better buildings, and to improve planning for responding to disasters.

Progress is slow. Key buildings in need of better earthquake-proofing have been identified in Delhi, and work is under way. Similar plans elsewhere have come too late to help the hospitals in Indian Kashmir. Though it is impossible to make buildings completely resistant to earthquakes, they can be made much safer. In both India and Pakistan, building codes exist; in both countries, they have been poorly enforced, with masses of unprotected housing stock in areas of great danger.

In India, to build more suitable housing would add only 2-4% to construction costs. But in the poorest regions, such as Kashmir, most houses are built of local materials by the people who then live in them. In fact, in India, 80% of housing is owner-built. Architects and engineers, who might improve building and design, are in short supply. It is lack of knowledge and skills that is the main problem, rather than the cost of the work.

Greater scientific knowledge about the region's earthquakes and faults would much improve understanding of which areas are most at risk. For this reason, Mr Bilham wants to gather evidence as quickly as he can before rain or earth-slips obliterate it. Astonishingly, he has been refused a visa.

Kashmir

Background: Kashmir
October 17, 2005

Since the partition of the Indian subcontinent in 1947, India and Pakistan have been at odds over the Muslim-majority region of Kashmir. A “line of control” splits the region: Pakistan administers the north, while India controls the south. Both halves bore the brunt of a deadly earthquake that struck on Oct 8th 2005.

In the India-controlled half, some 80,000 people have died as a result of a 16-year insurgency. The Indian army is regularly criticised for human-rights abuses; Pakistan, in turn, supplies the insurgents with people and arms. The area is under a coalition government, led by the People’s Democratic Party. The main pro-independence opposition, the Al-Party Hurriyat Conference, split in 2003; the more moderate of the two resulting groups has been able to meet Indian leaders but risks losing credibility if India does not make concessions.

Pakistan and India nearly went to war over Kashmir in 1999. Since April 2003, however, when Atal Behari Vajpayee, then India’s prime minister, declared a need for dialogue, relations have slowly improved. A formal ceasefire, the first in decades, was declared in November 2003; wide-ranging talks have continued; and April 2005 saw the first bus link between Kashmir’s two halves.

http://www.economist.com/displaystory.cfm?story_id=5019727

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Inflation at 8.53 percent September 2005

Inflation

The latest FBS release on inflation (for Sept 05) indicates CPI inflation
at 8.53% y/y, up from 8.4% in August.

Food inflation has been recorded at 7.52% (down from 7.8% in August), with
non-food at 9.25% (up sharply from August's 8.83%). At current levels,
non-food inflation has been accelerating continuously since July 2003.

While food inflation has moderated marginally in September vs August (in
month-on-month terms, it was down -0.02% after a substantial fall of -1.1%
in August), non-food inflation continued its strong march upwards, gaining
0.87% in September.

Core inflation (new expanded definition - see below) has been recorded at
7.99% y/y in September, versus 7.75% in August and 6.93% in September 2004.

The coverage of core inflation has been revised to better reflect
non-energy costs. Previously, "food" and "fuel/energy" categories were
being excluded from headline CPI for the calculation of core inflation.
However, a number of important components of energy costs which were part
of "transport & communication" were not being captured in the previous
calculation methodology.

While the change in methodology for calculation of core CPI has knocked off
almost 2 percentage points from its previous read (old series), little else
is changed in terms of implication: core inflation continues to remain a
source a worry, both in terms of magnitude as well as in terms of
direction.

It will be interesting to see the impact, if any, of the change in
methodology on SBP's monetary policy stance. After all, even with core
inflation at 9.22% according to its previous formulation, SBP had clearly
indicated an end to monetary policy tightening.  Will a substantially lower
number for core inflation according to the new definition prompt a cut  in
interest rates?

Prior to the the latest inflation data, a moderation of money supply growth
and a fall in reserve money made one suspect that SBP was on the verge of
(mistakenly) declaring success in the fight against inflation. At the same
time, the central bank has been consistently ignoring the impact of easy
monetary conditions on the country's balance of payments. With the need to
insulate the budget from the impact of world oil prices and the shock of
the recent earthquake, fiscal costs of interest rate setting may
increasingly become a more important considerationas well.

Keeping in view the above, and despite our expectation for economy-wide
price pressures to remain strong, we think the balance of risks has shifted
towards an easier monetary policy stance - though this is unlikely to
materialise over the next 1-2 months as the transition at SBP takes place.
The final outcome will also be heavily influenced by the personality and
mind-set of Dr. Ishrat's successor as Governor SBP.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

One aftershock had epicentre near Islamabad

ISLAMABAD: Amid unending what the authorities
call the "aftershocks" of the October 8
earthquake, the country’s Meteorological Office
recorded an earthquake with epicentre in
Islamabad.

According to a Prime Minister’s Secretariat
source, the experts informed the government a few
days ago that the epicentre of an earthquake of
low magnitude recorded on the night between
Tuesday and Wednesday was in Islamabad.

When contacted, Director-General Meteorological
Department Dr Qamar Zaman reluctantly confirmed
to The News that a tremor recorded a couple of
days ago had the epicentre "close to Islamabad".
"But there is nothing serious to worry about," he
said, adding that the experts are closely
monitoring the seismic developments in the whole
region including Islamabad.

Dr Qamar initially pleaded to avoid highlighting
this fact as it may cause "undue" panic among the
citizens of Islamabad but later agreed to explain
that the Islamabad jolt was first ever
post-October 8 earthquake aftershock with
epicentre close to Islamabad. Most of the
"aftershocks" were recorded with the epicentre in
Muzaffarabad.

The Met Department chief insisted that it was an
"aftershock" and not an "earthquake." He said the
magnitude of the Islamabad tremor was recorded
3.4 at the Richter scale, showing that it was of
low intensity. This "aftershock" was only
recorded in Islamabad and not traced by any of
the seismic monitoring systems installed in other
parts of the country. Highly sensitive
broad-based seismic monitoring systems are
installed at Islamabad, Peshawar, Quetta, Karachi
and Lahore.

According to Dr Qamar, some three-four years ago
an earthquake of low intensity was recorded with
epicentre closer to Islamabad and near Taxila.
Though he did not explain how close to Islamabad
the epicentre of the latest tremor was, an
official source said it was believed to be very
close to Islamabad.

In the pre-October 8 earthquake seismic zoning
scenario, Islamabad was placed between zone three
and zone two, which meant it was between moderate
to high hazard zone. However, now the seismic
zoning would be redefined. When asked, he said
that after every earthquake redefining of zoning
is a must, which would be done in a two-three
weeks once the present wave of aftershocks is
over.

About Muzaffarabad, which previously fell in
seismic zone two, Dr Zaman said would be
outrightly placed in zone one for being an
epicentre of the October 8 earthquake. Islamabad,
which according to Zaman was previously on the
upper side of zone three, would probably fall in
zone two. But he cautioned that at this stage
Islamabad could not be even ruled out for being
on seismic zone one, which is considered highly
hazardous.

N A D E E M M A L I K
Flat#8, Block 2-A, St#1, I-8/1
Islamabad,PAKISTAN.
Ph/Fax: 00-92-51-4434300
Mobile: 00-92-333-5117511
Email: NadeemMalik@isb.paknet.com.pk

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Cement Sector: FY05 profit up 66%

Cement Sector: FY05 profit up 66%

 

 

October 10, 2005

After a crash course in misery, the cement sector has been performing well for the last two years, and the last fiscal year (FY05) was its 4th consecutive year in profitability. And not just that, the profitability has been on a constant increase. All this has been on the back of the economic turnaround, with cement demand rising beyond expectations.
In FY03, the listed cement sector earned less than Rs500mn, whereas in FY04, the sector had earned a huge profit of Rs4.4bn driven by double digit demand growth and better retention prices. As if that was not enough, the sector has increased its profitability by 66% in FY05. This increase is also on the back of double digit local demand growth and some growth in exports as well. Debottlenecking of some plants also helped in increasing the total output and hence profitability. Some companies also booked one-time capital gains and extraordinary items, which added to the increase in profitability.

Profitability up due to higher sales & prices, coupled with capital gains

Listed cement sector’s profitability grew by 66% during FY05 compared to FY04. In our analysis, we have included 15 cement companies from the total 21 listed cement companies. The left out companies include Chakwal & Mustehkam which are not operational. Pakistan Slag and Zeal Pak are not out with their results yet, whereas Dewan Hattar Cement was not commercially operational for the full year in FY04. Javedan Cement has not been included due to non-availability of results.
In absolute terms, net profit of the sector grew from Rs4.4bn in FY04 to Rs7.3bn in FY05. Sales of the sector increased from Rs28bn to Rs37bn. Gross margins of the sector increased from 29.8% in FY04 to 32.2% in FY05 due to higher retention prices. The gross margins would have been even higher, had the coal prices not increased to this extent.
Likewise, net profit margins increased from 15.8% to 19.9%. This net profit figure also includes capital gains booked by two companies, namely Attock Cement and DG Khan Cement, where Attock Cement sold off its holdings in Attock Petroleum, and DG Khan restated its cost of investments due to the merger of Umer Fabrics into Nishat Chunian and Nishat Mills. If the other incomes of these two companies is  excluded from our analysis, the total increase in profitability would be 46% and the net profit would amount to Rs6.5bn.
Total cement dispatched of our sample during the year increased to 12.2mn tons which makes up 75% of the total dispatches of the our industry which totaled 16.35mn tons in FY05. Dispatches for the same sample totalled 10.4mn tons in FY04 which shows an increase of 18% YoY. For FY06, we expect demand to increase by 12-13% to 18.3-18.5mn tons.

                    Cement Sector Financial Highlights
(Rs mn)                       FY03            FY04         FY05
Net Sales                  20,322           27,990       36,797
Gross Profit                 2,736            8,328        11,854
Financial Charges        2,240             1,345         1,657
PAT                              308             4,417         7,318
Margin Analysis
Gross Margin             13.5%             29.8%         32.2%
Net Margin                  1.5%             15.8%         19.9%
Per Ton Analysis
Net Retention              2,168             2,699           3,011
Gross Profit                    292                803             970
Net Profit                         33                426             599

10 brokers called in Senate on Oct 17

“We have summoned top 10 brokers which the SECP believes were the main players behind the financial collapse of Stock Exchange a few months earlier”, said a member of the Senate Committee, quotes Business Recorder. Both the SECP officials and the stockbrokers would be questioned to fix the responsibility of that crisis, he adds. The official, however, declined to disclose the names of brokers who have been called at the meeting.

 

 

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Banks: 9 month advances and deposits

Banks: 9 month advances and deposits

 

October 11, 2005

Banking sector has attracted most of the investors' interest at local bourses. Commercial Banks have been enjoying the recent upsurge in the economy since last few years and have established themselves as the one of most profitable sector in the country.

In today's briefing, we will present our views on the data released by State Bank of Pakistan on schedule banks assets and liabilities. Our analysis is based on the data of 9 months 2005. We have considered September 24, 2005 as month end. The actual data of 9 months 2005 can be slightly different from these numbers since actual data will be based on the numbers of September 30 2005.

Banking sector deposits grew by 12% in 9 months

Deposit of the sector grew by 12% (Rs265bn) to Rs2.4tn during the first 9 months of 2005.This growth was 16% (284bn) during the corresponding period of last year. The momentum of deposit growth started to slow down in 3Q2005. Deposits of the sector grew by only 2.2% or Rs52.7bn during 3Q2005 as against the deposits growth of Rs72.8bn (3.7%) previously.  Negative growth of monetary assets by -1% (based on data from July to September 4, 2005) was the reason behind this. Normally, deposits growth remains subdued ahead of Ramadan because of withdrawal by people from commercial banks in order to avoid Zakat levy.

Advances also rise by 13%

Advances of the sector soared by 13% (Rs213bn) to Rs1.8bn during first three quarters of 2005 compared to 19% (Rs226mn) last year. Advances of the sector after witnessing a modest decline in August once again started to gain momentum. During 3Q2005 the advances of the sector grew by 2.5% (Rs50bn) to Rs1.8n. Nonetheless, this growth is less than the advances growth of 5% (Rs72bn) in corresponding period of last year. In our opinion rising interest rate was the primary reason behind this slow growth. Secondly, exemption of sales tax on whole textile chain in budget FY06 has also increased the cash flow available to textile companies which in result is expected to reduce their short term borrowing needs of working capital. Textile sector was the largest recipient of private sector credit in last couple of year.

 

Since last two years that is 2004 and 2005, the advances of the banking sector were showing a growing trend in 3Q. Before this commercial banks advances declined in this period due to seasonal slow down in business activities.

 

Investment growth continues: Rises by 22%

Investment of the banking sector continues to grow in 3Q2005 as well. During 9 months of 2005, investments of the banks have grown by 22% (Rs140bn) to Rs766bn.Interestingly growth in investments during the corresponding period of last year was 3.5% (Rs26bn), only. In 3Q2005 investments of the bank grew by Rs50bn. The principal reason for this rise was the increased cut-off yield of T-Bills due to which banks started to place their fund in this high yielding government papers.

 

Going forward

Going forward (for coming next few quarters) we expect advances of the sector to grow due to agriculture sector borrowing and consumer financing. No doubt major shareholder of bank's advances will remain corporate sector. Due to the modest growth in deposits, advances to deposits ratio of the sector is likely to grow from current level of 75% to 77%-78%. This slow deposits grow will benefit those banks who have lower advances to deposits ratio. 

 
Kapco: 1QFY06 results preview

Kapco's board will meet on October 12 to announce company's 1QFY06 results. The company is likely to announce net profit of Rs1.75-2.00bn (EPS Rs2.0-2.25) for the quarter. It is not possible to do a comparative analysis, since profitability numbers for similar period of last year have not been separately reported since Kapco was listed at KSE in 2HFY05. Nonetheless, earnings are likely to improve from Rupee depreciation, US CPI and higher thermal efficiency of the company.

 

Historically, the company has preferred to distribute dividends with as little delay as possible. Continuing this trend, the company may announce an interim dividend of Rs1.5-2.0/share. Since listing, Kapco has announced two dividends of Rs3.5/share and Rs4.5/share.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

One thousand hospitals in Pakistan destroyed in quake: UN

One thousand hospitals in Pakistan destroyed in quake: UN

GENEVA: About one thousand hospitals were "completely destroyed" in the earthquake in Pakistan, severely hampering urgent medical treatment for thousands of injured people, the United Nations said Tuesday.

The estimate was contained in a UN situation report on the international aid operation following the quake that devastated areas north of the capital Islamabad on Saturday, as well as parts 
of northern India and Afghanistan.

"That's just Pakistan. It's an estimate made by our coordination office from information collected on the ground," Elisabeth Byrs, a spokeswoman for the UN's humanitarian coordination office (OCHA), told.

Pakistan has made an urgent appeal to the international community for field hospitals, as well as antibiotics, anti-typhoid medicines, fracture treatment kits, and surgical equipment, among 
other supplies, according to OCHA.

Islamabad has also called for shelter equipment including tents, plastic sheeting and blankets "for an estimated four million people who are in need of shelter", OCHA's situation report said.

Other priority needs include cargo helicopters and food. "The devastation has created major obstacles in urgently helping the thousands of injured people to get the medical care they need," 
the World Health Organisation said in a statement. 

"Many health workers - including doctors and nurses - have died or been seriously injured," the UN's health agency added.

Authorities say Saturday's 7.6-magnitude quake, may have killed up to 40,000 people when it brought buildings and houses crashing down, mainly in mountainous areas of Pakistani Kashmir.

The medical charity Medecins Sans Frontieres (MSF) warned Tuesday there was a risk of an epidemic of water-borne disease in Muzaffarabad, the quake-devastated capital of Pakistani Kashmir.

The group was setting up emergency clinics. The WHO also warned that there was an urgent need for clean water and sanitation, as well as measles vaccines for children, "We need to coordinate a massive health relief effort to ensure  people get urgent care, and to prevent a bad situation from getting  even worse," said Ala Alwan, a senior WHO official dealing with 
crisis action.

"Medical supplies, water and sanitation supplies and cash donations will help the most," he added.

