Fingad.com

OGDCL made gas and condensate discovery

Sat, 16 Aug 2008 12:11:53 EST

OGDCL made gas and condensate discovery - by Noor-us-Sabbah

The Company Overview

Oil and Gas Development Company Limited (OGDCL) was established in 1961 by the Government of Pakistan as Oil and Gas Development Corporation (OGDC). As the name indicates, OGDCL was established to explore and develop oil and gas resources in Pakistan. The Government of Pakistan transformed OGDC into a public limited company in 1997, thus OGDCL, the largest Petroleum and Gas Exploration Company of the country came into being.

OGDCL is listed on all major stock exchanges of Pakistan, i.e. Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE). The company’s Global Depositary shares are also listed on the London Stock Exchange since December 2006. The company’s market capitalization is worth Rs505.79 billion or $6.8 billion. OGDCL is among the volume leaders at Karachi Stock Exchange.

Latest Discovery

In the last week of July, Oil & Gas Development Company (OGDC) announced that the company made gas and condensate discovery in Kunnar South 01, the exploratory well. OGDC operates in Kunnar South Well No 1, which is located in district Tando Allah Yar, Sindh. It is a joint venture between the company and GHPL, where OGDC has working interest of 95 per cent and GHPL holds the rest. This gas and condensate discovery is of some significance in terms of company’s performance, and in turn it will have some impact on the stock as well. Stock analysts predicted that this discovery will drive the earning per share (EPS) of the company for financial year 2008-09. Analysts believe that this increase in the EPS of the company would be in the range of Re 0.06 to 0.08. The company’s paid-up capital is worth Rs 43.01 billion. The Price/Earnings (P/E) ratio is 8.26.

Shareholders may expect another good dividend for the FY 2007-08 even amidst the economic crisis prevailing in the country. Currently the OGDCL’s stock is being traded at the Karachi Stock Exchange at the price of Rs 113.03 (as of August 15, 2008). The company believes in a handsome dividend payout to its shareholders on regular basis, while striking a balance between long-term reinvestment in the business. The following table has been taken from the company’s official website. It gives the investors a complete picture regarding the dividend payout or their return on investment in OGDCL.

Dividend History

Year	Dividend No.	Amount /Share	Date of Declaration	Date of Record	Date of Issue /Payment
2003-04	D-11	Rs. 1.00	26-12-03	09-02-04	15-03-04
	D-12	Rs. 1.75	28-04-04	31-05-04	30-06-04
	D-13	Rs. 1.25	22-09-04	16-10-04	01-12-04
2004-05	D-14	Rs. 1.50	27-10-04	13-12-04	19-01-05
	D-15	Rs. 1.50	25-02-05	16-04-05	16-05-05
	D-16	Rs. 1.75	23-04-05	15-06-05	15-07-05
	D-17	Rs. 2.75	01-09-05	18-10-05	01-12-05
2005-06	D-18	Rs. 1.25	27-10-05	16-12-05	10-01-06
	D-19	Rs. 1.75	23-02-06	11-04-06	02-05-06
	D-20	Rs. 2.25	21-04-06	15-06-06	30-06-06
	D-21	Rs. 3.75	15-08-06	21-09-06	12-10-06
2006-07	D-22	Rs. 1.75	29-10-06	15-12-06	02-01-07
2006-07	D-23	Rs. 1.75	21-02-07	13-04-07	At the end of April, 2007

When we analyze the above mentioned data, we realized that the return on investment is quite attractive from an investor’s point of view, especially keeping in mind the stability of this stock even in a non-efficient Pakistani stock market. The investors hardly lose their money, as OGDCL tends to maintain its share value quite above the level of Rs 100 per share. The ROI in terms of dividends for the year 2003-04 sums up to be Rs 4 per share. The same figure for the financial year 2004-05, 2005-06 and 2006-07 was Rs 7.5, Rs 9 and Rs 7 respectively. Although other factors for instance future capex and opex, financial results, capital structure, the debt ratio and the company’s future plans do affect the decision of dividend payout, but such oil and gas discoveries really boost the chances of a healthy dividend for the investors.

Future outlook

OGDCL efficiently follows the business development strategy. The company is looking forward to expanding its E & P business in the overseas markets, mainly through joint ventures with other players of oil and gas exploration and production (E & P) in the international market.

In my opinion, OGDCL is a good stock for the long term investment. Its broad business horizons and attractive dividend payout ratio makes it even one of the best investment opportunities in Pakistani stock market.€

Grameenphone's Historical IPO in Bangladesh

Mon, 04 Aug 2008 06:31:47 EST

Grameenphone's Historical IPO in Bangladesh - by Noor-us-Sabbah

The company’s overview

Grameenphone is the largest cellular service provider in Bangladesh. The company started its operation in the country on March 26, 1997, which happens to be Bangladesh’s Independence Day. Grameenphone holds the largest cellular network in the country with over 20 million subscribers as of July 1, 2008. Whereas total number of telephone users in Bangladesh is around 30 million. The company owns 10,000 base stations all over the country in more than 5700 locations. The company claims to cover almost 98 percent of Bangladesh’s population with the Grameenphone cellular network. The company provides jobs to thousands of people of this underprivileged South Asian nation. Grameenphone is a joint venture between Telenor and Grameen Telecom Corporation. Telenor is the largest telecom service provider in Norway, and also operates in 12 other countries including Denmark, Austria, Hungary, Russia, Ukraine, Montenegro, Thailand, Malaysia and Pakistan. Telenor holds 68% shareholding in Grameenphone, where as 38% shareholding of the company is held by Grameen Telecom Corporation, which is owned by micro-finance pioneer Grameen Bank (established by 2006 Nobel peace prize winner Muhammad Yunus).

Initial Public Offering (IPO)

The board of Grameenphone approved plans for initial public offering (IPO) of the company’s shares on July 21, 2008 during the board meeting. The company hopes to raise a whooping $300 million through the IPO , which would be the country’s largest IPO ever. Citigroup Global Markets Bangladesh Private Limited has been hired as the issue manager for the deal. Citigroup also serves as Global Coordinator and Lead Underwriter for the IPO. This IPO comprises of two legs. Firstly, half of the funds would be raised by floating shares on the Dhaka and Chittagong bourses, Secondly rest of the equity funds would be collected by selling pre-IPO shares to the public. The company would apply to get listed on the main stock exchanges of the country by the August 1, 2008.

Grameenphone will be a very good addition to the country’s main bourses due to its strong business growth and significance in the business world. It will definitely help the capital markets regain positive momentum and attract more investors. I would like to recommend this stock to the people of Bangladesh, as it would not only enable them to pocket profits, but also give them opportunity to invest in the stock which is at par with international standards.

