Ipm Project

1

INVESTMENT & PORTFOLLIO MANAGEMENT


PROJECT REPORT ON

DATE OF SUBMISSION

MONDAY, JULY 05, 2010

2


A PROJECT REPORT ON

3


4


SECURITY ANALYSIS

OF KSE 100 INDEX

ARMY PUBLIC COLLEGE OF MANAGEMENT & SCIENCES, ORDNANCE ROAD, RAWALPINDI

Project Topic:

5


“Investment in different securities in KSE 100 Index”

Project Submitted to:

Sir Syed Waqar Akbar

Project Submitted by:

1400015 M. Asim Iqbal Kiani

1400021 Zeeshan Ali Ahmed Bhatti

1400022 Suhail Munir Kiyani

1400038 Ghulam Ali

1400105 Muhammad Jumshad Arif

Submission Date: July 05, 2010

DEDICATED

TO

OUR LOVING PARENTS,

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ARMY PUBLIC COLLEGE OF MANAGEMENT & SCIENCES,

ORDNANCE ROAD, RAWALPINDI

Letter of Transmittal Syed Waqar AkbarTeacher of Investment & Portfolio Management,Army Public College of Management SciencesRawalpindi

Subject: Submission of Project on “Investment in different securities in KSE 100 Index”

Respected Sir,

DEDICATED

TO

OUR LOVING PARENTS,

7


We are thankful to you for assigning us the requirement of preparing the subject project. We have endeavored to investigate the subject and reach out to its roots.

We hope that this effort will prove to be, yet another step towards better understanding of the subject matter, please.

Thanks and regards

Yours truly,

1400015 Muhammad Asim Iqbal Kiani

1400021 Zeeshan Ali Ahmed Bhatti

1400022 Suhail Munir Kiyani

1400038 Ghulam Ali

1400105 Muhammad Jumshad Arif

ACKNOWLEDGEMENT

First of all, we are very much grateful to Almighty Allah, the Most Merciful

Who made us capable of completing this assignment with full dedication &

devotion.

We are all thankful to our teacher of Investment & Portfolio Management

“Syed Waqar Akbar” for providing us this opportunity to appraise our hidden

potential.

At the end, we are thankful to everyone who has been helping us consciously

and unconsciously in the completion of this assignment.

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INTRODUCTION.....................................................................................................8ECONOMIC ANALYSIS........................................................................................9

a. Gross Domestic Product.........................................................................10b. GNP:....................................................................................................................10c. Consumer Price Index/Inflation:........................................................10d. Interest:............................................................................................................11e. Per Capita income......................................................................................11f. Exchange Rate:............................................................................................11g. Unemployment:............................................................................................11h. Public Debt:....................................................................................................12i. Balance of Payment and Trade:.........................................................12j. Foreign Direct Investment....................................................................13k. Government Policies:...............................................................................13l. Political Environment:..............................................................................14m. Conclusion:.....................................................................................................14

INDUSTRY ANALYSIS.......................................................................................15Business Cycle:......................................................................................................15

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1) Oil and Gas Industry.................................................................................162) Textile Industry............................................................................................223) Fertilizers Sector.........................................................................................364) Electricity.........................................................................................................41

INTRODUCTIONWe have been given Rs 500,000 in a hypothetical situation, in which we are to

invest this money in the security market by selecting any five different shares

of our choice in five different sectors. Before investing, we are to do a detailed

analysis in the following hierarchy:

Economic Analysis of the country to take decision that whether it will be

beneficial to invest in the current economic conditions prevailing in

Pakistan?

On the basis of the sector performance, level of associated Risk &

returns and investment feasibility, sector trend, Selection of 5 sectors

out of 34 sectors in KSE (Excluding mutual funds)

Selection of 1 company from each sector on the basis of company’s past

performance, consistency in performance, expectation of growth, trend

INVESTMENT IN DIFFERENT SECURITIES IN KSE 100 INDEX

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of company, company’s policies, share prices trend, and ratios analysis

of the company

AS our main objective is to study the shares prices of the company, to check

for the Risk and return associated with the securities in which we are to

invest afterwards. Our Analysis of securities starts from 1st January 2001 to

30th October 2008. 1st January and 31st December in each year are

considered to be the opening & closing dates in each year respectively.