The WHO was sending medicines and surgical equipment for 1,000 operations to the region, as well as essential medicines and supplies to help 210,000 people for one month. UN disaster prevention experts said Tuesday that the Himalayas were a high risk earthquake zone and the "exceptional" quake in South Asia demonstrated the need to build toughened hospitals and 
schools in the area.

"Losing hospitals becomes a double disaster if they are not built to to withstand earthquakes," said Salvano Briceno, director of the UN's International Strategy for Disaster Reduction. 
"A disaster in that they are destroyed, but also that their equipment and their staff are no longer available to rescue other victims," he added.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Pepsico Donates $2m to Assist Earthquake Victims

Pepsico Donates US$2 MLN to Assist Pakistan Earthquake Victims

 

PepsiCo announced today it will contribute U.S $2 million (Rupees 120 million) to assist victims of last week's earthquake in Pakistan.

The contributions, which will come from both PepsiCo and the PepsiCo Foundation, will include a donation of $1 million to the President's Relief Fund for Earthquake Victims, established by Pakistan President Pervez Musharraf, and an additional $1 million contribution to support recovery and rebuilding efforts carried out by other relief organizations.

"The earthquake has had tragic consequences for hundreds of thousands of individuals and families," said Mike White, PepsiCo International chairman and chief executive officer. "As a company with a longstanding commitment to Pakistan we appreciate the opportunity to provide some assistance to the victims at this very difficult time."

The contribution to the President's Relief Fund is expected to be presented next week in Islamabad by Saad Abdul-Latif, president of PepsiCo's Middle East and Africa Region.

In addition to the $2 million provided by PepsiCo and the PepsiCo Foundation, independent Pepsi-Cola bottlers in Pakistan have made financial contributions as well as donations of truckloads of water and PepsiCo beverages.

PepsiCo, one of the world's largest food and beverage companies, has offered its products through independent bottlers in Pakistan for more than 40 years.

SOURCE: PepsiCo

CONTACT: Richard Detwiler of PepsiCo International USA +1-914-253-2725

Faisal Farid of PepsiCo - Pakistan +92-42-575-1920

Web site: http://www.pepsi.com (PEP)

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Kot Addu Power Company: 1QFY06 results preview

Kot Addu Power Company: 1QFY06 results preview

 

                                               

October 11, 2005

Kot Addu Power Company’s annual results were a pleasant surprise for most investors, and the stock performed well in the days following the result announcement. Since its FY05 result announcement on September 6, 2005, the stock has provided a return of 15% (including Rs4.5/share dividend) to shareholders.
In today’s report, we have previewed KAPCO’s 1QFY06 results, for which its board is meeting on October 12. Interest in the results may not be as high as it was for the annual result, mainly due to absence of any expected dividends.

Net profit expected to range between Rs1.92-1.96bn

We expect Kot Addu Power Company to announce net profit of Rs1.921.96bn (EPS Rs2.18-2.23) for 1QFY06. As figures for 1QFY05 are not available publicly, we are unable to ascertain the exact amount of growth. However, we do expect 1QFY06 net profit to be higher than last year’s profit for the corresponding period. Also, this would be the last year that KAPCO would be operating outside the realm of corporate tax.
The increase in profitability is expected to be a function of higher power generation through gas, and higher thermal efficiency. We expect KAPCO’s load factor to have remained much higher than its listed counterpart Hubco due to its usage of gas as fuel.

Dividend not likely this time, but expected with 2QFY06 results

KAPCO is not expected to pay out an interim dividend along with its 1QFY06 results. We expect it to maintain a half-yearly dividend stream like its listed counterpart, Hubco. For the full year, we are expecting KAPCO to announce cash dividend of around Rs8.5/share.

Outlook and Recommendation

At yesterday’s closing price of Rs45.50, KAPCO currently offers a YTM of 14.6% over the remainder of its project life. This YTM does not incorporate any expansion, which the company may or may not undertake depending on the results of its feasibility study. Hubco, on the other hand, is currently offering a
YTM of 16% over its remaining project life.
Our recommendation for KAPCO is currently ‘Hold’ with a fair value of Rs44.5/share.

 

DFML announces higher than expected profits

Dewan Farooque Motors announced its full year results yesterday, reporting a profit after tax of Rs306mn (EPS Rs3.97) against our forecast of Rs258-265mn (EPS Rs3.35-3.44). This represents profit growth of 37% versus FY04 profit level of Rs223mn (EPS Rs3.04). The growth can be attributed to higher number of vehicles sold due to additional capacity, and increased prices across all variants.
Sales of the company were higher than expected along with higher gross margin. The company’s gross margin improved from 10.7% to 11.9% against our forecast of 11.7%. Financial charges, on the other hand, increased by 79%. We maintain our ‘Buy’ recommendation for the scrip.

Bidding for PSO expected in December

The Privatization Commission is likely to hold bidding for strategic stake in PSO in December this year, reports The Nation. The newspaper reports that a senior PC official told The Nation that the seven bidders prequalified for the strategic sale of the company had been asked to complete the due diligence process as soon as possible so that the bidding could be arranged within December.
The dates for the pre-bid conference and bidding for PSO would be decided soon after the bidding for strategic stake in PPL, which the Privatization Commission expects to hold some time in November, the paper adds.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Corporate profits in FY05 & FY06

Corporate profits in FY05 & FY06

 

October 13, 2005

 

 

Pakistan's stock markets are now in its fourth consecutive year of abnormal gains. Besides political stability and economic and financial reforms, it is the strength of the corporate world that is attracting investments in equities. And that strength is evident by corporate earnings performance observed in the last few years.

After posting an average annual return of 72% in the last 3 years (2002-2004), the local bourses, despite the Mach fall, is up 41% this year in 2005. Corporate profitability is one of the major factors supporting this bull run.

 

An ideal example is that of Pakistan's largest commercial bank, the state owned NBP. The government of Pakistan offered its share for the first time in Feb 2002 at Rs10 per share. At that time in, NBP's 2001 profits were Rs1,149mn (EPS Rs3.08 and diluted Rs1.94 based on current shares). Now, after a span of 4 years, NBP is all set to post a profit of Rs12bn (Diluted EPS of Rs21). This is mammoth growth of over 10 times in its bottom line. NBP's current share price is Rs166. Investor who has bought NBP at that time in 2002 would have made a return of 2587% or an annualized return of 705% (after adjusting for dividends and bonuses).

 

Average earnings growth of 23% in FY02-04

In the last 3 years, that is from FY02 to FY04, average annual profit growth remained 23%. It was 25% in FY02, 10% in FY03 and 33% in FY04. This calculation is based on 49 listed JS Universe companies, adjusted for outliers. On current prices JS Universe represents 84% of benchmark KSE Index and thus is a fair representative of overall corporate profitability trend.

 

During this period the profitability grew on the back of industrial growth led improvement in the overall economy that boosted the top line of major firms. Lower interest rates and stable local currency also supported the bottom line of the companies. Rising international oil prices also helped heavy weight oil firms to show strong earnings growth in this period.

 

27% growth in FY05 and 26% in FY06 estimated

Analysts at JS Research have upgraded the earnings of key firms after superb performance in the results that have been announced so far in 2005. Out of 49 companies of JS Universe, 27 have already announced their FY05 results while others especially having December year end will announce their full year results after few months.

 

We are expecting an average earnings growth of 27% in FY05 mainly to be contributed by banking and exploration companies. Banks are expected to post average profit improvement of over 90% this year while E&P firms have already announced their results with average profit increase of 42%, thanks to rising oil prices. Again in FY06, due to higher global crude prices and improvement in production, we expect E&P companies to post earnings growth of more than 50% thus resulting in overall earnings jump of 26%. 

 
Higher oil prices can affect Sovereign rating According to an article published on Ratings Direct, Standard & Poor's Web-based credit analysis system, higher oil prices can negatively affect the Sovereign rating of Pakistan. Rising oil prices can cause significant economic imbalances. A 20% rise in crude prices from current level could lead fiscal and external account under pressure. The article gave three scenarios of oil prices and its impact on the credit ratings of 12 Sovereigns, including Pakistan.

 

The three scenarios are if oil prices remain at levels indicated by the current spot price and futures curve, a 20% rise in prices, and a 60% rise (termed as super-spike) equivalent to a price of $100 per barrel in 2006. The article emphasis that the external positions of Pakistan is weak and existing current account deficit could further widen if high levels of oil consumption are met by expensive imports. It was also mentioned that the results of this study are not a prediction of sovereign ratings trajectories by Standard & Poor's, since it is highly unlikely that governments would allow external and fiscal indicators to spiral out of control in the manner outlined.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Textile sector performance in 9MFY05

Textile sector performance in 9MFY05

 

                                                      

October 13, 2005

With the commencement of post quota regime in January 2005, global competition in the textile sector has intensified. Thousands of players from China, India, Turkey, Thailand etc. are fiercely competing in the $350bn global textile market. In this extremely competitive environment where survival of the fittest is the name of the game, how well has Pakistan’s textile sector prevailed? Today’s report will shed some light on the issue. The study is based on 27 listed textile companies chosen on the basis of market capitalization and turnover. Out of the total, 13 companies are from Spinning, 5 are from Weaving and 9 are from Composite sector.

Total textile sector profitability up by 48%

Total textile sector profitability in 9MFY05 grew by an impressive 48% primarily on the back of improved gross margin which improved from 11% in 9MFY04 to 14% in 9MFY05. Lower cotton prices, and higher exports of value added goods (to a lesser extent) are the main reasons for the improvement. Performance on the sales front though, was less than impressive with a meager growth of 5% YoY. Following table depicts the sales and profitability figures of the different sectors.
It is clear from the table that the spinning and weaving sectors suffered the most in the post quota regime. Composite sector showed extraordinary performance with profits almost doubling YoY.

Spinning sector: The laggard!

Of the three sectors, spinning showed the lowest growth of 1% in sales. Stiff competition from low cost producers in China, Bangladesh, and India restricted growth. Although major investments have been made by quite a few players over the past 2-3 years in BMR, the impact has yet to be seen.
Net profit, with a decline of 4% however, is a little misleading since bulk of it is due to exceptional tax expense (Rs143mn) by Din Textile Mills. On a before tax basis, profitability has actually grown 12% owing to higher gross margin which improved from 9% in 9MFY04 to 11% in 9MFY05. Lower cotton prices was the prime reason for this growth.

Weaving sector: Growing unprofitably

The weaving sector succeeded in showing a good growth of 10% in sales, but the growth did not translate into profitability. The sector apparently couldn’t withstand the sheer explosion of low cost Chinese knitted goods. Gross margin declined from 8% in 9MFY04 to 6% in 9MFY05. In addition a 91% increase in financial charges and 36% increase in admin & selling expenses further worsened the overall profitability picture in the weaving sector.

Composite sector: Star performer!

The composite sector was indisputably the best performer of the three sectors with net profits almost doubling YoY. However on the sales front, it too fell short of expectations with marginal growth of 7% YoY. Net profit increased on the back of improved gross margins which improved from 12.5% in 9MFY04 to 17% in 9MFY05. Moreover, a gain of around Rs400mn made by Nishat Mills on the sale of MCB shares further inflated the net profit. Just to provide a little perspective, operating profit during the period have grown by 58%, which is quite lower than overall profit growth.

                                                Textile Sector Performance In 9MFY05
Category    Sales 9MFY04  Sales 9MFY05  Growth   PAT 9MFY04      PAT 9MFY05  Growth
                            (Rs.mn)     (Rs.mn)                 (%)         (Rs.mn)             (Rs.mn)             (%)
Spinning              20,018           20,221              1%              638                   612              -4%
Weaving               7,718             8,494              10%              17                   (326)             N/M
Composite          32,920           35,257               7%           1,558                 2,999              92%
Total Textile        60,656           63,972              5%            2,214                 3,284              48%
 

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Union Bank 9mCY05 Post Result Review

Union Bank 9mCY05 Post Result Review

 

Investment  summary.  Certainly,  UNBL  registered  upbeat performance in 9 months   of   ongoing  financial  year.  PAT  heightened  to  PRs1,  1250mn
(EPS:4.81),  against  PRs597mn  (EPS: 2.30) of corresponding period of last
year.  However,  we  remain  skeptical  on  bank's strategy of seeking deep
penetration  into  consumer financing owing to bank's ability to absorb the
high  risk  prevailing  in this sought after segment of medium sized banks.
Increasing  provisioning  expenses  tend  to  confirm our concerns on asset
quality  of UNBL. Operational inefficiencies lend us more reasons to remain
cautious  while  evaluating this Bank. On prospective PBR of 3x, and PER of
8.4x, our stance on UNBL is "Hold"


Earning  Review. Union bank announced result for the third quarter ended 30
September 2005. UNBL won 65% growth in gross interest income due to earning
asset   expansion  and  improved  interest  margins.  Top-line  growth  was
mitigated  by  Q-o-Q  23%  higher  provisioning  expenses,  reducing  after
provisions growth to 48%, from PRs1.756bn (9m04) to 2.598bn 99m05). We have
not  received the Balance Sheet for the period ended September 30, 2005, we
anticipate  growing  exposure  of  bank  to  consumer  financing might have
deteriorated  asset  quality, resulting into higher Non performing credits.
Growth  in  non-interest  income  remained remarkable as total non-interest
income  increased  from  PRs1.16bn  (9M04)  to  PRs1.8bn  (9m05), y-o-y 55%
improvement.  On  Q-o-Q  basis,  non interest income surged by 15% in 3Q05,
against  9.4%  growth  in  2Q05.  Fee  based  income,  being accelerator of
non-interest   income,  exhibited  77%  y-o-y  growth,  from  PRs0.77bn  to
PRs1.36bn.  Furthermore,  lower effective tax (38% against last year's 41%)
helped  PAT to bloom by 109%, to PRs1,250mn during 9months of FY05, against
PRs597mn  during  comparable  period of last year. Cumulative EPS (Diluted)
for  9m05  comes  out  to  be PRs4.81, against PRs2.30 during corresponding
period of last year.


Operational  Inefficiencies.  During  quarter  under review, administrative
expenses  sustained  unfavorable trend of growth (y-o-y 25% growth) in this
quarter  as  well.  Historically,  UNBL  has  been facing problem of higher
administrative cost. Though administrative cost is bound to increase when a
bank  experiences network expansion, cost to income and administrative cost
to  deposit  ratios  of  UNBL are one of the highest among peers. For HY05,
cost  to  income  ratio  of  UNBL  was  54%  against sector average of 44%.
Administrative  cost  of  deposit  ratio was 2.2% against sector average of
1.2%.  Q-o-Q  25%  growth in admin expenses implies bank is still unable to
check  increasing cost. These operational inefficiencies have resulted into
growth less than what the bank could have posted

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Pakistan Gov't Signs Mou With Russia's Gazprom

Pakistan Gov't Signs Mou With Russia's Gazprom

ISLAMABAD - The government on October 7 signed a memorandum of understanding (MoU) with Russian oil and gas sector giant, JSC Gazprom, for co-operation in oil and gas sector.

The areas include gas storage, oil and gas exploration and production, development and research to explore Pakistan's untapped potential, especially in offshore areas, besides assisting Pakistan in conversion of diesel vehicles to CNG.

Secretary Petroleum Ahmed Waqar and JSC Gazprom Chairman and chief executive officer (CEO) A B Miller signed the agreement at the Prime Minister House here.

According to the MoU, the government of Pakistan and JSC Gazprom have agreed to cooperate in research and development of gas fields; use of natural gas as fuel for the converted diesel engines; development and operation of underground gas storage systems.

According to the agreement, JSC Gazprom is also interested in purchase of Oil and Gas Development Company Limited (OGDC) and Pakistan Petroleum Limited (PPL).

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

UN Seeks $272 Million For Quake, Toll May Exceed Bam

UN Seeks $272 Million For Quake, Toll May Exceed Bam

The UN appealed on Tuesday for $272 million for quake survivors in
northern Pakistan where, aid officials said, the death toll could hit
40,000, exceeding that in the Iranian city of Bam two years ago, Reuters
reports.