According to the issue manager Citigroup’s evaluation earlier this year, Grameenphone’s was valued at $3.75. It is going to be the largest Initial Public Offering in the history of Bangladesh so far. In 2007 a privately held bank, Shahjalal Islami Bank managed to raise $13.4 million through IPO, which was the country’s biggest IPO until Grameenphone decided to go public and raise $300 million. Grameenphone expects to raise US$150 million through pre-publich offer of its shares, before the formal IPO. In the next step, the company will conduct the IPO with expected gross proceeds of $150 million. The company will be listed on the Dhaka Stock Exchange and the Chittagong Stock Exchange.

Company’s performance over a decade

The telecommunications sector is one of the most flourishing business sectors of Bangladesh, providing 240,000 jobs in the country. The country’s economy significantly depends on this sector’s growth. Bangladesh is one of the world’s poorest countries, with almost 40 percent of its population earning less than a dollar per day. Grameenphone has emerged as a giant of telecom sector, introducing most up-to-date products and services in the country. There are countless reasons to support the idea of investing one’s fortune in the company. First, Its parent company Telenor is one of the pioneers in developing GSM service in Europe, which makes it far ahead of its Bangladeshi competitors in technological know-how. Second, the company has managed to win over mobile phone subscribers over the years. See the graph 1.

Its tremendous growth rate along with customer retention record makes it a lucrative investment. See graph 2, depicting growth rate of subscription over a decade.

Fourth, the company really pays heed to investing, building and improving its infrastructure. It has so far invested USD 1.6 billion for this purpose. Finally, there is no doubt about the company’s profitability. So Bangladeshi investor must keep their fingers crossed for the biggest IPO in the country’s history.

Update on Malaysian Palm oil futures

Wed, 30 Jul 2008 11:09:21 EST

Update on Malaysian Palm oil futures - by Noor-us-Sabbah

In my previous article on Malaysian crude palm oil futures, I suggested investors to stay away from the market for a while. Most of the analysts anticipated a sharp decline in the prices of Malaysian crude palm oil futures on the Bursa Malaysia Derivatives Exchange following the downward movements of the crude oil prices and sluggish demand for the Malaysian palm oil in the international markets.

Prices of Palm oil futures usually tend to follow the pattern of crude oil price movement. When the crude oil prices decreased sharply in the international market in July, the Palm oil benchmark October contract prices also hit 8-month low last week on Wednesday, July 23, 2008. The October contract fell 7 percent to 3,027 ringgit a ton on that day, which is in fact the lowest since December 24, 2007. Moreover other bearish factors, for instance, delay in the launch of biodiesel mandates in Malaysia's domestic market and reduction in palm export taxes by Indonesian government also affected the palm oil market in a negative manner. Later on the benchmark contract rose 2.8 percent on July 24, 2008 mainly on short-covering.

The demand forecast for the palm oil is not very promising even before the Muslim fasting month of Ramadan, starting from the first week of September. Usually Buyers in China, India, Pakistan and Middle Eastern countries tend to buy edible oils at least two or three months before the commencement of the holy month of Ramadan. But this year the production cycle of Malaysian palm oil is quite high and has resulted in swelling of palm stock to record level of around 2 million ton in July. Moreover, the demand of edible oil and especially the palm oil for Ramadan has been overstated. So a comparatively low demand and high supply of palm oil are also going to have a negative impact on the prices of Palm oil futures.

Indonesia has also announced to cut export taxes for palm oil products in August. This move will bring help reduce their prices. This decision will lead to more competition for the Malaysian palm oil products and more demand shifting from the country. The doubts expressed by Malaysian authorities on the feasibility of biodiesel this year will add to the overall bearish trend in the Malaysian palm oil markets that has already been set there by falling crude oil prices, and high stocks of palm oil.

Pakistani Rupee May Rebound Shortly

Sat, 26 Jul 2008 11:13:21 EST

Pakistani Rupee May Rebound Shortly - by Noor-us-Sabbah

Pakistani rupee has been under severe selling pressure again all major currencies of the world, especially the US dollar. Current economic crisis has led the Pakistani currency to this miserable condition. When everything else failed to control currency devaluation, the central bank of Pakistan came into play on May 22, 2008 and took several measures to handle the situation. The things got a bit better afterwards, but again in July rupee sank to all time low against the US dollar, i.e. 72.90.

If we take a look at the graph showing PKR/USD parity, we discover that rupee/dollar rate had been quite steady below 63 during the first quarter of the current year. It showed maximum resistance at the level of 62.5. Later during the third week of April, rupee started getting depreciated drastically and impaired the country’s foreign reserves to a great extent. In May and July, it fell to record levels of 69.77 and 72.90 respectively.

The US dollar started appreciating against the rupee in April, when it actually broke the resistance barrier of 63. It was a steady downward journey for the rupee, as depicted in the graph below.

But the things only got worse for the Pakistani rupee in May. The graph showing PKR/USD Parity in May 2008 tells the whole story that how the Pakistani currency plunged to a record low of 69.77 on May 20, 2008, consequently paving way for the central bank’s intervention, which somehow restored the rupee’s value to a relatively respectable level.

Soon after rupee hit all time low against dollar i.e. 69.77 on May 20, 2008, the State Bank of Pakistan’s measures prevented it from going beyond the level of 70, and pulled it back under 68 for a short period. However SBP could not stop the rupee depreciation against the dollar in the wake of rising imports and crude oil prices in the international markets. The things got complex after the first week of July, when once again rupee plunged against the dollar to all time low of 72.9 on July 8, 2008. The following graph gets you a better picture of the whole situation.

Main reasons behind it all are bulging imports, which have now reached around $3 billion per month, and poor economic conditions in the country. Average monthly oil imports count for around $800-$900 million. On the other hand, home remittances are just around $500 million per month only. Central bank again took regulatory measures to halt the freefall of rupee. Most importantly, the curbs on forward currency trading helped rupee recover to the level of 69.70.

According to the government finance officials, monetary policy could be tightened further in order to fight inflation in the country. This decision could really impact the rupee as well in the near future. Rupee had fallen approximately 7 per cent since July 1 of the new fiscal year. The depreciation of rupee against the US dollar sums up to be around 18% since January 2008. The whole scenario may seem to be quite depressing but I don’t think that the speculator can exploit it any further. High interest rates, curbs on forward buying, and new lower crude oil and gold prices will all have a positive impact on the Pakistani currency shortly.

Will NIB Bank's improved Credit Rating Help it Attract the Investors?

