Pakistan Stock Market Review

KSE logoDuring this past week the benchmark of Karachi Stock Exchange, KSE-100 Index remained under pressure and closed almost flat at 33,857 level. Average daily trading volume slide to 175 million shares from 185 million shares exchanging hands during the prior week. Major news flows affecting the market included: 1) Millat Tractors (MTL) signing an export agreement with AGCO Corporation to export tractors, 2) the GoP closing the 1QFY16 with a Rs238 billion deficit, 3) FDI inflow plunging by 24.1%YoY during 4MFY16 to US$350.8 million, 4) Byco releasing plans to add 50 more outlets to its existing retail network of 300 across the country, 5) PNSC swapping its loan of Rs3.3 billion with another with favorable terms and a 4-year repayment period and 6) Russia offering to supply LNG to Pakistan. Scrips that led the bourse included: LOTCHEM, EPCL, HASCOL, NBP and HBL. The laggards were: MEBL, MCB, FFBL, ENGRO and BAFL. Foreign participation showed no improvement with net foreign outflows for the week amounting to US$15.9 million as compared to a net selling of US$4.1 million in the prior week. Hopes were attached to a possible reduction in policy rate but in vain, as the central bank kept the rate unchanged at 6 percent.

Current Account Deficit (CAD) was reported at US$416 million at end October as compared to the previous month’s US$299 million surplus. As a result, 4MFY16 CAD rounded off at US$532 million, shrinking 72%YoY from US$1,897 million for the corresponding period last year. As per recently released data, trade deficit for the four month period declined to US$7.69 billion, a decline of 12.15%YoY from US$8.76 billion for the corresponding period last year. However, exports were pegged to US$6.88 billion, reflecting a decline of 13.42%YoY. The country is expected to receive US$1.4 billion (IMF and developmental loans from WB and ADB) before CY15 closes, which can help the PkR/US$ parity to stabilize for the remainder of the year.

While local dispatches grew exuberantly by 14%YoY during 4MFY16, exports were down 27%YoY, limiting total cement dispatches growth to 4%YoY. With exports contributing 25% to total dispatches in the last nine years, this downtrend raises a question mark on the sector’s top‐line growth going forward. In an effort to counter the decline in exports, APCMA has more recently started to voice cement manufacturers’ concerns to the GoP that included higher operating cost, smuggled Iranian cement, import duty on coal and GIDC. However, these proposals are not likely to yield any long‐term benefits to the cement manufacturers. Additionally devaluation in regional currencies also pose threat to the Pakistani exports.

Characterized by marked improvement in revenues, up 23%YoY and higher gross margins (GM), up 600bps at 25%, EFOODS has posted considerable earnings growth for 9MCY15. Of particular importance in this regard is the encouraging growth in volumes that have gone up by 10%YoY during this period. Anticipating similar trend to continue, analysts expect EFOODS to maintain its upward trajectory. Volumetric growth is expected on the Company’s increasing market penetration. Consequently, raising hope for CY15 earnings to go up by 9% to Rs4.33/share. Despite sequential earnings dip in 3QCY15, analysts anticipate strong earnings performance in the upcoming two quarters as flush season kicks in, easing farm‐gate milk prices. That said, while concerns on GM on account of the recent spike in international milk powder prices remain, analysts believe sustainability of the same considering excessive supply in the EU region is a key deterrent (every 10% increase in milk prices lower GM by 40bps).





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