The UN inter-agency appeal aims to cover relief needs in the devastated
Kashmir region -- including winterized tents, food, blankets, medicines,
water purification equipment -- as well as reconstruction of some schools
and health facilities. "The appeal is to cover the immediate life-saving
and early recovery needs for only the first six months of the emergency
phase," Yvette Stevens, assistant UN emergency relief coordinator, told a
news conference to launch the flash appeal. "In terms of reconstruction,
we would expect that the needs will be much, much greater," she added.

The UN and the International Federation of Red Cross and Red Crescent
Societies -- the world's largest disaster relief network -- have deployed
experts in logistics, shelter, health, water and sanitation, and disaster
relief coordination. "We fear that at least 40,000 people are dead. This
means it is worse than the Bam earthquake [in December 2003 which took
nearly 31,000 lives]," Sian Bowen, Federation spokeswoman told an earlier
briefing, echoing comments by officials in Pakistani Kashmir and
North-West Frontier Province. "We do fear the situation could get much
worse," she added.

A field hospital with 100 beds, being flown to Islamabad on Tuesday, will
be set up on the cricket ground of Muzaffarabad, a Himalayan city of
100,000 near the quake's epicenter, the International Committee of the Red
Cross (ICRC) said. The hospital -- similar to one used for tsunami victims
in Aceh, Indonesia earlier this year -- will become operational in a week,
but the ICRC was also flying in a two-ton first aid station where simpler
trauma surgery can be performed. In coming days, the Swiss-based ICRC will
be using three helicopters to fly in supplies and evacuate injured, and
will also send in 30 medical staff, spokesman Vincent Lusser said.

The World Health Organization (WHO) expressed concern diseases could break
out among survivors in crowded conditions due to a lack of clean water and
safe sanitation. "Diarrhoeal diseases -- including cholera and dysentery
-- area feared," WHO spokeswoman Fadela Chaib told reporters. Under the UN
appeal, the World Food Program is seeking $50 million to buy food for one
million people for six months. The UN Children's Fund is seeking $64.3
million to cover water and sanitation, as well as educational needs.

In related news, Reuters writes that the World Bank doubled its funding to
Pakistan's earthquake-hit areas to $40 million in loans on Tuesday and
said that figure could increase further to help with rebuilding after
Saturday's disaster. The money is being redirected from existing World
Bank programs in Pakistan to help with immediate needs arising from the
disaster.

The Bank also said it was putting together teams of disaster experts to
help with reconstruction of areas hardest hit by the quake. "We will do
whatever it takes to support the longer term reconstruction, but right now
what counts is supporting the government of Pakistan in getting some
short-term money in so that cash can flow into the affected areas to
support temporary shelter, fuel for the imminent winter and household
livelihoods," said Praful Patel, the Bank's top official for South Asia.
The Bank said its funding could be used as cash grants to families
affected by the powerful quake or for temporary shelters for the tens of
thousands left homeless. Longer term reconstruction funding will be
determined by a needs assessment, Patel said.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Australia's Tethyan Copper Reviewing Design of Pakistan Project

Australia's Tethyan Copper Reviewing Design of Pakistan Project

MELBOURNE- Tethyan Copper Co Ltd (ASX:TYC) is reviewing the design of the first stage of its Pakistan copper project after an engineering study identified major cost increases.

The Perth-based company said the initial results of the definitive engineering study on its 45,000 tonne per year Tanjeel copper project had identified "significant capital cost increases".

Tethyan said the results meant the development path mapped out for the project, on which a feasibility study had been based, "may no longer be optimal".

Managing director David Moore said the company would now pause the engineering study while it reviewed the project, a process it expected to take about three months.

"While we are disappointed at this delay, we do have to take account of the new realities in terms of costs - this is an issue facing mining projects around the world right now," he said.

"The new cost structure within the global mining industry means that some of the basic parameters on which the original design of Tanjeel was based have changed."

Tanjeel has been planned as the first stage of the Reko Diq project, which has a total indicated and inferred resources of 1.21 billion tonnes at a grade of 0.58 per cent copper and 0.28 grams of gold per tonne.

Tethyan have shares dipped 6.5 cents to 64.5 cents by 1318 AEST.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Car assemblers during Apr-Jun 2005

Car assemblers during Apr-Jun 2005

 

October 12, 2005

 

JS Research has analyzed the performance of local listed car assemblers during the quarter ended June 2005. Our analysis is based on the quarterly results of all listed car manufactures viz; Indus Motor, Pak Suzuki, Dewan Motors and Honda Atlas Cars. As these companies have different year ends, we have not done an annual analysis and preferred to do quarterly analysis.

Apr-Jun 2005 earnings up 35%

After posting a declining trend during the first three quarters of FY05, profitability of car manufacturers depicted a turnaround in the last quarter (Apr-Jun 2005). As per our working, cumulative profitability of the listed car manufactures increased by 35% and reached Rs1,341mn in 4QFY05 compared to Rs992mn in the corresponding period of last year. Though, margins of the sector squeezed by 140bps to 8.7%, bottom-line showed significant improvement mainly due to volumetric growth in sales, increased product prices and higher other income. The cumulative earnings of our sample companies also compare favorably with preceding quarter earnings. On a QoQ basis, car manufacturers' profitability in Apr-Jun 2005 improved by 2.8 times or 183% from Rs474mn in Jan-Mar 2005.

 

Growth in sales and other income: Earnings driver

Combined net sales of our sample companies during the period grew by 43% to Rs26,951mn from Rs18,802mn previously. The growth in rupee sales arrived from higher sales volume coupled with the increased car prices by the manufacturers. Car manufacturers sold 46,892 vehicles during Apr-Jun 2005, a jump of 38% from same period sales of last year. From previous quarter (Jan-Mar 2005), sales volume during Apr-Jun 2005 were 27% higher. Holding of huge cash balances allowed car assemblers to benefit from rising interest rates as other income (mainly interest income) surged by 196% to Rs386mn from Rs130mn during the same period of last year. On a QoQ basis, other income recorded 19% increase from Rs323mn during Jan-Mar 2005. Thus, interest income contributed 19% (after tax) to the profitability in Apr-Jun 2005.

 

Margins improving

Higher steel prices and appreciation of Japanese Yen were the two exogenous factors that had adversely affected the margins of car assemblers in the first three quarters of FY05. A reversal in these two factors caused a major improvement of 420bps in gross margins of the sector in 4QFY05. Japanese Yen depreciated by 3% against Pak Rupee in 4QFY05 on a QoQ basis. Steel prices recede from their highs due to low demand from China (world's largest steel consumer), where production capacities are on the rise.

 

April - June (Rs mn) 2005

2004

% D

Sales Vol. (units)         46,892

       34,016

38%

Net sales         26,951

       18,802

43%

Gross profit          2,351         1,908 23%

Gross margin 8.7%

10.1%


Profit before taxation PBT)          2,109         1,506 40%

Profit after taxation (PAT)          1,341            992

35%

Net margin 5.0%

5.3%

 

 

Recommendation: 'Over-weight' maintained

We maintain our 'Over-weight' stance on car manufacturing sector. Car sales began FY06 on positive note with two months sales (Jul-Aug 2005) showing 23% increase to 23k vehicles. For full year FY06, we expect local car sales to touch 150k, an increase of 18%. With margins due for further improvement amid Yen depreciation and softening of steel prices, profitability of car manufacturers are expected to grew substantially in FY06.  Moreover, the full year impact of price hike by local assembler would also be fully visible during the current fiscal year. PE of car manufacturing sector arrives at 4.5x based on FY06 earnings with dividend yields 5.6% against the market PE of 9.3x and dividend yield of 6.7% based on FY06 expected earnings.

 

 

SNGPL: No major damage to company's network

According to SNGPL official, company's network has not suffered any major damage from the earthquake. SNGPL is the sole gas transmission and distribution company in the Northern part of the country. However, only a minor portion of company's gas pipelines are in the earthquake affected Northern areas. The damage to company's limited infrastructure in the region has not been significant.

 

M2 growth: -ve growth over 2.5 months of FY06

State Bank has released money supply numbers from Jul1- Sep17, 2005. Money supply declines of 1% over 2.5 months due to the decline in Net Foreign Assets (NFA) of the banking sector, which has declined by 13% (Rs83bn) from Jun 30, 2005, due to continuous outflow of foreign exchange amid higher import bill.

On the other hand Net Domestic Assets (NDA) of the banking system has grown due to higher government borrowing and private sector credit. So far, Govt. has borrowed Rs59bn during this fiscal year for budgetary support which represents the 60% of the Govt.'s budgetary borrowing target of FY06. Private sector credit once again gaining momentum and stood at Rs38bn against Rs37bn a year earlier

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

OMC sales fall 11% YoY in 1QFY06

OMC sales fall 11% YoY in 1QFY06

 

October 12, 2005

Where 1QFY06 proved to be an ideal time in terms of price raises for OMCs, volumes could not play their role properly. The industry’s energy product sales suffered 11% deterioration in terms of volume during 1QFY06. July and September sales witnessed YoY fall of 20% and 16%, respectively, whereas August saw a 3% YoY increase in volumes.
We have discussed the underlying reasons of continued dismal performance of OMCs in terms of volumes. The report ends with an outlook for FY06 and our recommendations for major OMCs.

                    OMC Industry Sales Performance
(‘000 tons)         1QFY06         1QFY05         Growth (%)
F.O.                     970                 1,254                 -23%
H.S.D.              1,815                 1,960                   -7%
M.S.                    326                    344                   -5%
JP-1                     269                   225                     20%
Kerosene               48                     57                    -16%
L.D.O                    34                     59                   -42%
TOTAL             3,462                3,900                   -11%
 

Recovery in FO sales still not in sight; Mogas volumes taking an impact of CNG conversion

Where the rains in the previous quarter hurt the HSD and Mogas sales, they also continued to impact the FO volumes. Along with hydropower generation, the power producers in the country are also preferring to switch to gas as early as possible, to remain protected from abnormally high oil prices. KAPCO’s recent results were an example of this trend. As a result, FO volume numbers recorded a slump of 23% YoY during 1QFY06. Nonetheless, OMCs have escalated FO prices (deregulated) by more than 20% during 1QFY06 to support the P&L.
Finally, the CNG conversion trend is making a noticeable impact on Mogas sales which are not as buoyant as they were the previous year. The OMCs themselves are planning to make significant investments in CNG related facilities, as highlighted by Shell Pakistan in its Analyst Briefing last month. The government has also encouraged LPG usage, in addition to CNG, for power producers and end consumers specifically. Mogas volumes suffered 5% YoY decline in 1QFY06. HSD sales still remain subdued because the Rabi season has still not commenced properly. Diesel volumes declined by 7% during 1QFY06.

                Sales Growth: 1QFY06 VS. 1QFY05
                     PSO         SHELL         INDUSTRY
F.O.             -27%             -42%             -23%
H.S.D.         -12%               -8%               -7%
M.S.              -5%              -11%              -5%
JP-1              14%              -13%              20%
Kerosene     -37%              -23%             -16%
L.D.O         -59%               -74%             -42%
TOTAL      -17%               -13%             -11%

Sales: Small boys giving a tough time to the big ones

The decomposition of industry sales numbers is shaping a new face this year. In contrast to industry’s volume decline of 11%, the market leader’s volumes fell by 17% and that of Shell by 13%. As a result, both the companies’ market shares shrank during 1QFY06. PSO lost around 4% of market share to APL in energy products’ sales. APL volume sales rocketed by more than 160% YoY during 1QFY06. The company also ranked above Caltex Pakistan this quarter in terms of volumes.

Demand outlook and recommendations

Furnace oil sales have fallen against the OMCs expectations. The import of FO, for which PSO allotted tenders in previous month, may also not materialize this month. HSD sales are expected to recover with the start of the Rabi season. However, Mogas sales may not be able to recover strongly. Finally, the sabotaged economic activity in the northern areas owing to the catastrophic earthquake, may also limit Mogas consumption. Kerosene demand is though expected to pick up with the commencement of winter season in 2QFY06. We will soon come up with our result previews for 1QFY06 results. At current prices, we recommend ‘Hold’ for PSO and ‘Sell’ for Shell.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

United Bank Ltd. ? Aspiring leadership

United Bank Ltd. ? Aspiring leadership


Investment  summary.  Succumbing  inspirational  growth,  UBL is one of the
leading  players  of  banking  industry  of  Pakistan,  with  domestic  and
international  presence.  Strong capital base, influential backing, focused
management  coupled with promising sector and economic outlook, make UBL an
apple  of investors eye. Prospective PER 8.3x, PBR of 2.1x, and ROE of 25%,
coupled  with  promise  of  15% upside evident from our target price of PRs
100, stimulate us to rate UBL as "BUY".

Inspiring  Growth.   UBL,  the  third  largest  bank  after  NBP  and  HBL,
demonstrated  awe-inspiring  expansion in last few years. Profitability and
net  asset  growth won UBL a place among frontrunners. UBL which was fourth
largest   bank  in  terms  of  deposit  mobilization  in  Dec-04,  has  now
outperformed MCB with its 17% year to half year growth in deposit base. UBL
successfully  improved quality of its earning assets that was far less than
satisfactory in pre-privatization era. Now, NPLs account 10.8% of net loans
compared  to 38% in FY01. Moreover, operational inefficiency have also been
tackled  successfully  and  Prospects for future stand far above the ground
owing  to preeminent growth in deposit mobilization and loans. A good omen,
aggressive  entry in consumer financing of UBL is surely to fetch fruits as
the  bank  is  in  superior  competitive position compared to its small and
medium sized rivals who are more aggressive in capturing consumer financing
segment than their big rivals.

Financial  Outlook.  UBL is expected to record y-o-y PAT growth of 47% from
PRs3.7bn  (FY04) to PRs5.4bn (FY05). Net income is likely to be uplifted by
(1)  Higher spread not only due to higher pricing of assets but also due to
lower  interest  costs, (2) 23% and 40% growth in advances and investments,
(3)  25%  growth  in  fee based income, and (4) Lower tax rate. Earning per
share  of  PRs10.51  is  expected for the year FY05, against PRs7.14 during
FY04. We expect UBL to distribute 20%-25% cash dividend for FY05.

Sector  at  a  glance.  Ongoing  fiscal  year brought good luck for banking
sector  when  interest  rates  instigated  to  peak in the first half. Joys
intensified  when  credit  expansion  declined  to  hold its pace in rising
interest rate outlook as economic expansions continued to trigger crave for
credit.  Captivating sector outlook for later half depicts sunny picture as
interest  rates  sustained  ascending  trend.  Moreover, credit demand from
textile sector touches apex in 2Half that is one of core credit driver.

 

 

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Earthquake death toll likely to rise

Earthquake death toll likely to rise
significantly



ISLAMABAD, 10 October (IRIN) - As night fell more
than 48 hours after a devastating earthquake hit
northern Pakistan and India, rescue teams
continued to battle against time, pulling survivors out
of collapsed buildings and trying to get to
hundreds of devastated villages in outlying regions.

The official death toll of some 20,000 announced
by the Pakistani government on Sunday is likely
to grow significantly, according to authorities in
Pakistani-administered Kashmir where the
emergency is acute. "I have been informed by my
department that more than 30,000 people have died in
Kashmir," Tariq Farooq, communications minister for
the region, was quoted as saying by Pakistan's
Daily Times newspaper.

"Out of a population of 2.4 million, more than
half is affected. It's a hilly area. They have not
yet accessed villages in the mountains and the
[death] toll could rise up to 30,000," Farooq
maintained.

The US Geological Survey said the quake's
epicentre was about 110 km northeast of the capital,
Islamabad, in the forested mountains of Pakistani
Kashmir. The latest death toll in
Indian-administered Kashmir was 865, according to the Indian
government.

Pakistan's military spokesman said large numbers
of young people had been wiped out in areas worst
hit by the quake. "It is a whole generation that
has been lost in the worst affected areas," Maj
Gen Shaukat Sultan said. He added the hardest hit
area was around the town of Muzaffarabad, capital
of Pakistani-administered Kashmir. Many students
were killed in the city when schools collapsed
following the devastating tremor. At least 11,000
people are believed to have died in the city.