Sun, 06 Jul 2008 19:18:04 EST

Will NIB Bank's improved Credit Rating Help it Attract the Investors? - by Noor-us-Sabbah

Overview of the company

Symbol:

NIB

Open Rate:

11.04

Low Rate:

10.93

Current Rate:

10.93

Market Capitalization:

31081936940.68

NIB Bank Limited is the 7^th largest bank operating in Pakistan ( in terms of branching network) at the moment. The bank initially operated as NDLC-IFIC Bank Limited. In March 2003 NIB Bank Ltd was established as a public limited company. The bank inherited all its assets, liabilities and rights from NDLC (National Development Leasing Corporation) and IFIC. NIB Bank started its official operations in October 2003 with a paid up capital of Rs 1.2billion. Six months later, in April 2004 the Credit Agricole Indosuez also merged with NIB. Temasek Holdings (Singapore) holds of 70% shareholding in NIB Bank. The bank follows aggressive growth strategy and has been growing rapidly since the time it was incorporated. In June 2007, the bank acquired majority shareholding in PICIC and merged its subsidiary, the PICIC Commercial Bank into NIB Bank on 31^st December, 2007. The positive impact of this rapid growth on the bank’s distribution network and balance sheet could be easily identified. The bank had only 2 branches, Total asset worth Rs 9 billion, loan base of Rs 7 billion, and paid-up capital worth 1.2 billion in October 2003. Whereas in the year 2008, it operates through 240 branches all over the country and possesses total assets worth Rs 185 billion, loan base of Rs.43billion, paid-up capital of Rs 27.5 billion (2^nd highest paid up capital in Pakistani banking sector) and client base of over 100,000. The merger with PICIC Commercial Bank not only helped the company lower costs and enhance customer services, but also earned quite respectable Foreign Direct Investment for the country’s betterment. Moreover, the bank has also diversified its operations into asset management and insurance fields by acquiring the asset management arms "PICIC AMC" and working with an affiliate "PICIC Insurance".

NIB Bank’s Upgraded Credit Rating:

On July 2, 2008 NIB Bank announced that the Pakistan Credit Rating Agency (PACRA) further upgraded the bank’s credit rating to AA- (long-term) and A1+ (short-term). This credit rating indicates that expectation of credit risk is quite low and the bank’s capacity for timely management of its financial commitments is strong.

Historical Trend and Future Outlook:

NIB Bank has become a powerful franchise of the three merged financial entities over the years. No doubt about that. NIB Bank's vision is “to rank amongst the top 5 banks in the country “.The bank is more likely to perform outstandingly in the coming days, and provide a wide range of high quality financial services through its extensive network in 60 major cities of Pakistan. Shareholders can expect attractive dividend stream with least doubts. But the commercial banking sector listed on Karachi Stock Exchange (KSE) might not be able to churn out a cumulative return of 66 % like last year as the stock exchange has just suffered a historical crash in the first half of 2008. Although the main reason behind the banking sector’s outstanding returns in 2007 was substantial earnings growth momentum ( 14% growth in just nine months, i.e. from January to September of 2007). But mergers and acquisitions (including PICIC’s acquisition by NIB Bank) also helped the banking sector to attract investors. Moreover, NIB Bank outshined all the commercial banks listed on the KSE 100-index by earning the highest returns of 259 percent in the same period. But as I said, stock exchange is no longer a bed of roses for any bank during the 2^nd half of the current fiscal year. Pakistan’s economy is going through the roughest phase in history. Stock Exchange has notoriously become a haunting place for the investors. Had the things been different on the economic front of my country, NIB Bank would have been my most favorite stock for long-term investment.

Jahangir Siddiqui & Company Limited: Successful shares subscirption by foriegn investors

Fri, 04 Jul 2008 07:27:16 EST

Jahangir Siddiqui & Company Limited: Successful shares subscirption by foriegn investors - by Noor-us-Sabbah

Jahangir Siddiqui or commonly known as JS Group is a diversified business group in Pakistan. Its foundation was laid about four decades ago. JS Group has now become one of the most progressive financial services groups of the country, with companies operating across various financial sectors e.g. asset management, commercial banking, Islamic banking, investment banking, financial advisory services, security brokerage, insurance, company research, trade finance, consumer credit rating, factoring, and micro finance. Moreover, other vertical businesses are also included in the JS business empire. So the JS group also comprises of JS Industrial, JS Infocom, JS Property, JS Resources and JS Transportation.

The JS group has an extensive network of branches as far as major cities in Pakistan are concerned. Offices for managing international operations of the JS group are located in London and Dubai. As per December 2007, The JS group operates in diversified business fields with over 18,000 employees.

Financial Performance

As far as the financial performance of Jahangir Siddiqui & Company Limited Is concerned, the company declared profit after tax (PAT) of Rs 7,450 million for first half of fiscal year 2007-08, ended December 31, 2007. Extraordinary growth was reported in the operating revenue for this period. This year the company’s operating revenue stood at Rs 8,222 million as compared to Rs 221 million in the first half of fiscal year 2006-07. So the company’s operating revenue increase 36 folds during the period under review. This phenomenal growth could be attributed to the extraordinary gains from sale of securities. Eventually gain on revaluation of investments also contributed to the operating revenue immensely. Earnings per Share (EPS) for the same period was Rs 102.32.

Jahangir Siddiqui & Company Limited is included in the list of top 100 companies on the Karachi Stock Exchange (KSE). Due to outstanding financial highlights in the first half of fiscal year 2007-08, The Karachi Stock Exchange (KSE) incorporated the company in the re-composed KSE-30 index, effective from February 15, 2008.

The company recently offered a private placement of equity to foreign investors. Basically the company offered 22.02 million ordinary shares to foreign investors in June 2008. The subscription price of each share was Rs 475 at a premium of Rs 465 per share. So the company managed to collect Rs 10.46 billion of foreign investment funds by exchanging 22.02 million ordinary shares with international investors.

Despite current stock market debacle, I still consider Jahangir Siddiqui & Company Limited an attractive long-term investment opportunity in Pakistan. It’s a much diversified group of companies across very profitable and promising business sectors. This allows investors to have a long term approach in investing in Jahangir Siddiqui & Company Limited. Although the gigantic increase in operating revenue and profit during the first half of current fiscal year could also be one of the reasons to include this stock in the portfolio for short-term gains. But I would still prefer long-term investment over it, as such an enormous increase in income is not sustainable and mainly contributed by extraordinary gains on the securities sale.

