KSE-100 closes week at 33,229 levels

KSE logoThe week ending on first day of 2016, an otherwise uneventful closed on appositive note. The benchmark KSE‐100 index touched 33,229 levels, up 2.2%WoW. Overall, activity at the market witnessed moderate recovery on account of the holiday season; where average trading volumes for the week rested at 114 million as compared to 106 million shares a week ago last.

Key news flows during the week included: 1) CPI inflation recorded at 3.2%YoY for December as against 2.7%YoY in November last year, 2) announcement of PkR3/unit reduction in base tariff for industrial sector beginning January new year, 3) GoP agreeing to raise gas price by 50% for the PPL operated Sui field based on the Petroleum Policy 2012, 4) launching of the Voluntary Tax Compliance scheme by PM Sharif, aims to register non‐filer traders and regulate the undocumented economy, 5) Futures Market Act 2015 (Draft) being forwarded to the Senate Standing Committee on Finance for deliberations , 6) ECC approval for supply of 60mmcfd of RLNG to textile industry for 52 days during the current winter season and 7) total cement dispatches (provisional numbers) for the month of December’15 increased to 2.03 million tons from 1.95 million tons (up 4%YoY). Scrips that led the bourse included: NCL, MLCF, FFC, DGKC and NML while laggards were: SHEL, ICI, PSO, HMB, and HASCOL.

Foreign selling continued unabated where net foreign outflows for the week amounted to US$1.1 million as against net selling of US$1.8 million in the prior week. Flows from foreign investors may present a ‘wild card’ and reinvigorate the market as the international holiday season comes to an end. Investors will be looking to re‐align their portfolios entering 2016. December’15 inflation figures of 3.2%YoY against consensus of 3.8% are likely to rebuff expectations of tightening, extending the current cycle of cheap credit.

Hi‐Tech Lubricants Limited (HTLL) will become the first lubricant company to go public, by issuing 29 million shares at a floor price of Rs37/share through book building of 75% of the total issue size and remaining 25% to be offloaded through general public subscription (25-27 January 2016). HTLL expects to raise at least Rs1.07 billion from the listing which will be utilized in expanding its footprint in the lubricants market via forward (establishing retail network) and backward integration (construction of an additional filling line). HTLL has an established presence in the automotive sector through its “ZIC” brand (14% market share in the passenger car sub‐segment) contributing 56% to overall revenues becoming a key growth driver for the company. Post IPO, the company plans to focus on diesel and motorcycle sub‐segments of the automotive market (contributing 31% and 9% to revenues) through competitive pricing and cost efficiencies of bulk imports (utilizing the blending plant). With: a aggregate market share of 6% in lubricants, robust five year revenue CAGR of 20%, Gross Margin averaging 24% and, 3) Net Margin of 6%, HTLL’s fundamental outlook remains promising.

Recently released NFDC numbers reveal heightened fertilizer offtake for November’15 aggregating at 691,000 tons, of which Urea offtake was 623,000 tons (up 32%YoY). Consistent with seasonality, November proved to be a buoyant month for DAP sales as offtake rose by 41% YoY to 537,000 tons. Weakening pricing dynamics accompanied by DAP subsidy factored in, as prices of all compounds fell during the month, led by DAP (down 5.8%MoM) and Urea (down 1.4%MoM). FFC continued to dominate the market for nitrogen fertilizer as market share for its products stands at 52% (against 53% in 11MCY14), followed by EFERT at 37% (against 36% for 11MCY14). Cumulative offtake for the product amounted to 1.6 million tons for 11MCY15, reflecting 16%YoY increase, propelled by 21%YoY (964,000 tons) increase in the imported variant of the commodity.

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