So far, Pakistani army helicopters and aircraft
had made more than 80 flights, supplying three mt
of medicine, 12 mt of rations and two mt of water
to affected areas, Sultan added.

A road had been reopened into Muzaffarabad on
Monday, allowing trucks to deliver urgently needed
food and medical supplies. Some reports maintained
that rescue and relief efforts were being
hampered by bad weather.

The only road leading to another badly hit town,
Balakot, close to the epicentre of the quake, had
also been cleared late on Monday and relief
trucks and rescue equipment were making their way to
the town, Pakistan's military said.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Banks: 9 month advances and deposits

Banks: 9 month advances and deposits

 

October 11, 2005

Banking sector has attracted most of the investors' interest at local bourses. Commercial Banks have been enjoying the recent upsurge in the economy since last few years and have established themselves as the one of most profitable sector in the country.

In today's briefing, we will present our views on the data released by State Bank of Pakistan on schedule banks assets and liabilities. Our analysis is based on the data of 9 months 2005. We have considered September 24, 2005 as month end. The actual data of 9 months 2005 can be slightly different from these numbers since actual data will be based on the numbers of September 30 2005.

Banking sector deposits grew by 12% in 9 months

Deposit of the sector grew by 12% (Rs265bn) to Rs2.4tn during the first 9 months of 2005.This growth was 16% (284bn) during the corresponding period of last year. The momentum of deposit growth started to slow down in 3Q2005. Deposits of the sector grew by only 2.2% or Rs52.7bn during 3Q2005 as against the deposits growth of Rs72.8bn (3.7%) previously.  Negative growth of monetary assets by -1% (based on data from July to September 4, 2005) was the reason behind this. Normally, deposits growth remains subdued ahead of Ramadan because of withdrawal by people from commercial banks in order to avoid Zakat levy.

Advances also rise by 13%

Advances of the sector soared by 13% (Rs213bn) to Rs1.8bn during first three quarters of 2005 compared to 19% (Rs226mn) last year. Advances of the sector after witnessing a modest decline in August once again started to gain momentum. During 3Q2005 the advances of the sector grew by 2.5% (Rs50bn) to Rs1.8n. Nonetheless, this growth is less than the advances growth of 5% (Rs72bn) in corresponding period of last year. In our opinion rising interest rate was the primary reason behind this slow growth. Secondly, exemption of sales tax on whole textile chain in budget FY06 has also increased the cash flow available to textile companies which in result is expected to reduce their short term borrowing needs of working capital. Textile sector was the largest recipient of private sector credit in last couple of year.

 

Since last two years that is 2004 and 2005, the advances of the banking sector were showing a growing trend in 3Q. Before this commercial banks advances declined in this period due to seasonal slow down in business activities.

 

Investment growth continues: Rises by 22%

Investment of the banking sector continues to grow in 3Q2005 as well. During 9 months of 2005, investments of the banks have grown by 22% (Rs140bn) to Rs766bn.Interestingly growth in investments during the corresponding period of last year was 3.5% (Rs26bn), only. In 3Q2005 investments of the bank grew by Rs50bn. The principal reason for this rise was the increased cut-off yield of T-Bills due to which banks started to place their fund in this high yielding government papers.

 

Going forward

Going forward (for coming next few quarters) we expect advances of the sector to grow due to agriculture sector borrowing and consumer financing. No doubt major shareholder of bank's advances will remain corporate sector. Due to the modest growth in deposits, advances to deposits ratio of the sector is likely to grow from current level of 75% to 77%-78%. This slow deposits grow will benefit those banks who have lower advances to deposits ratio. 

 
Kapco: 1QFY06 results preview

Kapco's board will meet on October 12 to announce company's 1QFY06 results. The company is likely to announce net profit of Rs1.75-2.00bn (EPS Rs2.0-2.25) for the quarter. It is not possible to do a comparative analysis, since profitability numbers for similar period of last year have not been separately reported since Kapco was listed at KSE in 2HFY05. Nonetheless, earnings are likely to improve from Rupee depreciation, US CPI and higher thermal efficiency of the company.

 

Historically, the company has preferred to distribute dividends with as little delay as possible. Continuing this trend, the company may announce an interim dividend of Rs1.5-2.0/share. Since listing, Kapco has announced two dividends of Rs3.5/share and Rs4.5/share.

 

Our fair value for the stock, on ex-dividend basis, comes to Rs42.4 and we recommend 'Hold' for the stock at current level.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Modern disaster management strategy awaits PM's approval

Modern disaster management strategy awaits PM's approval

ISLAMABAD: A proposal for the setting up of a much needed Disaster Management Agency (DMA) to meet disasters and natural calamities like the one that has just hit Pakistan, is waiting the government's approval.

Sources told The News that after prolonged consultations with the provinces, army and other key government agencies, the Cabinet Division had prepared a comprehensive strategy over a year back to effectively deal with major disasters and calamities but the proposal has not yet been approved for implementation.

A formal summary for the setting up of an international standard DMA both at the federal and provincial levels was recently submitted to the Prime Minister's Secretariat for approval. The prime minister's approval would lead to the issuance of an Ordinance under which this agency, the first ever of its kind in Pakistan, would be set-up.

After being badly exposed to deal with the present disaster in the absence of any disaster management strategy at hand, the sources expect that the DMA proposal would be cleared sooner than later.

Cabinet Division sources when contacted told The News that a proposal was initially submitted to the PM secretariat but it was returned with certain queries. In response to those queries, the sources said, the Cabinet Division recently resubmitted yet another summary and presently awaiting the PM Secretariat's response.

One issue that is bothering the authorities is that the proposed disaster management agency would coordinate and command the provincial authorities in the field work, which is primarily provincial government's job. To overcome this legal-cum-jurisdictional imbroglio, a proper legislation is proposed.

According to sources the proposed DMA would not only be responsible for overall coordination of disaster management and relief operation but also for on the ground relief, rescue and rehabilitation work through trained disaster managers in each and every part of the country.

The proposed agency would also procure latest equipment required for rescue operations like modern cutters, which were not available to save those buried under the Margalla Tower debris in Islamabad. Stocks of relief goods like tents, blankets etc would also be stored at different sites in different provinces and regions to immediately launch the relief and rescue operations in far flung areas instead of waiting for few helicopters to do an impossible magic for all the disaster affectees in no time.

The proposed Disaster Management Agency would operate under the Cabinet Division. All the provincial headquarters would have the provincial DMAs while in districts and tehsils the district coordination officers and tehsil officers would be responsible for coordinating and conducting the rescue and relief operation. Army, civil administration, health department, flood commissions, meteorological department etc would be engaged in such operations and there would be trained and skilled rescue operators to timely and effectively deal with different kinds of calamities like earthquake, floods, landslides, etc.

The present earthquake tragedy has fully exposed the hollowness of government's capacity to respond to catastrophe of such a large scale as most of the affectees in Balakot, Muzaffarabad, Bagh, etc despite the lapse of three days are still waiting for rescue and relief operations.

The government was even not equipped with the required expertise and machinery to effectively conduct the rescue operations at the site of grounded Margalla tower in F-10/3. Presently an English team of experts, arrived yesterday, is leading the operation. A Japanese team of experts is also reaching Islamabad to conduct the Margalla tower rescue operation as it should be.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Rising stock futures' open interest inflating total 'official' leverage

Rising stock futures’ open interest inflating total ‘official’ leverage

 

October 08, 2005

The KSE-100 Index, during the last week, ended up with its 8th consecutive weekly gain. The first 3 days had the makings of a non-stop, bullish freight train, which slowed down in the last couple of days of the week. The KSE-100 Index gained 3.9% (317 points) last week, to stand at 8542 at the weekend.
The leverage position in the CFS account continues to be misleading due to its Rs25bn cap. However, stock futures’ open interest and futures spreads are beginning to show similarities to the prelude of the not-so-long-ago March 2005 rally.

CFS rate 17.6%, with investment stuck at Rs25bn at KSE

The weighted average CFS rate at KSE last Friday (October 7) remained at 17.6%. This shows an increase of 160bps from the level of 16.0% seen on the previous Friday (September 30). The rate surpassed the 18% upper limit on October 4, mainly due to the CFS transactions for Pak Oilfields being carried out before the stock began trading on spot basis.
The KSE CFS investment level remained glued to the upper limit of Rs25bn, and thus total official leverage through CFS showed no change.
The weighted average CFS rate at LSE last Friday stood at 28.1%. This represents a huge increase of 600bps as compared to the rate of 22.1% seen on the previous Friday. Total CFS investment at LSE stood at the upper limit of Rs2.3bn last Friday.

October stock futures’ open interest swells to Rs12.1bn

The open interest in stock futures showed a consistently rising trend all throughout the last week. From the previous Friday’s (September 30) figure of Rs8.4bn, open interest in the October stock futures rose to Rs12.1bn last Friday (October 7). This burgeoning open interest position is eerily (albeit slightly) reminiscent of what went on in the initial stages of the March 2005 rally. After only the first week of trading alone on the futures counter, the October futures’ open interest has ballooned to Rs12.1bn.
The weighted average stock futures spread last Friday stood at 23.2%, which is around 30bps lower as compared to the 23.5% spread seen on the previous Friday. The spreads are still on the higher side, as they used to be comfortably in the ‘teens’ about 2 weeks ago.

Corporate results season set to open once again

The next week will mark the official beginning of yet another corporate results season. The Jul-Sep 2005 quarter’s results will begin to be unveiled by a majority of the listed companies.
We believe that it is this very optimism regarding good profitability that has enabled rallies in certain sectors’ stocks, namely commercial banks, automobile assemblers, and oil-related companies. Going forward, the market is likely to continue to face lower volumes due to the ‘Ramazan’ effect. However, the KSE-100 Index’s direction is likely to be heavily dependent on the upcoming corporate results, and of course, any news flow regarding the ongoing privatization process of PTCL.

Khalid Iqbal Siddiqui
khalid@investcapital.com
92-21-521 5226-8 (Ext. 207)

Fauji Foundation to establish a power plant at Daharki

According to a news report in ‘The News’, Fauji Foundation plans to invest Rs2.18bn in FY06 (Oct 2005-Sep 2006). Major investments are planned to be made in the energy & power sector whereby it will establish two power plants, one at Daharki (175MW) and the other at Korangi (150MW). The company has already successfully established a power plant at Kabirwala.
The decision to establish a power plant at Daharki bears some additional significance as the government has also decided to allocate gas for the setup of a new fertilizer plant in the same vicinity. Taking this decision does reflect that the Fauji Foundation is also very serious about the possibility of a new fertilizer plant.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Booming market & high spreads

Booming market & high spreads

 

October 07, 2005

 

Equity values at local bourses maintained their rising trend during the outgoing week also with KSE-100 Index up 3.8% to close at 8542 points on Friday. The market remained positive in four out of five trading sessions during the week. On Thursday (1st of Ramadan), market sheds 41 points. With CFS, or badla, investment on its official cap of Rs25bn, leveraging through derivatives market has been rising. This, coupled with the positive market sentiments, caused the ready-future spreads to remain on the higher side.

8th week of stock gains, Index at 7-month high

Last week, we saw yet another week of stock gains at local bourses. This was the 8th consecutive week of positive closing of the benchmark KSE-100 Index. Since August 12, 2005, there is not a single week in which the Index had closed in negative territory on weekly closing basis. In this period of 8 weeks, Index has rallied 1392 points. The current Index level of 8542 also represents a 7-month high mark on Friday closing basis (previous weekly high was seen on March 18, 2005 when the Index closed at 9499 points).

 

During the week, Index rallied 317 points or 3.8% over previous Friday closing of 8226 points amid expectations of better quarterly results and some foreign buying. Market capitalization also ended the week on positive note reaching the level of Rs2.45tn (US$41.0bn) from Rs2.36tn (US$39.6bn) last Friday, thus up by Rs84bn or 3.9%. Average daily volume in the ready market during the week increased to 400mn shares (Rs44bn), as compare to 339mn shares (Rs32bn) in the last week. However, volumes declined considerably during the last two days of the week (avg. 279mn shares) due to reduced trading time in the holy month of Ramadan. 

 

Spread touched 6-month high during the week

The weighted average annualized Future spreads opened the week on a 6-month high mark of 26.1%. However, on Friday spreads were recorded at 22.4%, marginally down by 36bps from 22.8% on the previous weekend. The strong future spreads is due to the continuous bullish trend in the market that has encouraged investors to take long position in future contract. Our argument is also supported by the rising futures volumes. Average daily Future volumes have increased by 4%, to 108mn shares (216,000 contracts), reflecting rising interest in derivatives market.

 

Moreover, badla market, the most preferred method of leveraging for equity investors, has been at cap of Rs25bn. This is one of the reasons for rising future volumes. Open interest value representing the gross outstanding leverage position in the future market, was recorded at Rs12.1bn, higher by 44% versus the level of Rs8.4bn over previous weekend.

 

KSE Badla rates at 17.6%, below official cap of 18%

The weightage average badla rate at KSE was recorded at 17.6% on Friday, an increase of 110bps over previous Friday rate of 16.5%. During the week Badla investment at KSE remained unchanged at cap of Rs25bn.   At LSE, total badla investment on Friday was Rs0.51bn, marginally down by 6%, as compared to Rs0.54bn investment amount at the end of previous week. Moreover, weighted average badla rate, at LSE, increased by 594bps and closed at 28.1% on Friday. Looking at LSE badla rate and high ready-future spread, we believe that the current rates at KSE are artificially being kept low due to cap on badla rate and investment.

 

Banking sector in limelight during the week

Commercial banks once again caught investor's interest; amid the expected excellent results in 3Q2005. Banking stocks have gained 6.7% last week (versus KSE-100 Index rise of 3.8%).

 

The recently released data by State Bank of Pakistan showed that average spread between lending and deposit rates of banking sector for the month of July and August has reached approx. 7%. This is the highest spread in last three years since October 2002. The floating based lending of commercial banks plus the increasing composition of consumer loans in overall advances portfolio are the main reasons for this. Although average cost of deposit of the sector has also increased but the pace of rising lending rates has outstripped the increasing cost of borrowing.

 

Quarterly analysis of these rising spreads coupled with investments return on the advances and investments growth during the quarter depicted a 20% growth in the banking sector profitability during 3Q2005 as against 2Q2005. Banking sector is currently trading at an estimated PE 05 & 06 of 7.5x and 6.1x against the market PE of 11.75x and 9.3x respectively.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

JS Research's overweight sectors

JS Research's overweight sectors

October 07, 2005

 

 With recent up surge in stock prices, specific value sectors/stocks now have to be searched for. In this respect, JS Research is identifying three of its overweight sectors viz., E&P, Banks and Car assemblers. In today's briefing, we have discussed these overweight sectors.

Exploration and production: 'Overweight'

The domestic oil and gas production has witnessed an average CAGR of 1.4%, 15.3%, respectively during the last 3-years (FY02-05). We expect total domestic oil and gas production to increase at a CAGR of 6.9% and 2.8%, respectively during the next three years. The combined market capitalization of three listed E&P companies accounts for 30% of the KSE-100 Index market capitalization.

 

E&P sector earnings during FY05 increased at an impressive rate of 42%, after 16% growth in FY04. With rising oil prices, increasing oil and gas production (OGDCL, POL) and revision of gas price formula (PPL), we expect an impressive 21-22% CAGR in profitability of E&P sector in the next 3-years (FY05-FY08). At current levels, the E&P sector is trading at FY06E PE of 10.5x and offers dividend yield of 7.8%.

 

Commercial banks: 'Overweight'

Advances to deposits ratio of the bank has reached 74% in August 2004. This ratio was 66% a year earlier where as in 2003 ADR of banking sector was 61%. Private sector credit penetration (Private sector credit to GDP ratio) is 26% in Pakistan which is on the lower side as compared to international average of 130%.