Pakistani rupee weakens amidst economic crisis

Wed, 25 Jun 2008 07:09:22 EST

Pakistani rupee weakens amidst economic crisis - by Noor-us-Sabbah

The Pakistani rupee weakened almost 10 per cent against the US dollar during the past 6 months. The rupee has been under pressure mainly because Pakistan’s oil imports have considerably increased. As international crude oil prices have been continuously going up, the soaring demand for dollars to make import payments has become the main factor impairing the rupee’s value. Pakistan is going through grave economic crisis that requires intelligent, efficient and effective measures. The rupee hit its lowest in the interbank market last month on May 20, 2008. It closed at 69.80 against the US dollar on May 20. State bank of Pakistan quickly intervened but again the rupee fell as low as 69.90 against the dollar in the open market on May 22, 2008. Falling trend in the PKR/USD parity persisted in the first five months of year 2008, until the State Bank of Pakistan took matters in hands. Later the rupee recovered 3% after plunging to its lowest on May 20 in the inter-bank market; but it had already suffered 10% depreciation in its value against the US dollar (approximately 7 Rs per dollar) since January 2008. Besides, the benchmark 100-index at the Karachi Stock Exchange also took a nose dive in the midst of economic crisis and consequently, Pakistani investors started diverting their funds from local stocks to the US dollars. The US dollar had almost vanished from the market. Outward payments were abnormally high, whereas inward receipts became drastically slow. The State Bank of Pakistan revealed that the persistent depreciation of the rupee has increased the public debt by Rs315 billion, i.e. without borrowing as little as a dime. The rupee’s extraordinary depreciation poses serious threat to the Pakistani economy. Moreover, record decline in the foreign exchange reserves due to import payments also put the economy in an alarming situation. Reserves held by the SBP declined by massive $297 million to $8.387 billion in the first week of June 2008. The government must have about $4 billion foreign inflows by end of the fiscal year 2007-08 in order to maintain its foreign exchange reserves. To deal with the whole worrisome economic scenario, the State Bank of Pakistan announced to have a tight fiscal policy last month. The central bank raised the discount rate from 10.5 per cent to 12 per cent on May 23, 2008. Moreover, the Cash Reserve Requirement (CRR) for all deposits up to one year maturity was increased by 1% to 9%. The SBP also increased the Statutory Liquidity Requirement (SLR) by 100 basis points to 19% of the total time and demand liabilities. Later in last week of May, 2008, the central bank also took steps against speculative currency trading by controlling major currency export by money changers. SBP’s intervention to smoothen the money market volatility worked to some extent. The PKR/USD parity improved from 69.80:1 on May 20, to 67.25:1 on Monday, June 23, 2008. As far as the short term forecast for the PKR/USD pair is concerned, Pakistani rupee is expected to stay stable for a while because of foreign inflow from friendly governments. The SBP is expecting foreign currency inflows of approximately $3.5 billion from multilateral lenders and friendly governments in the short to medium term. Rupee is likely to stay stable at this level. With stock market back on the track, and KSE 100-index gaining 900 points in just a day, I think that investors are going to turn back their attentions to the stocks again.

Wrong time to be in Malaysian Crude Palm Oil Market

Thu, 19 Jun 2008 07:56:51 EST

Wrong time to be in Malaysian Crude Palm Oil Market - by Noor-us-Sabbah

Against all predictions of stagnant demand and bearish trends, Malaysian crude palm oil futures again rose 1 percent on Monday June 17, 2008. The benchmark, Malaysian crude palm oil’s September future contract on the Bursa Malaysia derivative Exchange closed at 3727 ringgit per ton (which is equal to $1140). The benchmark contract even rose to 3750 ringgit per ton earlier on Monday.

The main reason behind this price rally was the fact that international soy oil markets also gained momentum due to bad weather forecast for the soybean crop. Market feared that floods in the Midwest would severely smash up the soybean crop. US soy oil for July delivery jumped 1.5 per cent in Asian trade on Monday. As a result, o.3 percent increase was observed in the most-active September soy oil contract on China’s Dalian Commodities Exchange. Consequently, many traders entered the crude palm oil future contracts in order to make profits if soy oil production could not meet the demand due to bad weather in the coming days. That is why the benchmark September contract even touched the 3750 ringgit per ton mark.

Later, stagnant demand for tropical vegetable oil put an end to this price-hike and weighed on the market. Moreover, the crude oil factor also came into play. Crude oil is currently being traded at around $132 per barrel, thus hampering the demand for palm oil as a bio-fuel alternative even further.

Malaysian crude palm oil futures have already gained almost 23 percent in the first six months of year 2008. Overseas demand for this commodity is not too strong to hold the price firmly upward. Exports of Malaysian crude palm oil products fell 13 percent in the first two weeks of June, 2008. Exports dropped from 642,538 tons shipped during the same period in May,2008 to 558,630 tons this months. Whereas the stocks of palm oil are expected to go beyond 2 million tons in June,2008 as production of palm oil has already outpaced overseas demand. Official crop agency Malaysian Palm Oil Board declared that last month the palm oil reserves in Malaysia went up substantially by 6.9 percent to 1,913,360 tons.

The main factor responsible for falling exports is lack of buyers from China, India and other major markets. South Asian countries no longer seem active trader in the palm oil markets. Pakistan’s palm oil exports are also likely to decline up to 10% in 2008 due to good sunflower crop and edible oil production at home. Pakistan imported 480,000 tons of crude palm oil in 2007. A 100,000 tons increase is expected in sunflower crop in 2008, which will reduce the crude palm oil exports by approximately 10%. Another factor hindering palm oil imports for the South Asian country is high prices in the overseas market.

In the nutshell, Malaysian Palm oil gained on frail basis, i.e. soy oil crops might get damaged due to bad weather. All other factors having potential impact on the Malaysian crude palm oil trade are portraying a dismal picture of the palm oil market. I would say that it’s definitely a wrong time to be in the market.

A Dismal Financial Performance by PIA, the National Flag Career of Pakistan

Tue, 17 Jun 2008 04:45:08 EST

A Dismal Financial Performance by PIA, the National Flag Career of Pakistan - by Noor-us-Sabbah

Overview of the company

Pakistan International Airlines Corporation generally referred to as Pakistan International Airlines or PIA is national airline of Pakistan. PIA is ranked in the top 20 Asian airlines, with flights scheduled to 73 international and 24 domestic destinations. Privatization Commission of Pakistan, on behalf of Government of Pakistan, offered PIA’s shares to general public in June 2004. Government of Pakistan holds 87% stake in PIA. The rest of the shareholding lies with general public. PIA connects the country to Asia, the Middle East, Europe and North America through its extensive network. Its main bases in Pakistan are Jinnah International Airport, Karachi, the Allama Iqbal International Airport, Lahore and the Islamabad International Airport, Islamabad/Rawalpindi. PIA is a big corporation with 18,043 employees.

Financial Highlights

Fiscal year 2007-08 did not bring any fortune for the corporation, which recorded an insignificant increase of only 0.2 % in revenue during the year. The airline’s revenue for this period was Rs70.58 billion, up from Rs70.48 billion in 2007 (increase of Rs 0.1 billion only).According to an economic survey, PIA lost its market share in domestic airline market, which has dropped to 69 % in the FY 2007/08. Things on international front were also not so different for PIA , as national airline’s market share in the international market dropped from 48 to 43 %.

If we analyze the financial performance of PIA, following few factors could be said to hamper any growth in revenue and profitability. First, the national flag carrier strongly suffered as Pakistani rupee depreciated against dollar, Euro, British Pound Sterling and other major currencies during the period under review. Second, the airline had to give substantial pay increments to certain categories of personnel, which also resulted in increased cost. Third, Financial costs of the company also rose up to 50%, driving costs even further. Last but not the least, rising fuel prices, and the record increase in the prices of the Pakistan Oilfields Limited affected the PIA’s performance quite adversely, and the company ended up in negative zone as far as its financial performance is concerned.