ECONOMIC ANALYSIS

The economy of Pakistan is the 27th largest economy in the world in terms of

Purchasing Power, and the 45th largest in absolute dollar terms. Pakistan has

a semi-industrialized economy which mainly encompasses textiles , chemicals ,

food processing , agriculture and other industries . In 2005, it was the third

fastest growing economy in Asia.

The major sectors The economy has suffered in the past from decades of

internal political disputes, a fast growing population, mixed levels of foreign

investment, and a costly, ongoing confrontation with neighboring India.

However, IMF-approved government policies, bolstered by foreign investment

and renewed access to global markets, have generated solid macroeconomic

recovery the last decade. Substantial macroeconomic reforms since 2000,

most notably at privatizing the banking sector have helped the economy.

Economy of any country plays a vital role in the business conditions of that

particulars company, for the purpose of doing business or investing in the

company of any sector the economic analysis of that particular country has

the vital importance especially from the investor’s point of view. The investor

before investing would be eager to know about the country’s economic

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condition and after that the industry, company and technological conditions in

that particular country. Economic analysis can be done on the behalf of

economic indicators of any country such as,

a) GDPb) GNPc) Inflationd) Interest Rate e) Exchange ratef) Per capital incomeg) Unemploymenth) Public debti) Balance of Payment & Balance of Tradej) FDI

a. Gross Domestic Product

Gross Domestic Product

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

5.4 5.8 4.0 4.6 4.7 7.5 9.0 5.8 6.8 4.1 2.0

GDP is facing many problems from past years. From 1999-2003 it showed

decreasing trend and declined. During 2004-05 value of GDP increases little

but in 2006 it decreases and rise in 2007. And then decreases the value of

GDP for 2009 is 2.

b. GNP:

Gross National Product

1999

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

4.3 4.8 4.6 7.5 6.4 8.7 5.6 6.7 6.1 4.1 2.6

From 1999 to 2004 GNP is in increasing trend which is very good condition

for economy but from 2005 it continue to decline which was in 2009 is 2.6.

c. Consumer Price Index/Inflation:

The rat e of inflation is an important macro economic

indicator and one of the key variables most central banks around

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the world scrutinize when setting their main policy rate. Containing

inflation to a sustainable level is imperative for economic growth ; it

not only protects the low and fixed income groups on the consumer side

but al so keeps the cost of doing business m enlargeable on the

production side.

Inflation has inverse relationship to the industrial growth. Our economy is

running in hyper-inflationary economy. We have to pay more for plant &

machinery required for industry and similarly we have also to pay

increasing prices for the input to the industry. Ultimately we are having a

less inflation economy or even loss making unit.

Consumer Price Index (CPI)

1999

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

3.6 4.4 3.5 3.1 4.6 9.3 7.9 7.8 9.3 10.27

22.35

d. Interest:

Interest rates are the main determinants of investments on a

macroeconomic scale. If interest rate increases in the econmy, investor

will be less interested in doing investment. It has also direct impact on

the output.

Interest

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 200913 11 14 9 9 9 9.5 10 12 14 11.5

0

Interest rate has reduced by SBP. Already stock exchange is in the crises

and investors might not invest in the stock exchange as there are fewer

returns.

e. Per Capita income

Per capita income is not the proper measurement of the welfare in any

economy because it imbeds a wide range of fluctuations behinds the

numbers.

Per Capita Income (MP US$)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009669 733 836 921 1042 1046

From 2004 to 2009 per capita income is going upward.

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f. Exchange Rate:

Our currency is linked with US $. For the last few years, it has been found

that our currency is drastically depreciated due to which we are not

earning enough foreign exchange. An analysis of such depreciation in

currency is given below.