 

2005 will be the fourth year for double digit profitability growth of the banks. Profitability of the bank grew due to increased credit demand in the economy which was further supported by the rising spreads of the sector. Higher interest rates works favorably for them as corporate advances of the banks are based on floating rates. Corporate advances constitute more than 50% of banks' advances. For 2005, we expect banking sector profitability to grow by 92%. Currently, the sector is trading at a PE of 7.3x and 6.0x based on forecasted earnings of 2005 & 2006 and PBV of 2.05x and 1.57x, respectively.

 

Car assemblers: 'Overweight'

Local car production has grown at an impressive CAGR of 34% during FY01-05, from 40k cars in FY01 to 126k in FY05. In FY05, car sales grew by 32% to 127k units. For FY06 and FY07, we expect local car sales to touch 150k and 180k, an increase of 18% and 20%, respectively. Budgetary measures of reduction in import duty and increase in depreciation rate on used cars have not posed a major threat to local car assemblers.

 

Sector profitability in FY06 is expected to grow substantially (39%) due to increase in margins amidst declining steel prices and Yen depreciation.  Moreover, the full year impact of price hike by local assembler would also be fully visible during the current fiscal year. Rising interest rates are benefiting the local car assemblers by way of higher other income as they carry huge cash on their books. PE of car manufacturing sector arrives at 4.2x based on FY06 earnings with dividend yields 6.0%.

N A D E E M   M A L I K
PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Trends in Ramzan

Trends in Ramzan

It  has  been witnessed that from the past 3 years, KSE 100 index has shown
an  upside trend in the month of Ramzan. In 2002, the month started with an
index  level  of  2229.8 points and went on to close at 2452.2 points along
with  the  closing  of the Holy Month of Ramzan, witnessing a 10% growth in
the  entire  month. With couple of negative closings in the early days, the
index  created  a low of 2188.2, but managed to recover and created a month
high  of  2461.8,  before  closing  the month at 2452.2 points. The average
trading  volumes  also  decreased  from  300mn  to 200mn during the Islamic
month.

In  Ramzan  of  2003,  the  index  again  started  with  couple of negative
closings.  Starting  the month at 3953.1, the index created a low of 3686.1
points in the middle of the month and again recovered to close the month at
4068.3  points.  The  benchmark  index  recorded a growth of just 3% in the
month  of  Ramzan of 2003. It was noticed that the index once again created
the  month  high  on  the  last  trading day of Ramzan, recording a high of
4087.7  points  before closing the month at 4068.3 points. This Ramzan, the
average  trading  volumes  fell  to  100mn from 200mn of the normal trading
days.  For  one  another  year,  the index started the month of Ramzan with
couple  of  negative  closings. This year, the index witnessed a decline of
0.6% during the month as it started of at 5469.5 points and created a month
low  of 5243.9 points before closing the month at 5483.9 points. As per the
trend,  the  index  again witnessed some positive closing by the end of the
month of Ramzan


Analysis and Estimations. From the past 3 years, the index has continued to
witness  some  negative  closing  in the early days of Ramzan. On the other
hand,  it also recorded positive closings by the month end, reflecting that
the  investors  use  to  carry  their transaction over to Eid Holidays. The
index  has  also  witnessed a declining growth trend from the past 3 years,
including  the fall of 0.6% in the year 2004, giving an indication that the
index  may witness a fall in this year's month of Ramzan as well. We expect
the  index  to  behave  choppy  between  the levels of 8200 and 8900 points
during  this Holy month of Ramzan as the volatile conditions has emerged in
the recent environment. We also expect that Average trading volumes for the
month  also  witness  a  decline due to lesser trading hours as compared to
normal trading days.

N A D E E M   M A L I K
CNBC PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Earthquake: Implications

Earthquake: Implications

 

October 10, 2005 

 A natural calamity has hit Northern region of Pakistan with major loss of human lives. The earthquake, which was measured 7.6 at rector scale, has caused server damage to houses and other infrastructure. As per Prime Minister statement, all the major industrial projects and dams have remained unaffected from this natural calamity.

In today's Morning Briefing, we have analyzed how this will affect Pakistan' economy and various listed sectors at Karachi Stock Exchange.

 

No major impact on economy likely

Due to the proximity to the ground zero, Pakistan's less developed Northern areas have been most severely affected with most of the damage occurring in Azad Kashmir. Besides Azad Kashmir, Islamabad and parts of NWFP have also been affected. Most of industrial and agricultural activity, which accounts for major portion of Pakistan's economy, occurs in the lower Punjab and Sindh provinces.

 

However, the government, in order to repair to damaged infrastructure, will have to further increase its development spending. With lower tax collection from oil, increase in development expenditure is likely to cause some increase in country's fiscal deficit, officially targeted at 3.8% (Rs263bn) of GDP in FY06.

 

Impact on various listed sectors

In solidarity with the victims of the earthquake, the KSE management has decided to open market with one-hour delay. Investors are anxious as to how this news will affect the stock market and various listed sectors at KSE. Our analysis of impact on various listed sectors is given below.

 

Insurance: The nature of insurance business is like that hardly people in rural areas can benefit from it. Demand of insurance primarily depends on real disposable income of an individual which is on the lower side in rural areas. Since few properties in these areas would be insured, the effect will not be substantial on overall insurance sector. As far as life insurance is concerned people in these areas do not have awareness of life Insurance business. Furthermore, cultural and religious reservations from insurance have not allowed this business to develop in rural areas. We do not see any major effect of this disaster on insurances companies.

 

Commercial Banks: Major banking activities are concentrated in urban areas of Pakistan. Some private commercial banks even do not have branches in these rural areas. Moreover, the branches of the commercial banks are generally insured and the role of these branches is not substantial for deposit mobilization.

 

Exploration & Production: Having nearly 33% weightage in the KSE-100 index, any impact on the listed E&P sector has an effect on the stock market. However, since all the major gas discoveries (Sui, Qadirpur, Uch, Sawan, Zamzama, Bhit) are in Sindh and Balochistan provinces, we do not see a major impact on field installations and production of oil and gas of the country. Of the three listed E&P companies, POL's majority of oil and gas production is from fields located in the areas close to Islamabad. It is yet to be seen whether any damage has occurred to company's installations.

 

Cement: As per our discussion with some of the industry experts, no major damage has been reported to any of the plants in the affected region. Dewan Hattar, Kohat, Fauji and Bestway are of some of major listed cement plants located in that region. We are trying to get further information regarding this. In the long term, cement demand is likely to receive further boost from reconstruction activity in the damaged areas.

 

Oil & Gas marketing: It is a general practice that oil and gas marketing companies insure their fixed assets and hence any damage to oil retail outlets (generally not owned by OMCs) and gas pipelines is likely to be recovered from the insurance companies. Of the listed OMCs, majority of Attock Petroleum's retail outlets are in the areas close to Islamabad whereas SNGPL is the sole T&D company operating in the affected region.

 

Telecom: The impact of earthquake on the listed telecom sector is expected to be neutral. In the areas of heavy destructions, there would be loss of wire-lines while the fiber optic system will be unaffected thereby does not pose any major threat. 

 

CPI for month of September: 8.4%-8.7% likely

Inflation number for the month of September is likely to be announced this week. JS Research expects CPI for the month to range between 8.4-8.7%. During previous month, August 2005, inflation was recorded at 8.4%. JS Research reiterates its initial instance of CPI for FY06 and we expect it will be ranged between 8.5%-9.0%. CPI in FY05 was recorded at 9.28%

N A D E E M   M A L I K
CNBC PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Cement Sector: FY05 profit up 66%

Cement Sector: FY05 profit up 66%

                                                  

October 10, 2005

After a crash course in misery, the cement sector has been performing well for the last two years, and the last fiscal year (FY05) was its 4th consecutive year in profitability. And not just that, the profitability has been on a constant increase. All this has been on the back of the economic turnaround, with cement demand rising beyond expectations.
In FY03, the listed cement sector earned less than Rs500mn, whereas in FY04, the sector had earned a huge profit of Rs4.4bn driven by double digit demand growth and better retention prices. As if that was not enough, the sector has increased its profitability by 66% in FY05. This increase is also on the back of double digit local demand growth and some growth in exports as well. Debottlenecking of some plants also helped in increasing the total output and hence profitability. Some companies also booked one-time capital gains and extraordinary items, which added to the increase in profitability.

Profitability up due to higher sales & prices, coupled with capital gains

Listed cement sector’s profitability grew by 66% during FY05 compared to FY04. In our analysis, we have included 15 cement companies from the total 21 listed cement companies. The left out companies include Chakwal & Mustehkam which are not operational. Pakistan Slag and Zeal Pak are not out with their results yet, whereas Dewan Hattar Cement was not commercially operational for the full year in FY04. Javedan Cement has not been included due to non-availability of results.
In absolute terms, net profit of the sector grew from Rs4.4bn in FY04 to Rs7.3bn in FY05. Sales of the sector increased from Rs28bn to Rs37bn. Gross margins of the sector increased from 29.8% in FY04 to 32.2% in FY05 due to higher retention prices. The gross margins would have been even higher, had the coal prices not increased to this extent.
Likewise, net profit margins increased from 15.8% to 19.9%. This net profit figure also includes capital gains booked by two companies, namely Attock Cement and DG Khan Cement, where Attock Cement sold off its holdings in Attock Petroleum, and DG Khan restated its cost of investments due to the merger of Umer Fabrics into Nishat Chunian and Nishat Mills. If the other incomes of these two companies is  excluded from our analysis, the total increase in profitability would be 46% and the net profit would amount to Rs6.5bn.
Total cement dispatched of our sample during the year increased to 12.2mn tons which makes up 75% of the total dispatches of the our industry which totaled 16.35mn tons in FY05. Dispatches for the same sample totalled 10.4mn tons in FY04 which shows an increase of 18% YoY. For FY06, we expect demand to increase by 12-13% to 18.3-18.5mn tons.

                    Cement Sector Financial Highlights
(Rs mn)                       FY03            FY04         FY05
Net Sales                  20,322           27,990       36,797
Gross Profit                 2,736            8,328        11,854
Financial Charges        2,240             1,345         1,657
PAT                              308             4,417         7,318
Margin Analysis
Gross Margin             13.5%             29.8%         32.2%
Net Margin                  1.5%             15.8%         19.9%
Per Ton Analysis
Net Retention              2,168             2,699           3,011
Gross Profit                    292                803             970
Net Profit                         33                426             599

10 brokers called in Senate on Oct 17

“We have summoned top 10 brokers which the SECP believes were the main players behind the financial collapse of Stock Exchange a few months earlier”, said a member of the Senate Committee, quotes Business Recorder. Both the SECP officials and the stockbrokers would be questioned to fix the responsibility of that crisis, he adds. The official, however, declined to disclose the names of brokers who have been called at the meeting.

N A D E E M   M A L I K
CNBC PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Earthquake in Kashmir: "I Thought Doomsday Had Fallen"

At least 18,000 are dead after the military faultline in the India-Pakistan rivalry became the epicenter of a devastating temblor

 

Uri and Kupwara are market towns in a Himalayan valley of preternatural beauty which, for half a century, have endured the fear, death and trauma of being on the frontline of one of the most dangerous conflicts on earth, that of India and Pakistan. On Saturday, nature turned on them too.

At mid-morning, an earthquake measuring 7.6 on the Richter scale struck just west of Kashmir's Line of Control, along which hundreds of thousands of Indian and Pakistani troops face off in bunkers and artillery installations and over which they have fought two wars and countless skirmishes and nearly came to a nuclear confrontation in 2002. The result: At least 18,000 dead, the majority of them on the Pakistani side of the disputed territory.

"Destruction is massive in Uri," an Indian army spokesman told TIME. "It's close to the epicenter. Initial reports are that not many houses are standing." As buildings crumbled, he added, gas pipes ruptured and fires swept the central market in the town just across the Line of Control on the Indian side of Kashmir. Simultaneously, landslides cut off Uri, and much of the surrounding area, from the world and swatted two buses full with passengers into a rocky mountain gorge. Sixteen Indian soldiers were buried alive in a bunker at Uri. The Police Inspector General of Police, Javed Mukhdoomi, had definite information on one town, Dangdar, near Kupwara. "Almost the entire town has been razed," he said. The Indian army spokesman also had his certainties. The final count of dead would be "very high," he said.

Tens of thousands of people have died in a civil war between Indian security forces and Muslim insurgents demanding either independence from India or union with Pakistan. But the earthquake managed to instill new levels of fear. "I'm 86," said Gul Muhammad Butt. "Never in my life have I experienced anything like it."

In the Pakistan, military rescue pilots who flew over Himalayan valleys on their side of the border saw scores of villages pulverized by landslides unleashed by the quake. Pakistani officials also say that the mountain town of Muzaffarabad, also on the Line of Control, with a population of more than a hundred thousand inhabitants, is "70% destroyed".

The earthquake was dramatically felt in the Pakistani capital of Islamabad. Pakistani President Pervez Musharraf climbed over the rubble of a flattened apartment building in Islamabad to spur on rescue workers trying to free dozens of families trapped underneath collapsed slabs of concrete. "It is a test for all of us, the entire nation," the president said as he returned to army headquarters to coordinate relief efforts in the mountainous northern areas of Pakistan that were worst hit. He dispatched 10 M-17 helicopters to rescue people in the stricken areas. How Musharraf handles the relief operations will certainly be a test for his six-year old military rule. His popularity has fallen due to recent gas price hikes and his refusal to allow the leaders of the mainstream political parties to return from exile.

How would the catastrophe affect relations in the region—which, apart from the Pakistani and Indian armed forces, includes a sizeable U.S. military presence in Afghanistan? In a rare gesture of friendship between the two hostile nations, India said it would send rescue workers to help Pakistan, if requested. Meanwhile, the helicopters Musharraf dispatched to help victims of the earthquake were diverted from duty scouring the Afghan-Pakistan border for al-Qaeda and Taliban fighters, one Islamabad official said. Reporters who wanted to travel to the ravaged regions were told they could be flown into the worst hit areas of Uri but were unlikely to be brought back immediately as the military helicopters were pressed into service mainly to bring the injured in for treatment. Could U.S. troops and aircraft in Afghanistan be deployed? That question is a sensitive one on the Pakistani side because of America's unpopularity in the Islamic country.

The catastrophe prompted scenes of dread and supplication unusual even for strife-torn Kashmir. Families wandered the streets, refusing to return to their homes. Children and women wailed in the open. Schools, whose examination halls had been filled with students taking their high school diplomas, were deserted, answer sheets scattered on the floor. When the tremors hit, people rushed screaming into the street. When they found open ground, families began offering special naful prayers, while others knelt on the roadside and began reciting the Quran. Loudspeakers in the mosques urged the faithful to seek forgiveness. "I thought doomsday had fallen," said Abdur Rashid Hajjam, as he came out of prayers at a Sufi shrine. "Pray for our brethren who died today and thank Allah for we are safe," said the imam at Illahi Bagh mosque on the outskirts of Srinagar, which lies in Indian-ruled Kashmir. "Whatever the scientists say, our Prophet said that when this earth is replete with sin, this would happen." As evening fell, the thanksgiving prayer, Nimaz-e-shukrana, echoed from every mosque in Kashmir.

Kashmir's hospitals were treating trauma that religion couldn't heal. Dr. Anwar Hussein said his SMHS hospital in Srinagar received some injured, but most of the 270 patients admitted, their nerves frayed by 16 long years of war, were suffering from "palpitations and shock." Other hospitals were unable to provide the same succor. Many had developed cracks, and patients and nurses alike were refusing to enter.

N A D E E M   M A L I K
CNBC PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Comments on OMC secor

Comments on OMC secor

Investment  summary.  The oil marketing sector has performed extremely well
during  FY05.  The  robust growth in the bottom-lines came from 16.6%-24.7%
increase  in  average  regulated products prices and x growth in volumetric
sales.  As international oil prices are likely to remain on the higher side
for  FY06  as  well  and the government is passing on partial impact on the
consumer  by  increasing  the  petroleum products prices, the oil marketing
companies  are  expected  to  record  handsome  inventory gains. So far the
prices  of regulated POL products have increased by 17%-28%. The volumes of
petrol  and diesel may suffer a bit in the longer run, as the government is
encouraging the use of CNG and LPG for vehicles, though his impact would be
largely  mitigated  by  higher  prices  and  improving volumes of lubes and
aviation fuels. We maintain our neutral stance on the sector.