Management of the PIA practiced quite a few cost reducing measures during FY 2007-08. They managed to reduce the operating cost of the airline with a considerable figure of Rs2.6 billion. This reduction of Rs2.6 billion in operating cost could not save the day for the company or earn profits, but it merely prevented the company from yielding big losses.

The share price of PIA closed at Rs 5.25 on June 14, 2008. It exhibited capital loss of approximately 14% since last month. On May 2, 2008 the price per share for the company was Rs 6.03. The company’s share price suffered on the Karachi Stock Exchange mainly due to recent stock market crash, when index took a nose dive and investors lost billions of rupees. But its financial highlights are also mediocre and fail to attract investors. I believe that PIA is not going to earn any substantial capital gain for investors in the coming months. Bearish trend is dominant and I would rather sell off the stock to prevent further losses.

Predicting Short Term Trend in Malaysian Palm Oil Futures Trading

Mon, 09 Jun 2008 12:18:14 EST

Predicting Short Term Trend in Malaysian Palm Oil Futures Trading - by Noor-us-Sabbah

Rising prices of crude oil have a strong impact on Malaysian crude palm oil futures trading. With crude oil leaping over $134 per barrel on Friday, June 6, 2008 gaining $12 per barrel in just two days, Malaysian crude palm oil futures also soared around 3 % to hit a one-week high on the same day. The crude oil continued the price-hike on the basis of falling US dollar, which weakened following the report of sharp increase of 5.5 percent in unemployment rate in the US. Crude oil boosted up the Malaysian crude palm oil futures as well, but later quick profit-taking practiced by the investors slowed down the price-hike and settled the contract at slightly lower level. The main factors behind this quick profit-taking were slow demand in the international market, and rising production of palm oil in near future. Soy oil futures also exhibited almost a similar phenomenon, with soy oil futures of July at the Chicago Board of Trade rising 1.4 % in Asian trade on Friday, improving on the previously made massive gains on Thursday.

According to the industry analysts, Malaysian crude palm oil prices may experience a further upward trend in the next few weeks. Another 5 % to 10 % increase is expected in the price per ton by the end of June, 2008. Analysts believe that the demand for crude palm oil is going to get stronger in the due course, ultimately paving way for high prices. Moreover the crude palm oil production in June 2008 and crude oil price-movements in the international markets will also be the decisive factors behind price fluctuations.

1) Demand factor

China and India are the big vegetable oil buyers in the Asian market. The demand forecast for crude palm oil in both the countries is quite upbeat. Similarly, demand in other parts of the world is also expected to go up. So the demand factor is definitely giving a green signal to the bullish trend in the prices of crude palm oil futures.

2) Production Factor

The production of crude palm oil is quite high at the moment. This high production cycle would most likely slow down by the end of September 2008, consequently tightening the global vegetable oil supplies in the following months, October 2008 that is. One of the top Palm oil producers, the US will only increase its production by 2 million tons (which is half of the last year’s production increment of 4 million tons) in the oilseed year starting from September 2008.
The price of palm oil per ton can increase up to 25% during the period between October 2008 and February 2009. In the meanwhile, (during June, July and August) production factor does not signal a price-rally. It would most probably balance the upward price-hike in palm oil futures created by other factors. However, the prices can rally if adverse weather conditions hit the production cycle.

3) Crude oil Factor

Crude Oil price-movement directly impacts the edible oil futures trading in the world. With oil currently floating above $139 per barrel, persistent bullish trend is predicted in the near future by most of the analysts. Political factors may play a pivotal role in driving the crude oil prices, as always. Israel's transport minister has recently declared an attack on Iranian nuclear sites "unavoidable". Further depreciation in the value of dollar is also expected; yet another bullish signal for the crude oil prices. Moreover Morgan Stanley report forecasted that the crude oil price could get to a record-high of $150 by July 4. So the upward price trend of crude oil is likely to drive the palm oil futures prices up in the next three weeks.

In my opinion, financial money is coming back to commodities. Dollar is getting weak, and inflation in the US as well as most of the countries in the world is currently on the rise. Consequently the investors are using commodities as a hedge against currency depreciation as well as inflation. Crude palm oil futures are in demand, and a persistent price hike is inevitable.

Lucky Cement Limited issued GDRs for international investors

Tue, 03 Jun 2008 13:53:47 EST

Lucky Cement Limited issued GDRs for international investors - by Noor-us-Sabbah

Lucky Cement Ltd issued GDRs

Lucky Cement Company Limited is the largest producer of cement in Pakistan. The company enjoys the biggest market share in the country, i.e. 18% share of the total cement sales in the country. Lucky Cement Ltd is also the biggest cement exporter in the region, exporting 47% of cement manufactured by the company during the last few months. Its ordinary portland cement is very much in demand in the international market. The company is assertively serving the export markets of cement, and exporting loose cement in bulk to neighboring country Afghanistan, the Gulf markets, African countries, the Far East Region, and South Asian countries such as Nepal, Sri Lanka and India.

Demand forecast for cement is pretty high at domestic as well as international front. Lucky Cement is currently manufacturing cement at its maximum level of capacity utilization. After successfully catering to the needs of existing foreign customers in the international cement market, the company decided to expand its production capacity in order to meet ever-growing local and international demand for cement. The funds needed for this plan would be provided through equity funds. Lucky Cement has really outperformed local stock exchanges during the last few years and now the company has decided to go global in terms of equity fund raising. The company was all set to collect about US$150 by issuing Global Depository Receipts (GDRs) in international equity market for the international investors residing outside Pakistan only, from April 27. The closing date for this offer was announced to be May 6, 2008. The financial adviser to Lucky Cement for this deal was KASB. The company appointed Merrill Lynch International to act as its lead manager. Lucky Cement Limited could raise proceeds of US$ 109.3 million from the issue of shares overseas from the global depository receipt (GDR) offering after the LCL management completed roadshows, covering global financial centers including Hong Kong, Singapore, London, Dubai and New York. LCL, GDR started conditional trading on the London Stock Exchange from May 08, 2008 while full trading was scheduled to start from May 14, 2008.

International investors from US, Europe, Middle East and Asia purchased GDRs priced at US $ 7.28 each, which is equivalent to Lucky Cement Limited shares priced at Rs 120 per share. Each GDR represents four underlying shares of the company. The issue size for this transaction was oversubscribed by 2.5 times, with interest shown by over 40 investors. This transaction also includes a green shoe option/over-allotment offer of up to $ 13.363 million or 10 percent of the offer, subject to many conditions of the Security and Exchange Commission of Pakistan (SECP). Merrill Lynch and KASB have jointly executed this transaction. Three of the last four GDRs in Pakistan were also accomplished by these two firms, including GDR offering of United Bank Limited and MCB Bank Limited.

Lucky Cement Limited's issue was the first private sector non-banking GDR offering in Pakistan in recent times. It is indicative of continued foreign investor interest in fundamentally strong companies in Pakistan and will pave way for future international capital market transactions. Before Lucky Cement Company Ltd, another Pakistani cement maker Chakwal Cement also ventured into the international equity market by issuing GDRs. Lucky Cement Limited decided to issue of global depository receipts (GDRs) in the international market for financing its capital expansion plans. The company is basically looking forward to setting up two more lines of cement manufacturing in Karachi with a combined production capacity of 2.5 million tonnes per annum. The company already has installed production capacity to produce 6.55 million tons annually from its existing plants. The company has two manufacturing facilities in Pakistan. The Pezu plant in North West Frontier Province has an annual capacity of 4 million tons and the Karachi plant in Sindh Province has an annual capacity of 2.5 million tonnes. The expansion plan is said to be cost effective for the company. Its cost is low as compared to other cement companies because the company imported low-cost plants from China. $109.3 million raised through the GDR offering would help the company achieve its expansion and other growth plans.

Blue-chips at Karachi Stock Exchange

Mon, 05 May 2008 07:52:23 EST

Blue-chips at Karachi Stock Exchange - by Noor-us-Sabbah

Update on KSE-100 Index

Karachi Stock Exchange has been under selling pressure for the past two weeks. Investors faced liquidity problems and tended to square their future contracts on equities. KSE-100 index closed at all time high level of 15,676 points on April 18, 2008. Since then, it has started shedding points and closed at 15,435 on April 25, 2008 and later 1^st time sank below 15000 points since March 20, 2008 by closing at 14,956 on Friday, May 2, 2008. Most of the stocks including many blue-chips ended up in the red zone. Analysts explained that the market was in an overbought state after closing at all time high level on April 18. Already the outstanding amount to be settled was recorded to be Rs29.3 billion. So due to these two factors, the investors decided to square off their positions on available profit margin.

Blue chips trading at Karachi Stock Exchange

If we pick up blue-chips from the KSE 100-index, we hardly have a list of 15 stocks which qualify for this category. Following is the overview of a few companies, considered as blue-chip or reliable investment opportunity for those who are interested in investing their money in the Karachi Stock exchange. I’ll suggest them to add these stocks to their portfolio once the selling pressure on the market fades away.

1. MCB Bank

Ticker symbol: MCB Sector: Banking

Current Share Price: Rs 421.88

MCB is one of the most successful commercial bank in Pakistan. MCB was established in 1947, the year Pakistan came into being. The bank was initially managed by foreign executives, and later nationalized under the nationalization process of the entire banking sector. In 1991, MCB was again privatized in 1991. Its total assets are Rs.300 billion and the total deposits are around Rs. 280 billion. The bank has an extensive branch network and very stable deposit base (Rs. 208 billion). Another important factor behind its success is its remarkable risk management practices. MCB has effectively managed its non-performing loans (NPLs) through efficient risk management. MCB recorded capital gain of around 100% per share within a year.

2. Pakistan Oilfields Limited

Ticker symbol: OGDC Sector: Oil& Gas exploration

Current Share Price: Rs 414.2

Pakistan Oilfields Limited (POL) with the highest proven hydrocarbon reserves is a subsidiary of The Attock Oil Company Limited (AOC). AOC pioneered oil and gas exploration & production (E&P) in the region a century ago. POL was established on November 25, 1950. Since 1978, POL has been undertaking oil exploration and investing independently in different projects and joint ventures with other E&P companies for oil and gas exploration within and outside Pakistan. POL produces LPG, solvent oil and sulphur. LPG is marketed with the brand name of POLGAS. POL owns a subsidiary CAPGAS (Private) Limited, producing LPG. Moreover the company also holds 25 per cent shareholding in National Refinery Limited (NRL).

Although POL is highly volatile, a strong bullish trend is predicted for the company in the long-run.

3. D.G.Khan Cement Company Limited

Ticker symbol: DGKC Sector: Cement

Current Share Price: Rs 107.47

Pakistan. D.G. Khan Cement Company is owned by one of the most successful business groups of Pakistan, i.e. Nishat group of industries. D.G.Khan Cement Company is a part of a diversified business portfolio of Nishat group of companies including Cement Company, commercial bank, and textile companies. D.G. Khan Cement Company Limited was established in 1978 in Lahore, Pakistan. The company manufactures cement and also deal in its sale and marketing in Pakistan. Its important products are as follows:

1. DG cement ( also known as ordinary portland cement)

2. Elephant cement ( or highly Sulphate resistant cement)

Keeping high demand for cement within and outside the country, DGKC is a good stock to be added in the portfolio for the current year 2008.

4. Lucky Cement Company Limited

Ticker symbol: LUCK Sector: Cement

Current Share Price: Rs 138.85

Lucky Cement Limited manufactures and distributes cements in Pakistan, and exports it to the countries like India, Afghanistan and UAE. Lucky Cement has the biggest market share in the country. Its market its products for instance, ordinary portland cement, sulphate resistant cement, and slag cement under the brand names of Lucky Cement, Lucky Star Cement, Lucky Gold Cement, Chairman Cement, and Lucky Sulphate Resistant Cement. Lucky cement recently got the license to export cement to South Africa by the South African Authorities. Lucky Cement has also issued GDRs on London Stock Exchange recently.

LUCK has all good reasons to enjoy a bullish trend in the coming months due to the fact that it’s a market leader locally and the biggest and the most successful cement exporter in Pakistan.

5. Oil & Gas Development Company Limited

Ticker symbol: OGDC Sector: Oil & Gas exploration

Current Share Price: Rs 132.5

The Government of Pakistan established Oil and Gas Development Corporation (OGDC) in 1961 in order to take on the process of exploration and development of oil and gas resources within the country. In 1997, it was converted to a public limited company, renamed as Oil & Gas Development Company Limited. OGDCL is the largest company dealing in petroleum exploration and production in Pakistan, contributing more than 31% of gas and 65% of oil production in the country. It owns the largest exploration acreage of 25% in Pakistan and 29 oil producing plants.

OGDC, usually the market leader at KSE in term of volume, is one of the most reliable stocks available in Pakistan. With oil prices shooting up like anything, even a small discovery is enough to boost its share price.

6. Pakistan Telecommunication Company Limited

Ticker symbol: PTCL Sector: Telecommunication

Current Share Price: Rs 45.45

Pakistani Telecommunication Company Limited was established as Pakistan Telecommunication Corporation (PTC) in December 1990. The company enjoyed monopoly in the field of telecommunication and telecom development in Pakistan for almost a decade. It was privatized by the Pakistan Government in 1994. PTC was eventually transformed in to Pakistan Telecommunication Company Limited (PTCL) in 1996, and got listed on all three Stock Exchanges of Pakistan. In 2006, 1.326 billion shares of PTCL (26% shareholding) along with management control were sold out to the Etisalat International Pakistan in open bidding process. Etisalat Int is a wholly owned subsidiary of Emirates Telecommunications Corporation.

With lots of new products (including internet service) and attractive packages for the consumers, PTCL is all set to beat the competition offered by the cellular companies this year. PTCL is a real blue-chip at KSE.