Robust  growth in FY05. During the outgoing fiscal year, the OMC sector has
reported robust growth in earnings. This growth may be attributed to higher
product  prices  as  a  result  of higher international oil prices. Average
prices  of  the regulated POL products have increased by around 16.6%-24.7%
in  FY05.  Several  prices  increments have resulted and handsome inventory
gains.  The  increase  in  prices  was  also  complemented with increase in
volumetric sales during the year.

Government   passing  on  the  impact  partially.  The  government  started
subsidizing  the  petroleum  products  from  May  16,  2004. Several upward
revisions  were  made  in  these  prices but the Petroleum Development Levy
(PDL)  was  declining.  From September 2004, the amount of PDL reached zero
level.  Considering  the  outlook  of  the  international  oil  prices, the
government  has  now  started  to  transfer  some  of  the  burden  to  the
end-consumers  as  per  our  expectations  to  encourage rationalization of
petroleum products consumption. The government has been encouraging the use
of  alternate  fuel  sources  including  CNG  and LPG for vehicles, gas for
industrial  consumption  and  hydel  generation  of  electricity. We do not
believe  any major downward revision in the local petroleum products prices
and hence it would result in more inventory gains for the OMC sector.

The  outlook.  As  the government has been encouraging the use of alternate
fuel  resources,  we  may  see  some  decline  in  the volumes of core fuel
products  including  petrol,  diesel  and  furnace  oil  in the longer run.
However, we do not expect any pressure in the volumes of aviation fuels and
lubes.  The  earnings  of  the sector are likely to continue to show robust
growth  in  the  current  fiscal year as well, though we are of the opinion
that  the  current  levels  have  already  incorporated  this growth and we
maintain our neutral recommendation on the scrip.

N A D E E M   M A L I K
CNBC PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Cement sales growth slows down in 1QFY06

Cement sales growth slows down in 1QFY06

 

October 06, 2005

 

Cement sector has been quite a player in the rally that has stirred up at the local bourses recently. Cement demand has been on the higher side as capacity utilization still remains above 90% despite addition of a million tons in total capacity.
Cement dispatches for 1QFY06 (4.47mn tons) compared to 1QFY05 (4.09mn tons) have gone up by 9.3% YoY. In today’s report, we have tried to analyze the growth in cement dispatches along with their possible reasons.

Local dispatches up by 10.85%

Local dispatches in 1QFY06 (Jul-Sep 2005) increased by 10.85% from 3.65mn tons in 1QF05 to 4.04mn tons. The same growth figure in FY05 was 23.7%. The reasons for lower growth in percentage terms this time is higher base effect along with some rains witnessed during the period.
In September 2005 alone, local cement dispatches amounted to 1.39mn tons compared to 1.25mn tons in September 2004, depicting a growth of 11% YoY.

Exports declined by 3.9% in 1QFY06

Total cement exports declined from 446k tons in 1QFY05 to 430k tons in 1QFY06 showing a decline of 3.9% on a year on year basis. We believe that the reason for this decline is that local sales are fetching the manufacturers handsome prices and the need to export is not as great.
Total capacity utilization also remained at 92%, which shows that some further debottlenecking in some plants in the month of September took place. When further capacities come online and utilization levels start to plunge, a growth in exports would be witnessed once again.
In September alone, cement exports plunged by around 7% from 156k tons in Sep 2004 to 144k tons in Sep 2005. Share of exports in total despatches went down from 10.8% in 1QFY05 to 9.6% in 1QFY06.

Outlook and Recommendation

We expect cement sales to grow faster than the current growth rate and amount to 18.3-18.5mn tons during FY06 showing a growth of 12-13% on a year on year basis.
At current prices, Lucky Cement is on our ‘Buy’ list, where a little further price appreciation in scrip will land it on our ‘Hold’ list. DG Khan and Fauji Cement are now on our ‘Sell’ list.

Lower than expected results for Nishat Chunian

Nishat Chunian announced its results for FY05 (9m Oct-Jun) yesterday where it posted profit after tax of Rs722mn (EPS Rs10.57). The result was lower than our expectation of Rs760mn (EPS Rs11.10) primarily due to lower sales and higher admin & selling expenses. In 3QFY05, total sales were Rs1.66bn, i.e. approximately 6% lower than 3QFY04.
The management of the company, however, said that this is a temporary decline in the initial period of the post quota regime. Apart from the decline in sales, admin & selling expenses during the third quarter also rose sharply to Rs116mn, which is higher as compared to an average of Rs70mn in the first two quarters.
The company also announced 10% bonus shares along with the expected 20% dividend.

Canadian agency to review POL products’ pricing mechanism

Pakistan has assigned Canadian International Development Agency (CIDA) the task of assessing the current oil pricing mechanism, according to news reports. The agency is expected to suggest changes to make the pricing system acceptable to all the stakeholders.
According to the agency’s website, The Canadian International Development Agency (CIDA) is a federal agency charged with planning and implementing most of Canada’s development cooperation program in order to reduce poverty.

N A D E E M   M A L I K
CNBC PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

Pakistan Economic Update (July 2004-June 2005)

ADB Releases Pakistan Economic Update

                      (July 2004-June 2005)

 

 

ISLAMABAD, PAKISTAN (03 October 2005) – The present Economic Update prepared by the Pakistan Resident Mission of the Asian Development Bank provides an analysis of macroeconomic developments in FY2005 along with the outlook for FY2006 and reviews poverty related expenditures in the first three quarters of FY2005. The report also includes a special section on the Federal Budget for FY2006 and poverty trends based on social indicators data collected in a recent household survey using the Core Welfare Indicators Questionnaire approach.

 

Pakistan’s economic performance improved further in FY2005 and the economy achieved the highest growth in the last two decades.  However, because of shortages of essential food items, high oil prices, and strong domestic demand, inflation increased sharply.  The fiscal deficit also increased, and the current account of the balance of payments turned into deficit after three years.  Sound macroeconomic fundamentals, increasing private investment, and expanding development expenditure will sustain high economic growth in FY2006.

 

Domestic Sector

 

Growth:  High economic growth seen in FY2004 strengthened further in FY2005.  Agriculture achieved the highest growth in the last one decade, mainly because of a record growth of 45.5 percent in cotton production.  Of the other three main crops, output of wheat increased by 8.3 percent and that of rice by 2.9 percent.  Growth of the industrial sector was somewhat less than last year, but still in double digits, mainly because of a rapid growth of the large-scale manufacturing (LSM).  Growth in LSM sector was broad-based, with increases being particularly large in the case of textiles, automobiles, electronics, engineering goods, cement, and fertilizers.  Large increase in public sector development program and pick up in residential construction boosted the construction industry.  The services sector, which contributes 52.4 percent to GDP, recorded the highest growth in the last two decades because of rapid expansion in the financial sector, wholesale and retail trade, and telecom services.

 

          Prices and Monetary Policy:  The CPI-based inflation rose to 9.3 percent in FY2005 compared with 4.6 percent in FY2004.  Although inflation was led by food prices, core inflation also increased from 3.4 percent to 7.4 percent.  It was only in April 2005 that SBP started aggressively tightening monetary policy by raising the discount rate from 7.5 percent to 9.0 percent.  Subsequently, interest rate on 6-month treasury bills increased by 243 basis points to 7.9 percent in the last quarter of the year.  However, money supply increased at a high rate (17.0 percent) in FY2005. 

…/2

-2-

 

          Fiscal Policy:  The Government pursued an expansionary fiscal policy in FY2005 and let the fiscal deficit increase to 3.3 percent of GDP from 2.3 percent in FY2004. The primary balance also turned into a small deficit of Rs 6.8 billion from a surplus of Rs 66.8 billion in the preceding year.  The focus of fiscal policy shifted from stabilization to growth.  Development expenditure was increased by 41.9 percent, raising its share in GDP from 2.9 to 3.5 percent.  Current expenditure also increased by 21.2 percent.  Tax collection by the Central Board of Revenue increased by only 12.7 percent.  There was a sharp decline in receipts from petroleum development surcharge.  The slow growth in tax revenues was somewhat made up by a sharp increase of 35.9 percent in non-tax revenues.  The FY2006 budget continues the expansionary fiscal policy and envisages a further increase in the fiscal deficit to 3.8 percent of GDP.

 

External Sector   

 

          Merchandise Trade:  Due to strong domestic demand and a sharp increase in oil prices, imports increased sharply by 32.3 percent to $20.6 billion in FY2005, putting pressure on balance of payments.  Oil imports increased by 20.4 percent.  Non-food non-oil imports increased by 35.9 percent.  Exports also increased at a rate of 17.0 percent to $14.4 billion.  Non-textile exports recorded much higher growth of 37.5 percent compared with textiles export growth of only 6.6 percent.  As a result, concentration of exports in textiles declined from 65.3 percent to 59.5 percent.  Most of the increase in exports took place in the second half of the year, when export growth accelerated to 23.0 percent from 10.5 percent recorded in the first half.  Import growth on the other hand was lower in the second half of the year. 

 

            Current Account:  The balance of payments position weakened in FY2005, as the current account balance turned into a deficit of $1.8 billion after having been in surplus in the preceding three years.  As a percentage of GDP, the current account deficit was 1.4.  There was a more than three-fold increase in trade deficit to $4.5 billion.  Large increase in trade-related freight charges and payments for other business services resulted in a 152.1 percent increase in deficit in the services account to $3.3 billion.  On the positive side, a 7.7 percent increase in remittances to $4.2 billion, a substantial increase in inflows of foreign exchange through foreign exchange companies, and higher inflows into foreign currency accounts resulted in a 29.7 percent increase in the surplus in current transfers to $8.7 billion.  This helped to finance a part of the deficits on trade, services, and income accounts.

 

 

 

 

…/ 3

 

-3-

         

          Foreign exchange reserves held by SBP declined by $0.8 billion to $9.8 billion in FY2005.  At this level, reserves are sufficient to finance 6.2 months of merchandise imports.  The Rupee depreciated by 3.0 percent from Rs 57.92/US$ to Rs 59.67/US$.  Pakistan’s external debt and liabilities increased by 1.4 percent to $35.8 billion in FY2005, but as a percentage of GDP, they declined from 36.7 to 32.5. 

 

Outlook

 

The economy is projected to grow by 6.5 percent in FY2006.  After growing at very high rates in the last two years, the manufacturing sector is expected to settle down to a more sustainable, but still robust, growth of about 11.0 percent in FY2006. Substantial production capacity built in the last two years will come on line during the year, and exemption of major export industries from GST will also boost production. Agricultural growth is also likely to decline in FY2006, mainly because of the high base effect.  It will be difficult to sustain the last year’s all time high output of cotton because of heavier monsoon rains and greater moisture that increase crop vulnerability to pests.  The growth of the agriculture sector is projected at about 3.0 percent in FY2006.  In the services sector, the rapid growth of telecom services, banking, and trade is likely to be sustained in FY2006. 

 

Tightening of monetary policy since the last quarter of FY2005 and opening up of imports of essential food items will dampen inflationary pressures in FY2006.  However, expansionary fiscal policy, continued high oil prices, and the large monetary overhang may make it difficult to reduce inflation significantly.  Hence inflation is projected to decline only marginally to 8.5 percent in FY2006.

 

With high GDP growth, projected double-digit increase in imports, and ongoing improvements in tax administration, tax revenues are projected to grow by 17 percent in FY2006.  However, large increases planned in development expenditure and in salaries and pensions of government servants, will contribute to a higher fiscal deficit in FY2006.

 

Imports are projected to grow at a double-digit rate of about 18 percent in FY2006 because of continuing high GDP growth rate and high oil prices.  Exports are expected to benefit from liberal incentives for export industries announced in the budget, the textile industry’s restructuring and modernization, and the ending of textile quotas since January 2005.  However, because of the expected slow down of the global economy, export growth will decelerate to about 15 percent and the trade deficit will widen to about $5.8 billion.  This, along with expected increase in the deficit on the services account, will result in an increase in the current account deficit to about 2.8 percent of GDP.

 

…/4

-4-

 

With sound macroeconomic fundamentals, pick up in private investment, and expanding development expenditure, medium-term prospects for the Pakistan economy look good.  Improved relations with India and possible increase in bilateral trade will also boost growth in the medium term. Reduction of external security concerns in the region is also likely to promote foreign investment.  Thus for medium term, it is projected that the high economic growth will be sustained, inflation will come down, the fiscal deficit will remain below 4.0 percent of GDP, and the current account deficit will be in the range of at 2.5-3.0 percent of GDP.

 

High oil prices can have a negative impact on the Pakistan economy, necessitating revisions in a number of projections given above.  If oil prices continue to remain at the current record high level, or rise further, projections for imports, the fiscal deficit, and inflation may have to be revised upward.  High oil prices could also adversely affect the global economy, resulting in lower growth of Pakistan’s exports.

 

N A D E E M   M A L I K

 

CNBC PAKISTAN
ISLAMABAD
0333-5117511
Nadeem.Malik@hotmail.com

If housing slumps, how safe are you?

	If the housing bubble bursts, you may be more exposed than you think, especially if you won financial-services and consumer stocks.

By Amey Stone

 

If you take comfort thinking that your well-diversified investment portfolio is bound to fare well even if housing values decline significantly, think again. True, that rationale has panned out before. For example, someone who sold a house in the Northeast in 1991 and put the proceeds into the stock market would have missed a decline in real estate values and enjoyed stock market gains for the rest of the decade.

Investment strategists say it probably won't work that way next time around, however. That's because stocks and bonds — indeed, the whole economy — are now more closely tied to the real estate market than in the past. Although most experts think home prices wouldn't drop more than 20 percent or 30 percent over a couple of years if the much-discussed bubble bursts, even a small drop in prices could do serious damage to equity and fixed-income portfolios, they warn.

"If real estate cools dramatically, there goes half our economic growth," says Barry Ritholtz, chief market strategist at Maxim Group. "There is danger of recession — and you know what recessions do to the stock market."

Stress test for banks
As for hopes that the stock market would take over for a flagging real estate market, "I don't think it's that simple anymore," says Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum in New York. He points out that a bread-and-butter index fund based on the S&P 500-stock index now has significant exposure to real estate through the financial-services and consumer sectors.

The financial-services sector makes up 20 percent of the S&P 500 and has benefited from the mortgage refinancing boom driven by lower interest rates. This leaves companies in that sector vulnerable if trends reverse. In a Sept. 15 report, S&P credit analyst Victoria Wagner conducted a "stress test" on banks, assuming a 20 percent decline in home prices over two years (which she considers unlikely). The top 10 hardest-hit banks in that scenario included widely held stocks like Wachovia, Wells Fargo, and JPMorgan Chase.

Consumer-oriented stocks like retailers or restaurant chains, which make up 13 percent of the S&P, would also suffer if real estate declines. "There's a very widespread fear that if property prices go down and the refinancing boom goes away, that consumers are going to have to cut back on spending. And that will be felt throughout the economy," says Dan McNeela, a senior analyst at Morningstar.

Nonplussed at the pump
For one reason the market has held up despite the shock of higher energy prices, Hyman cites consumers who are enjoying wealth gains from their home (the latest government data shows existing home prices are up nearly 15 percent from a year ago on average nationwide).

"The perception is that they can withstand higher gas prices if a $700,000 home is up another $140,000 next year," he says. "Once you take that support away, we should expect a drop in consumer confidence and consumer spending, which makes up two-thirds of the economy."

Maxim Group's Ritholtz estimates that fully half of economic growth in the U.S. is tied to real estate — including hiring, construction, and consumer spending. That means the entire market is hitched to housing. "You can be in tech stocks or energy, but from a macro perspective, if real estate takes a hit, you can expect all of your holdings to get ratcheted down," says Ritholtz.

 

Will it 'end badly'?
Even the fixed-income portion of your holdings may contain hidden real estate risks. Bond funds are often the safest part of an investment portfolio. But mortgage debt has boomed, and those loans are typically packaged into securities that are sold to fixed-income portfolio managers. Many of them end up in bond funds.