Pakistani Economy Heavily Dependent on Debts

Wed, 30 Apr 2008 16:42:21 EST

Pakistani Economy Heavily Dependent on Debts - by Noor-us-Sabbah

Pakistani economy is going through a very tough phase on every front. Swelling trade and account deficits, devaluing currency, declining foreign investment and rising inflation make it all the more difficult for the new Government to handle the country’s economy. With current account balance touching record high of $11 billion, the country has to be engaged in borrowing to sustain its economy. External debt to GDP ratio stands at 23%, where as total Government debt is equal to 51.3% of the total GDP of the country currently. More than 30% of government revenues are used to repay debt installments. Pakistan’s baseline external debt (without interest) stands at $24.4 billion in the current FY 2007-08.

Pakistan is declared as the largest borrower of the total loans that Asian Development Bank extended in year 2007. If we analyze Asian Development Bank’s 2007 Annual Report, we discover a significant increase of 37% in approved loans during year 2007. Approved loans in 2007 stood at $10.1 billion, and out of those $10.1, Pakistan alone borrowed a massive loan of $2 billion, which is 20 % of the total ADB loans in 2007.

External debt that Pakistan owes to developed countries and international institutions is estimated to be $39.593 billion by the end of FY 2007-08. The country’s economy will continue to be heavily dependent on external debts even during the coming years. Analysts are of the view that external debt might reach $46.571 billion by the end of FY 2011-12. Debt to export ratio for the country is quite high, i.e. 175% in the FY 2007-08. The new government is trying to decrease this ratio to 143.4% in the next four years.

Although external debt increased from $35.679 billion recorded at the end of FY 2005-06 to it $37.461 by the end of FY 2006-07 and is expected to shoot up to $39.593 billion by the end of the 4^th quarter of the current fiscal year; the debt to export ratio has been decline over the same period of five years, which is a good sign for Pakistani trade. According to Pakistan Ministry of finance’s estimates, approved by International Monetary Fund (IMF), the external debt to export ratio has been continuously improving for the past 5 years. It stood at 243.9 per cent in the FY 2002-03, after one year, it was plunged to 220.5 per cent in the FY 2003-04, 191.2 per cent in the FY 2004-05, 175.6 per cent in the fiscal year 2005-06, any finally 176.7 per cent in the FY 2006-07. Pakistani government successfully reduced the external debt to export ratio by rescheduling the debt payments, opting for debt swaps for social spending, succeeding in debt cancellation and offering prepayment of debt. However, external debt is projected to increase in monetary terms. It would reach $44.904 by the end of FY 2011-12. The projections of external debt for the FY 2008-09, FY 2009-10 and FY 2010-11 are $41.2 billion, $43.152 billion, and $44.904 billion respectively.

Government of Pakistan is also vowing to bring down the external debt to GDP ratio from 23 per cent in the current FY 2007-08 to 19.9 per cent by the end of FY 2011-12. It is projected that this ratio will be around 22.3 per cent in the FY 2008-09, 21.4 per cent in the FY 2009-10, and 20.6 per cent in the FY 2010-11. External debt to the GDP ratio stood at 24 per cent and 26.6 per cent in the FY 2006-07 and FY 2005-06 respectively.

Moreover, as mentioned above, total government debt is equal to 51.3 % of the GDP in the FY 2007-08, which has been brought down from 54.6 % of the GDP in FY 2006-07. It was recorded to be around 57.3 % of the GDP in the FY 2005-06. The Government predicts an optimistic picture of economy by projecting a steady decrease in total government debt to GDP ratio in the coming fiscal years. They are hoping to bring it down to 48.8 per cent, 46.2 per cent, 44 per cent and finally 42.2 per cent in the next four fiscal years respectively by the FY 2011-12.

In spite of local political disturbance and uncertainties, many international economists predict a strongly growing economy for Pakistan in the next fiscal year, with GDP growth of 6.5%, I suppose that the new government will have to be extra-cautious in every way to keep itself from falling prey to IMF, World Bank and now even ADB. The government faces big challenges in shape of massive external debt, budget deficit, and trade deficit and account deficit. The government of Pakistan has to come up with just right economic policies to minimize all of them. Most importantly, the government of a developing economy should not be spending as lavishly, as Mr. Parvez Musharaf, highly unpopular President of Pakistan and his fellow-league did. But the development of the economy and betterment in the lives of people of Pakistan should be given top most priority in the current challenging and worrisome scenario.

* Data Source:

www.dailytimes.com.pk/default.asp?page=2008%5C01%5C22%5Cstory_22-1-2008_pg5_2

A beautiful poem

Sun, 27 Apr 2008 05:42:15 EST

A beautiful poem - by Noor-us-Sabbah

"Be careful if you make a woman cry

God counts her tears..

A woman came out of a man's rib..

Not from his head to be superior over..

But from his side to be equal..

Under the arm to be protected..

and next to the heart to be loved.."

Writer: Anonymous

To all exceptional women on the face of this earth

and to the men too..so they know the value of a woman

Foreign Investment in Pakistan Went Down by 46%

Sat, 26 Apr 2008 07:49:24 EST

Foreign Investment in Pakistan Went Down by 46% - by Noor-us-Sabbah

Foreign investment in Pakistan plunged, recording a significant drop of 46% during the first three quarters of the current FY 2007-08, compared to that recorded during the same period of the FY 2006-07. Pakistan had attracted a record high foreign investment back then during the first three quarters of FY 2006-07. But later in the last Quarter of FY2006-07, political turmoil began in the country following the disposal of Chief Justice of Pakistan Supreme Court on March 9, 2007. Incidents like Lal Masjid, Brutal killing of innocent people in Karachi by political opponents, suicide bombing, and assassination of former Prime Minister Benazir Bhutto, happened one after another to drive the flow of international investment away from the country. Though democracy has been restored in the country after successful general elections held on February 18, 2008, the foreign investors are still to be allured by the Government and business sector in order to increase the meager figures of FDI in Pakistan.

The current statistics announced by the State Bank of Pakistan (SBP) give us an idea about the insufficient foreign investment that the country attracted in March 2008. It was stated that net foreign investment during nine month period of FY2007-08 from July to March stood at $2.98 billion only, which showed a 46% dip of $2.57 billion as compared to $5.55 billion foreign investment recorded during the same period under review of the last FY 2006-07. Portfolio investment showed the most disappointing figures, with a significant decline of 103 per cent, falling from $1.69 billion recorded during the first three quarters of the last FY2007-08, to with a decrease of $53 million during the first nine months of the current fiscal year, compared to an investment of $1.69 billion during the corresponding period of fiscal year 2007-08.

Disappointingly, the foreign investment was recorded to be only $300 million after the new Government took charge of the country’s economy. This amount is far less than what economic experts expected and predicted lately, as the political situation of the country had also been improving gradually since the day new government got elected. People of Pakistan are quite happy with the new Government up till now but it seems that the new Government has failed to charm the international investors as yet. In order to recover economy, it will have to prove its worth internationally in the coming months.