"You might not know what kind of exposure you have" to the riskiest sorts of mortgages, says Didi Weinblatt, portfolio manager of USAA GNMA Trust Fund. (She notes that mortgages in her fund are backed by the U.S. Treasury and are nearly all 15-year or 30-year fixed mortgages — not the riskier adjustable-rate and interest-only loans that are so popular today). If interest rates rise while home values fall, she thinks some homeowners may choose to default on their mortgage, since they would owe more on the loan than the house is worth. "I worry it could end badly," says Weinblatt.

Mortgage risk in a well-managed mutual fund is likely small. But if you invest in hedge funds, you may be doubly exposed. Often these pooled mortgage securities are divided and repackaged further based on risk — and the highest-yielding derivatives end up in hedge funds. "There's a layering of risk in mortgage loans that is unprecedented and untested in previous mortgage markets," S&P's Wagner wrote in her Sept. 15 report.

Do some digging
Don't assume your stock portfolio is safe just because you don't own a lot of real estate investment trusts (REITs) and homebuilding companies, which combined account for just a percent or so of the S&P 500. Real estate funds, since they tend to own commercial, industrial, and rental properties, don't correlate much to the residential housing market, says Morningstar's McNeela.

So what can you do to protect yourself if you're concerned about the impact of a housing slump on your portfolio? First, you should make sure your stock holdings aren't too weighted toward consumer and financial names. Also, do some digging to find out if your bond funds contain risky types of mortgage-backed securities. Holding more of your savings in cash may make the most sense if you want to reduce your overall risk.

So far the real estate market is showing signs only of topping out — not falling. But it's worth keeping in mind: If housing does take a turn for the worse, the stock and bond funds that don't necessarily seem tied to the real estate market may offer the biggest negative surprises.

'Fundamental' difference between current and March rally

‘Fundamental’ difference between current and March rally                                 

 

October 03, 2005

                        Key Stock Performance Since March 15, 2005
Stock                              Mar-15      Sep-30*         Return
MCB Bank                     74.20             128.05          73%
Shell                              565.50             777.00          37%
Adamjee Ins                   93.05             121.50          31%
Bank of Punjab             109.80              141.48          29%
Fauji Fertilizer               175.45              202.20          15%
Faysal Bank                   66.25                76.31          15%
POL                             346.50              385.00          11%
National Bank               161.75              176.04            9%
Union Bank                     56.10               60.57             8%
Unilever Pakistan          1500.00         1,590.00             6%
Packages Limited           157.00             166.25            6%
Engro Chemical             150.00              145.50          -3%
Indus Motor                  141.25              137.00          -3%
Lucky Cement                 54.10               52.40           -3%
Hub Power                      31.65               30.60           -3%
D.G. Khan Cement          80.60               77.50           -4%
Bank Alfalah                    53.35               50.70           -5%
Pak Suzuki                     174.95            166.10            -5%
FFC Bin Qasim                40.70              38.00            -7%
Azgard Nine                     45.45              41.70            -8%
Kohinoor Energy              27.55              25.00            -9%
Maple Leaf Cement          33.95              30.25          -11%
Askari Bank                   122.00            108.08          -11%
Kot Addu Power             59.15               51.75          -13%
Nishat Chunian               130.00             111.50          -14%
Fauji Cement                   19.30               16.55          -14%
NRL                              439.00             373.50          -15%
SNGPL                           76.35               64.40          -16%
PSO                              488.90             411.00          -16%
Ibrahim Fibres                  47.00              38.90          -17%
SSGC                              28.85              23.85          -17%
KSE-100 Index         10,303.13        8,225.66           -20%
Dewan Motors Ltd.          31.00             24.40           -21%
Nishat Mills                    124.00             94.50           -24%
PTCL                              87.90              63.50           -28%
ICI Pakistan                  141.75            100.25           -29%
PPL                              314.90            195.70           -38%
OGDC                         189.75            117.25            -38%
Kohinoor Textile             59.50              33.50            -44%
Pak PTA Ltd.                 14.55                7.40            -49%
Dewan Salman                33.45              15.85            -53%
*September 30th prices adjusted for corporate actions

When one looks at the table in the preceding column, one gets the jitters just thinking about how in the world did the prices of some stocks in that table reach the said prices on March 15. After a disappointment of mammoth proportions, where the KSE-100 Index is still down by 20% from its March 15, 2005 peak, there are some stocks that have given positive returns even in such a scenario. Please note that prices shown in the table as of September 30, 2005 have been adjusted for corporate announcements such as cash & stock dividends, and right issues.

Fundamental valuations true to form this time

Following the March crash, one thing is for sure. There is a renewed respect for fundamental stock valuations amongst local stock market investors. When one looks at the accompanying table, one can see that Banks, Oil stocks, Fertilizer stocks, and FMCG stocks have still been able to give positive returns from their price levels of March 15, 2005.
Even those stocks that have provided a return higher than -20%, have still outperformed the benchmark KSE-100 Index.

Heavyweights at the bottom

Three out of the 4 heavyweight stocks that basically led the rally in March, now find themselves lingering at the bottom of the pile. It is hardly surprising that PTCL (-28% return), PPL (-38%), OGDCL (-38%) have underperformed the KSE-100 Index. This can be squarely attributed to their fundamental valuations. Regular readers will remember that we had left no stone unturned in trying to warn about the unrealistically inflated price levels of these stocks.
It seems that the March crash was a ‘crash course’ for investors in learning the importance of fundamental stock valuations.

Banking Spreads: At record 7%

Banking Spreads: At record 7%

October 04, 2005

 

Banking stocks are rallying at local bourses. And although KSE Index is down 19% from its 10303 (March 15, 2005) peak, almost all the listed banks are trading at their record prices. In the absence of sector index, one measure to judge is to see the market cap of commercial banks which is up 19% since March 15, 2005.

And since the beginning of this calendar year, it is up 85%. Key banking stocks like NBP, MCB and BoP are up 132%, 177% and 127% (inclusive of dividend and bonus, if any) respectively to date in this calendar year.

 

Investors are worried and have been asking us whether there is fundamental justification for such an excellent show by banking scrips. And we have been recommending then an Overweight stance (please refer all our research on Banks in the last six months). We are bullish on the sector as besides rising volumes of deposits and advances, lately the spreads of the commercial banks are also improving. In this report we will focus on the risisng banking industry spreads and their implications on the overall profitability of the banks.

 

Spreads close to 7% after 2002

According to recently released information the spread of schedule banks (difference between lending and deposit rates) remained at 7.01% in July and 6.84% in August. During 1H2005 the average spread of banks was 5.47%. This upward journey of spreads actually started at the beginning of 2005. But the quantum jump was seen in July and August and we expect it would be close to 7% in September also.

 

The upward rise in the spread coupled with normal growth in advances will impact positively on the earnings of the bank. Moreover if we see the return on investments than the 6 month T-bill average yield was 6.40% during 1H2005 which remained 8.01% in 3Q2005. Thus the yield on interest bearing assets during 3Q2005 will be far higher than 1H2005.




3Q core profits will be better 20%

According to our analysis (see table), core profits from banking operations would improve by 20% as compared to 2Q2005. And that is why investors and speculators are punting on banking stocks ahead of its 3Q2005 results that are due in coming few weeks. For our analysis we have used average advances of the quarters and these advances are multiplied by the average lending rates of the quarter. Similarly for interest paid on average deposits we have considered the customer deposits of the quarter and these deposits are multiplied by average deposit rates of the quarter. For investments income same methodology is being followed where average investments of the quarters are multiplied by average 6 months T-Bill cut-off during the quarter.

 

We have simulated the result of these analyses on the actual results of the sector where actual results followed the same trend.

 

Banks profitability (Rsbn) 1Q2005

2Q005

3Q2005 E

Interest earned on average advances        107.46      131.68          62.10
Interest paid on average deposits          0.49         9.55           51.31
Interest income earned          6.97         2.13          10.79
Interest earned on average Investments          0.94        52.37           62.46
Net interest income of the sector        107.91       44.51          73.25
Growth   34% 20%
 

We maintain our Overweight recommendation on the banking sector and following we have a valuation summary of the banks in our universe.

 

 

 

Company Name

PER

PBV

FY05E

FY06F

FY05E

FY06F

Banks        
Askari Commercial Bank         6.60      4.98      1.75       1.35
Bank Al-Falah         7.49      5.89      2.17       1.79
Bank of Punjab         7.99      6.48      1.88       1.41
Faysal Bank         7.04      6.45      1.71       1.44
Muslim Comm. Bank         7.58      5.86      2.93       2.05
National Bank of Pakistan         7.29      6.31      1.77       1.36
PICIC Comm. Bank         6.36      5.20      1.88       1.48
Union Bank         7.56      6.47      2.55       1.96
United Bank Limited         6.98      5.50      2.13       1.61
JS Banking Sector         7.28      5.98      2.03       1.56 
 

Market Capitalization touches US$40bn

Market Capitalization at local bourses has reached Rs2.38tn yesterday. In dollar term it translates in to approx. US$40bn. It was the highest market capitalization after 6 months. Historical highest market capitalization was observed on March 15, 2005 which was Rs2.8tn (US$47bn).

Money supply grew by 19.27% in FY05

Money supply grew by 19.27% in FY05

 

 

  October 04, 2005

Pakistan’s money supply has grown at a very high pace in the last four years, with FY05 being the year with highest growth in Rupee terms. FY05 was the fourth year in a row with above 15% growth in the economy’s monetary aggregates. However, the reasons for growth were different in these years.
In today’s report, we have discussed the reasons behind this magnificent growth and the target set for growth in FY06 for monetary aggregates.

Rs479bn or 19.27% growth in M2

The widely used measure for money supply, M2 grew by 19.27% or Rs479bn in FY05. This was against a growth of 19.62% in FY04. The lower percentage growth is just because of the higher base effect. In absolute terms, the growth in FY04 was RS408bn. Interesting to note is the fact that after a growth of Rs408bn or 19.27% in FY04, the initial credit plan for FY05 gave a target of Rs280bn for M2 growth. This was, however, revised later (February) and increased to 14.48% or Rs360bn. Even this was surpassed as the final figures flowed in recently. The total M2 as of June 30, 2005 stands at Rs2.97 trillion against Rs2.49 trillion at the end of FY04.

12.8% growth in M2 foreseen in FY06

After a growth of Rs479bn in FY05, the State Bank has given a target of Rs380bn, or 12.8% growth for monetary assets in FY06. Keeping in mind the monetary tightening stance of SBP, this target seems appropriate, but a little too tight. We believe that the money supply growth will slow down a little, but not to this extent and expect a 14-15% growth in monetary aggregates of the country during the year. From then onwards, with a higher base, the M2 is expected to grow by around 11-12% for a couple of years.

89.5% growth due to Private sector credit

An interesting thing to note in the growth of M2 during the year is its make up. Around 89.5% of the total M2 growth was from the increase in credit to private sector. This 89.5% amounts to Rs429bn, which was targeted at Rs200bn initially and was later revised to Rs350bn.
Net Domestic Assets, or NDA, of the country grew by 22.3% from Rs1.90trn to Rs2.33trn in FY05, whereas the increase in Net Foreign Assets, or NFA, was relatively low. NFA increased by 9% from
Rs583bn at the end of FY04 to Rs636.9bn at the end of FY05.
The growth in NDA makes up 88% of the total growth in M2, whereas increase in NFA was responsible for the remaining 12% growth.

Faisal Jiwani
faisal@investcapital.com
+92 (21) 5215226-8 (Ext. 210)

Cotton crop and GDP growth rate: A sensitivity analysis

After an initial shortfall of 46% in first arrivals of cotton this year, various farmers and cotton sector experts are forecasting the cotton crop to reach at best 11-12m bales as against the government target of 15mn bales. Major reasons cited for this are bad weather, floods in different areas of Sindh and Punjab, and pest attack due to excessive low temperature in the country. This could potentially have a very negative impact on our overall GDP growth rate, since cotton crop has a 2.2% share in the overall GDP.
According to the InvestCap GDP model, the sensitivity between 1mn bales of cotton crop and GDP growth rate is approximately 20 basis points (0.2%). Therefore if the government misses the cotton target by 1mn bales, it will reduce the overall GDP growth rate by 20bps. Our model suggests that on a cotton crop of 11mn bales, the overall GDP growth rate will be 6.0%. Similarly on 12mn bales it will be 6.20% and so on.
In addition, a lower cotton crop might also have a negative impact on the production of textile products including yarn and fabric. Therefore if we assume a zero growth in production of yarn and fabric (i.e. same production as last year) then it will further reduce the GDP growth rate by 30 basis points.

Sui Northern result review

Sui Northern result review

Investment  summary.  Sui Northern Gas Pipeline Ltd. has announced a PAT of
PRs275mn  (EPS  PRs5.52)  for  the year ended June 2005, against the PAT of
2297mn  (EPS  PRs4.6)  for  the  corresponding  period last year. The major
reason for this 20% growth was the net capital expenditure of approximately
PRs3.5bn  incurred by the company during the fiscal year 2005. However, the
top  line  of  the  company  witnessed a growth of 30% during the year, but
could  not  make  any  impact  on the bottom line of the company due to the
fixed return formula set by Oil and Gas Regulatory Authority (OGRA).


Results  highlights. As per our estimations, Sui Northern Gas Pipeline Ltd.
recorded  30%  growth  in its top line, increased from 64,276mn to 84,710mn
for  the  fiscal  year 2005. The rise in Gas sales prices supported the top
line,  but  on  the  contrary,  higher proportionate rise in wellhead price
reduced  the  gross profit margin of the company by 3% for the FY05. On the
other  hand,  90%  increased  Gas Development Surcharges (GDS), reduced the
operating  margins  to  5.5%  from  the  previous  year's 6.8%. Significant
increase  of  92%  in  other income along with the declining financial cost
helped the company strengthen its bottom line to rise from 2,297mn to 2,754
in  FY05. Higher profits also enabled the company to raise its DPS from 25%
to  30%  for  FY05.  The  financial  highlights are posted in the following
table.

Recommendation. As no progress has been announced on both privatization of
SNGPL and Gas import project, we continue to recommend HOLD on SNGPL. We
will re-evaluate our estimations regarding any announcement related to the
pending issues and will keep investors informed.

World Bank Seeks Best Ideas for Water, Sanitation and Energy Projects

World Bank Seeks Best Ideas for Water, Sanitation and Energy Projects
Development Marketplace Competition to Award US$4 Million

WASHINGTON, October 3, 2005 -- The World Bank said it would hold a competition
to award $4 million to the best ideas to provide clean water, sanitation, and
energy to local communities in developing countries lacking these basic
services.

Entitled, "Innovation in Water, Sanitation, and Energy Services for Poor
People," this year's Development Marketplace competition seeks proposals for
local, small-scale projects with the potential to be scaled up. The winners
will be selected by an international jury of World Bank and independent
development experts at the Development Marketplace event on May 9, 2006 in
Washington DC.

Previous winning projects include building children's merry-go-rounds that
doubled as village water-pumps in South Africa, reusing mosque water to
irrigate dry fields in Yemen and constructing portable solar energy generators
for remote Laotian households to rent.
Development Marketplace 2006 is open to all – civil society groups, social
entrepreneurs, youth organizations, private foundations, academia, private
sector corporations – with unique ideas that may not attract funding from
traditional sources of finance. The maximum award will be $200,000 per proposal.

More than a billion people in developing countries don't have access to clean
water, 2.6 billion people don't have access to hygienic facilities and nearly 3
billion people don't have reliable energy services.

"Ensuring all people have access to basic services is at the heart of
development," says World Bank President Paul Wolfowitz. "Yet today, millions of
people still spend hours each day fetching clean water from faraway wells, two
million children die from sanitation-related diseases, and families get sick
from inhaling fumes from dirty fuels used for cooking. Development Marketplace
competitions give local entrepreneurs the opportunity to pursue home-grown
solutions to these problems."