The current unhealthy growth in foreign investment is not going to help the Government meet adequately the ever escalating current account deficit, which has now reached to record high of $11 billion. The Government has to be relying on the loans yet again in 2008. According to Asian Development bank’s report, Pakistan was the largest borrower in 2007 with loans worth $2 billion, which equals to 20% of the total loans ADB extended during 2007. It’s quite alarming.

To do the trick, the government of Pakistan does have a few plans in making for the last quarter of the current fiscal year 2007-08. After the successful issuance of Global Depository Receipts (GDR) of Oil and Gas Development Company Limited in December, 2006 at London Stock Exchange, the government is again all set to issue GDRs of National Bank of Pakistan (NBP) and Kot Adu Power Company (KAPCO) to attract foreign investment worth $1 billion at least.

Analysts are hoping that overall foreign investment may reach somewhere around $4 billion by the end of FY 2007-08, with an average foreign investment per quarter of $ 1 billion. However, if the Government is able to issue GDRs of NBP and KAPCO in the international equity markets successfully, then total foreign investment could surpass five billion dollars mark by the end of FY 2007-08.

Unreasonable Increase in Cement Price Backfired for The Pakistani Cement Companies

Thu, 24 Apr 2008 17:07:35 EST

Unreasonable Increase in Cement Price Backfired for The Pakistani Cement Companies - by Noor-us-Sabbah

Abrupt changes in the cement prices have been observed in upcountry market during the first four months of 2008. The prices per bag increased from Rs.180 to Rs. 255 per 50 kg cement bag in Feb-Mar. These abnormal price-increments were imposed because the cement makers expected heavy consumption of cement during summer, the peak-demand season. Last year during the 3^rd quarter of FY 2007, Price war had led cement prices to dip as low as to Rs170 to 180 per 50 kg bag. Contrastingly, in 3^rd Quarter of FY 2008, the companies ingeniously made price arrangements between them to offset any negative impact on price and profits. That was another factor that drove the cement price up, in order to benefit the companies.

Surprisingly, that price-hike couldn’t pay off against all expectations and actually backfired in the form of sharp decline in cement sales due to the fact that small builders, contractors and homeowners couldn’t afford such high cement prices along with unprecedented high price of steel, and abandoned their construction activities due to scarcity of funds. So the cement manufacturer had to announce Rs.10 relief per 50 kg bag for the consumers on April 16, 2008.

Interestingly, soon after the April 16, the harvesting period started in N.W.F.P. and Panjab. Due to commencement of harvesting period, Pakistani labor force mostly headed toward rural areas of the country in hope to get better jobs and wages. So the construction activities in the urban areas got a bit slower, consequently affecting the demand for cement negatively and forcing equilibrium price to drop a little further. Again, the cement makers had to decrease cement prices by Rs.10 to Rs.20 per 50 kg bag on April 20, 2006.

Cement dealers claimed that cement manufacturing companies did not estimate the local cement consumption accurately and raised prices without proper measurement of price-demand function. The cement manufacturing companies on the other hand, attributed the price- increments to rising costs of raw materials, particularly that of coal. Whatever the reason is, the phenomenon of declining demand proved that cement makers cannot exploit the consumers anymore, as the cement price has already reached to unreasonable level and rising inflation in the country is making it all the more difficult for the consumers to keep cement under their affordability line.

The cement companies might face the situation of being “between the devil and the deep blue sea” for the short run, but the demand of cement is certainly going to pick up as soon as the harvesting period is over, and summer season starts blazing the country. Moreover, the news that India is going to double cement imports from Pakistan, is a sigh of relief for Pakistani cement manufacturing firms after facing downturn in cement demand locally. Cement sector can hope that even if in Pakistan, demand for cement took a nosedive following unreasonable price increment, export premiums will keep them on the right track during the last quarter of the FY 2008. Cement sector was the biggest gainer at the Karachi Stock Exchange in 2007, and again the same performance is expected in 2008.

Invest in Lucky Cement Limited

Wed, 23 Apr 2008 07:45:36 EST

Invest in Lucky Cement Limited - by Noor-us-Sabbah

The Company Overview

Lucky Cement Limited basically engages in manufacturing, marketing and distribution of cement in Pakistan. The company also exports cement to many countries including India, Afghanistan and Middle East countries. Lucky cement Ltd is the market leader in Pakistani cement industry. It offers ordinary portland cement in dark and light shades, sulphate resistant cement with effective shielding effect against sulphates, and slag cement as per users requirement. The brand names used for marketing of cement are Lucky Cement, Lucky Star Cement, Lucky Gold Cement, Chairman Cement, and Lucky Sulphate Resistant Cement. The manufacturing plants of Lukcy Cement Ltd are located at Lakki Marwat, a district in North West Frontier Province of Pakistan. The company’s headquarter is located in Karachi.

Expected Financial Performance

Lucky Cement Limited is expected to post 9-Month FY2008 spectacular earnings of Rs. 2,084 million. The Earning Per Share (EPS) of the company is also expected to rise from Rs. 5.1 for the same period last year, to Rs7.9. Earnings for 9-month period of FY2007 were recorded at Rs1,345 million, so there is a considerable increase of 55 % in company’s earnings. This significant growth in earnings is attributed mainly to 113% growth in exports. The company exports 47% of its produce, and the price premium on exports will help company to churn out healthy profits.

For the third quarter of FY 2008 ending on March 31, 2008 Lucky Cement is expected to announce earnings of Rs735 million, with an improved Earnings Per Share of Rs.2.8, as compared to Earnings for the same period last year of Rs.554 million and Earnings Per Share of Rs2.1. Despite the fact that cement sales in 3^rd Quarter of FY2008 have increased by 10 % as compared to 3^rd Quarter of FY2007, the input costs have also reached their record high levels since October 2007, when the current price hike in international coal and oil prices started off. Considering the fact that Lucky Cement uses forward contracts to purchase its fuel, i.e. oil and coal, the impact of highest ever input costs was not felt in the earnings of 2^nd Quarter of FY 2008. However, high input/energy costs are expected to have some impact on the company’s 3rd Quarter earnings, but the company is all set to offset any negative impact on its earnings with high export premiums, as it is the biggest player in Pakistan in terms of cement exports. The company exports cement to neighboring countries India, Afghanistan and also to UAE. Lucky Cement has now become the only company in Pakistan to get a license to exports cement by South African Government recently. South African Bureau of standard issued an export certificate to export cement with a Pakistani tag.

Future Outlook

The company’s expected earnings will most probably boost its share price at the Karachi Stock Exchange. Moreover, the news that it has been selected as a sole Pakistani cement exporter by the South African authorities will also help its share price go up in the short term. In my opinion, LUCK will be a good choice for medium-to-long-term investment due to its usual strong financials, but even the short-term investment in LUKC can pay off to the investors quite safely.