Proposals will be accepted until November 30, 2005 and should address one of
the following categories:
- Service Delivery: Sustainable delivery of water supply, sanitation, and/or
energy services to poor households
- Environment: Renewable energy, clean water technologies, energy efficiency,
and/or environmentally sustainable sanitation solutions to poor households and
to small enterprises
- Health: Protecting health from environmental risk factors (indoor air
pollution, contaminated drinking water, unsafe sanitation), including
innovative programs for hygiene promotion and behavioral change
- Natural Resources: Sustainable management of natural resources (land, water,
forest) specifically for the provision of water supply, sanitation and energy
to the poor

The Development Marketplace complements the World Bank's work by giving
grassroots ideas a chance to solve local problems and by working directly with
organizations that implement these projects.

"Development Marketplace emphasizes local innovative solutions of entrepreneurs
and a broad group of organizations including community groups. The 2006
Marketplace will thus help to effectively reach thousands of people who may not
be reached through conventional energy, water supply, and sanitation service
projects," says Katherine Sierra, World Bank Vice President of Infrastructure.

"The energy and water professionals of the World Bank, the Water and Sanitation
Program, and the Energy Sector Management Assistance Program are delighted to
have the opportunity to learn from entrepreneurs and community leaders, and to
support their innovative efforts to provide energy, water supply and sanitation
services to poor people," says Jamal Saghir, World Bank Director for Energy and
Water.

The World Bank is the world's largest external financier of water supply and
sanitation and, and the largest pubic financier of clean energy services.

"Development Marketplace events are a unique opportunity for us and our
development partners to find and fund promising local ideas that can yield
great benefits and be replicated in other communities," says John Wilton, Vice
President of Strategy, Finance and Risk Management, the World Bank Group.
"These yearly competitions allow us to get closer to people at the frontline of
development who are reaching those in need."

The Development Marketplace is a World Bank program that uses a competitive and
transparent process to support grassroots initiatives with innovative
approaches to solving challenging development issues. The program has awarded
nearly $34 million to roughly 800 small-scale projects over the last seven
years.

Last year's Development Marketplace awarded $4 million in grants and attracted
2,638 proposals from 136 countries. Of these proposals, the biggest share, at
58 percent, were from non-governmental organizations. The second biggest share,
at 14 percent, was from the private sector.

In addition to the global competition, the Development Marketplace will support
9 country-level competitions in 2006 encompassing 17 countries, whose themes
will be aligned with countries' poverty reduction priorities.

More information about the competition is available at
www.developmentmarketplace.org in Arabic, Chinese, French, Portuguese, Russian
and Spanish. Or contact the Development Marketplace team at
DMinfo@worldbank.org.

 

The World Bank
      Contacts: Alex Ferguson (202) 458-4953
      E-mail: aferguson@worldbank.org

Starting trade in Japan harder than Pakistan: IFC

Starting trade in Japan harder than Pakistan: IFC

ISLAMABAD: The International Finance Corporation (IFC) has said that New
Zealand is the easiest place in the world to do business and deal with
licences, while UK is the easiest to get credit.

Singapore follows, but dealing with licences is easier in Japan while
starting business there is harder than Pakistan. In this rating Japan ranks
at 91st position while Pakistan stands at 38th, which used to be at 126th
position but the recent law reforms have upgraded it.

The position of India, according to IFC's latest index, stands at 116th in
convenience of doing business and 90th in starting a business. Dealing in
licences, hiring and firing authority and also registration of property it
stands at Numbers 124, 116 and 101, higher than Pakistan, China, Bangladesh
and numerous other developing countries.

IFC is a subsidiary of World Bank to finance private sector with the support
of local government. Its rankings of the developed and developing nations in
the context of accessibility to business or projects remains under constant
review.

The reforms for promotion of private sector in China/Hong Kong have brought
their position to easier zones, although it is still an arduous job to deal
with licensing, starting a business and getting credit.

About registering property in China, the IFC says it has become easier and
probably is one of the main reasons that foreign direct investment has
flooded the country in the past two years.

The IFC survey scans the position of 155 countries, including both developed
and developing. It says that the most difficult place to start and do
business, deal with a licence or registering property or gain credit is
Congo, preceded by other African nations Burkina Fasso, Sudan, Niger, Mali,
Chad and Egypt.

But despite these rankings, Africa by and large was reflected in the latest
World Investment Report to have remained "constant but relatively higher"
FDI during last year than in the previous 12 months that is in 2003.
N A D E E M M A L I K
Flat#8, Block 2-A, St#1, I-8/1
ISLAMABAD, PAKISTAN.
00-92-51-4434300
00-92-333-5117511
Nadeem.Malik@hotmail.com

WB report asks govt to end OCAC mechanism

WB report asks govt to end OCAC mechanism

The World Bank terming the price mechanism of Oil Companies Advisory
Committee (OCAC) non-transparent has asked the government to discontinue it,
as beneficiaries should not be the regulators.

"The World Bank in its report of 2003 expressed its reservations on the
calculations of prices of petroleum products and observed that the mechanism
is not transparent and the members of the committee should be disqualified,"
said Senator Rukhsana Zuberi, while talking to The News.

She said the government of Pakistan has paid $250 million for the World Bank
report and it is a unanimous report.

The senator felt that it was an irony that the Prime Minister expressed
surprise at the information that OCAC does not have any government
representation.

"Since February 2005, people have paid Rs1.50 billion extra and this money
has not gone to the government but to the OMCs," she said.

"What sort of deregulation is being practiced in Pakistan where the prices
of all the companies are same," she said adding, "deregulation means
competition but we do not see this happening since 2002."

The OMCs have admitted that they are charging more than the actual price and
even the Petroleum minister has admitted that they had made mistakes.

Energy experts, consumers and traders while reacting at the recent price
hike of petroleum products have lashed out at the OCAC and the Oil Marketing
Companies (OMCs) for increasing petroleum products prices and termed oil
fixation formula as a confusing technical jargon.

Talking to The News an expert said that the OMCs and the government are
fooling the Pakistanis by continuously increasing the petroleum products
prices on the pretext of global price hike of POL products.

He said that the OCAC general secretary's letter regarding oil price
calculation is a classical example of baffling ordinary readers in a maze of
technical jargon to divert attention from the real issue of fixing a fair
price of petrol for a consumer who does not have recourse to company or
government paid fuel.

Unfortunately, the OCAC only represents oil companies whose main aim is
accumulation of profits to fill their coffers at the consumers' expense.

He said that based on the Platts Oil Gram Scan Report we could calculate the
price of petrol by accepting the OCAC's price on September 5 of $68 per
barrel and other inputs as laid down by the OCAC.

One dollar is Rs60 and if we multiply it with $68 the result is Rs4,080 per
barrel. By adding freight at $2.16 and multiply it with 60 we get Rs130 per
barrel.

By including 9 per cent handling, bank L/Cs charges and marine insurance of
Rs367 per barrel, wharfage at the rate of 3.85 per cent of Rs157, and oil
companies margin/profit @3.5 per cent to get Rs142 per barrel, the cost of
one barrel crude of 42 gallons comes to Rs4,876 per barrel.

Now, by adding refining cost at the rate of 10 per cent valuing at Rs488 per
barrel, the total comes to Rs5,364 per barrel.

If one barrel = 42 gallons = 3.79 US litre=159 litres, the price of one
barrel of crude oil in rupees comes to $56xRs60 = Rs33.73.

By adding excise duty at Rs0.88, we get Rs34.61. By including 15 per cent
GST (Rs5.19) and dealers' commission (0.12) we get the maximum cost of
Rs39.93 per litre or Rs40 per litre.

The OCAC and OMCs have increased the price of petrol to Rs56.29, which is
more than Rs16.29 per litre than the actual calculations.

The vice chairman Banking, Finance and Credit Standing Committee of FPCCI
and President Jodia Bazaar Traders Association Jafar Kudia, bitterly
criticised the OMCs for increasing the prices without any check and balances
and demanded of the government to either empower Monopoly Control Authority
(MCA) to put check on these OMCs or set up separate MCA for oil sector.

He said though he was a trader but he was first a consumer than a trader. "I
have to buy my household things and everything becomes expensive with the
rise in petrol prices."

"With the increase in petrol and diesel prices the impact on our developing
economy is perhaps overlooked," he said adding that the transportation
charges will rise as well as the warehouse charges.

"We should not compare ourselves with developed countries and such measures
will make us uncompetitive in the international market," he said.

Why is there no check for the OMCs who are minting money on the pretext of
global price hike, he asked?

Chairman Alliance of Market Association Karachi Atiq Mir and other office
bearers felt that the recent price hike of POL products has nullified the
impact of Ramazan Package of the Prime Minister.

He said the government was creating inflation explosions through such
measures which would not only lose hope of poor people but will create
hatred, disappointment and resentment among the people.

"The government is claiming to bear the burden of Rs68.50 billion is not
bearing the loss rather it is the shortfall of income it used to gain in the
imports of oil," Atiq said.

Another expert felt that the average income of common man is Rs3,000 to
Rs3,500 per month while he is finding it impossible to cope with the
inflation owing to increase in prices of all commodities amid rise in prices
of petrol and diesel.

With the income of the common man stagnant at its present levels, (although
the government has increased the salaries of its servants being paid through
taxpayers pockets), the life for the common man has become hell.

The government that trumpets of linking the local prices with the
international market has yet to facilitate its citizens. In developed
countries like USA, UK and Canada, the petrol is available at 78 to 90 cents
per litre against the monthly average income of $1200 to $2000 per month.

Converting US dollars in Pak Rupees will give around Rs59,000 per month as
the average income of a common man of USA. For him, petrol at 90 cents per
litre is like 90 paisa per litre in Pakistan.

He said this thing is not happening in Pakistan rather he is paying Rs56 for
one litre petrol in an income of Rs3000 to Rs3,500 per month.

Either the government should increase the average income of a common man to
a level of Rs40,000 to Rs50,000 per month or reduce the price of petrol to
affordable level

N A D E E M M A L I K
Flat#8, Block 2-A, St#1, I-8/1
ISLAMABAD, PAKISTAN.
00-92-51-4434300
00-92-333-5117511
Nadeem.Malik@hotmail.com

CBR collects Rs 147.7B from 1.1m taxpayers

CBR'S REVENUE COLLECTION DURING THE FIRST QUARTER OF CURRENT FISCAL YEAR.

CBR has surpassed the revenue target for the first quarter of fiscal year
2005-06 by Rs. 2.2 billion. The provisional net collection has been Rs.
147.7 billion showing an increase of 17.5% over the corresponding period of
last year. The CBR expect that overall collection will further increase when
the revenue figures for the month of September 2005 are finalized in the
next few days. The tax-wise details confirm that the Direct tax revenue has
reached Rs. 45.0 billion and CBR foresee a further increase in this
collection, when the information on income tax returns is completed. An
overall growth of 24.7% has been observed in Sales Tax. While the import
stage sales tax receipts have increased by 17.7%, the sales tax (Domestic)
collection has increased by a healthy margin of 38.3% over the corresponding
period last year. Consequently, the overall sales tax collection, during the
first Quarter has reached Rs. 62.8 billion. The collection on account of
customs duties has reached Rs. 28.6 billion against Rs. 22.4 billion during
past year, indicating a growth of 27.9%. Finally, the collection under the
head of Federal Excise has reached Rs. 11.3 billion, which is at par with
last year's collection.

2. The provisional collection of September 2005 stands
at Rs 68.2 billion with the break-up of Rs. 24.3 billion as sales tax, Rs.
11.2 billion as customs, Rs. 4.4 billion as federal excise, and Rs. 28.3
billion as direct taxes.
--------------

1.1 million TAXPAYERS FILE RETURNS

Taxpayers have shown their confidence and trust in the policies of the
Government of Pakistan and in particular the rapid improvements and reforms
of the Pakistan Tax Administration, the Central Board of Revenue.

Availing the Universal Self Assessment 1,106,348 taxpayers filed income tax
returns upto September 30, 2005 as against 968,051 income tax returns filed
last year upto September 30, 2004. There is an overall increase of 14% in
the returns voluntarily filed by the taxpayers.

599,903 non-salaried taxpayers and 506,445 salaried taxpayers have filed
income tax returns as against the 523,498 returns by non-salaried taxpayers
and 444,553 returns by salaried taxpayers filed last year upto 30th
September.

This year law was amended to facilitate salaried taxpayers and those
salaried individuals who had salary only as their source of income, were
allowed not to file returns, if their employer had filed employers'
statement. Therefore, number of returns, certificates and statements from
salaried class is expected to increase very substantially, once the complete
data from the employers' statement is compiled. CBR expects to significantly
surpass the number of returns received last year.

The amount of tax paid with returns upto 30th September this year is Rs. 4.2
billion as against Rs. 5.7 billion last year. This has been partly because
of change in tax year in some cases leading to change in filing pattern and
partly because of heavy capital investment in some corporate entities
leading to huge depreciation claims and consequent tax losses.

Inspite of the fact that there has been a very substantial increase in the
number of returns filed, yet for various reasons, number of taxpayers were
not able to file returns by the closing date. Some of the taxpayers have
already sought extension for filing of returns whereas other could not do
so. CBR appreciating the enthusiasm of taxpayers and for the sake of their
facilitation have issued instructions to the Commissioners of Income Tax to
liberally allow extension in time on request made by the taxpayers. CBR
spokesman expressed hope that the taxpayers will avail of this relaxation.

N A D E E M M A L I K
Flat#8, Block 2-A, St#1, I-8/1
ISLAMABAD, PAKISTAN.
00-92-51-4434300
00-92-333-5117511
Nadeem.Malik@hotmail.com

SPECIAL PROCEDURE FOR COLLECTION AND PAYMENT OF SALES TAX ON MOTOR CARS

SPECIAL PROCEDURE FOR COLLECTION AND PAYMENT OF SALES TAX ON MOTOR CARS AND
MOTOR CYCLES

October, 2005

Islamabad: The Federal Government has issued a special procedure for
collection and payment of sales tax on motor cars and motors cycles through
notification SRO. 951(I)/2005 dated 14.09.2005. Under the procedure all
assemblers, importers and dealers of vehicles are obliged to get
registration and pay sales tax due on their taxable transactions under Sales
Tax Law. Under the Sales Tax Act, 1990, special procedures for the
collection and payment of sales tax are issued for such regimes where
business practices and market dynamic carry special nature and deserve to be
facilitated for the discharge of sales tax liabilities.

2. In some newspapers, some items have appeared giving a
wrong impression that under the aforesaid notification, the Central Board of
Revenue has imposed sales tax at the rate of 15% on vehicles. This
impression is not legally or factually correct because imports,
manufacturing and sales of vehicles have never remained exempt from sales
tax. The only problem being faced by the automobiles sector was that the car
dealers were not able to avail input tax adjustment in case of old and used
vehicles sold through them usually on commission basis because they did not
have purchase sales tax invoices in respect of such vehicles. Under the
Sales Tax Act, 1990, being commission agents, car dealers were required to
obtain sales tax registration even in the past and pay sales tax on the sale
of motor cars or motor cycles sold by them either on commission basis or
otherwise.

3. The present new procedure has not imposed any new tax
on car dealers. Instead it has facilitated them in their efforts to comply
with sales tax laws availing an extraordinary facility of notional input tax
adjustment in cases where they do not have back up sales tax invoices in
their names for old and used vehicles. This facility is an exceptional
arrangement under which only 10% of the sale price of the second hand
vehicles including commission amount, if any, is liable to sales tax at the
rate of 15% and 90% component of their sale price shall not attract sales
tax. This formula shall be applicable even in cases where second hand
vehicles are brought to the registration authorities for transfer of
registration without the involvement of car dealers. Thus the scheme has an
inbuilt equity aimed at promoting documentation of the business of auto
dealership in the country without any discrimination or proneness to tax
avoidance. No sales tax registration shall be required in cases where
vehicles registrations are directly transferred from one person to another
by the motor registration authorities.

N A D E E M M A L I K
Flat#8, Block 2-A, St#1, I-8/1
ISLAMABAD, PAKISTAN.
00-92-51-4434300
00-92-333-5117511
Nadeem.Malik@hotmail.com