Exchange Rate (RS.)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 200961 57.7 57.9 59.6 60.16 60.5 71.00 82

g. Unemployment:

Unemployment is one of the major problems of Pakistan. It is the root

cause of several other problems and is a result of a number of problems.

High unemployment results in wastage of resources and depression of

income. And most certainly it also effects the social and emotional life of

a person.

Unemployment

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 200910.2 7.9 7.8 8.3 7.7 9 6.2 6.7 8.1 9 10.2

h. Public Debt:

Public debt refers to all debt owed directly by the government originating

from domestic and external sources. It consist of debt denominated in

Rupees as well as foreign currency.

Debt (in Billion of Rs.)

19992000

2001

2002

2003 2004 2005 20062007

2008 2009

3890 3548 3725 3510 3618 3789 4064 4363 4814 5901 7268

The debt position is going in increasing trend which is not indicating good

position of the country because it continues to increase which alerts

highly risky environment for investment.

i. Balance of Payment and Trade:

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The balance of payments (BOP) means a systematic record of all the

economic transactions between residents of a country with the rest of

the world during a given period of time.

BOP and BOT (in Billion of Rs.)

19992000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Export 13.3 11.7 12.9 12.8 13.5 12.5 13.0 13.0 11.8 11.7 8.9

Import 16.1 14.1 15.1 14.8 14.8 15.9 18.5 22.5 21.2 24.3 17.4

Trade Deficit

2.8 2.4 2.1 1.7 1.3 3.3 5.5 9.5 9.4 12.6 8.5

BOP and BOT are not in good condition. Country is having continues

deficit for last two decades in this prospect.

j. Foreign Direct Investment

Foreign direct investment (FDI) has emerged as a major source of private

external flows for developing countries around the world. The developing

countries like Pakistan are able to bridge their widening savings-

investment gap through this important non-debt creating inflow. During

the last two decades countries have liberalized their FDI regimes and

pursued investment- friendly economic policies to attract investment to

maximize the benefits of foreign presence in the host economy. In many

developing countries,

FDI (in Million US $ )1999

2000

2001

2002

2003

2004

2005

2006

2007 2008 2009

1524 3521 5139.65152.8

3038.8

k. Government Policies:

Fiscal Policy:

In Pakistan, fiscal policy is being used for attaining objectives such as self

reliance, expansion of exports, containment of import of luxury and non-

essential goods, promotion of investment and reduction in income

disparity. The government intends to expand tax base, bring new areas

and sectors under the tax net, reduce dependence on custom duties and

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shift it on taxes on income and consumption. Specific measures have

been taken for making assessment and collection of tax simple and

transparent in order to eliminate corruption from the tax collection

system besides reducing administrative expenditure of the government

for containing the fiscal deficit.

Monetary Policy:

State Bank of Pakistan (SBP) prepares an Annual Credit Plan. This plan

makes fund allocations for various sectors of the economy and

determines safe limits of monetary and credit expansion during the year.

Credit requirements of the private sector are accorded prior claim on

domestic credit expansion over the government sector credit

requirements. The credit plan makes sure that funds are properly

allocated to meet genuine credit requirements of all the priority

segments of the private sector

l. Political Environment:

The political environment is not stable in the country and country is

facing political crises during the past many years which indicate risk

factor in investment.

m.Conclusion:

Although the current economic condition of Pakistan is not that well but

there are few reasons which can get the interest to invest in the

Pakistan. The reasons are:

Geo Strategic Locations

Trained workforce

Economic outlook

Financial Markets.

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SNAP SHOTS OF ECONOMY OF PAKISTAN

Rank 27th

Currency 1 Pakistani Rupee (PKR) Rs. = 100 Paisas

Fiscal year July 1–June 30

Trade organisations ECO, SAFTA, ASEAN, WIPO and WTO

Statistics

GDP $431.2 billion (PPP) (2008)

GDP growth 2.0% (2009 est.)

GDP by sectoragriculture: 19.6%, industry: 26.8%, services: 53.7%

(2007)

Inflation (CPI) 11.17% (2009-2010)

Population below poverty

line23% ((2007))[1]

Labour force55.88 million (2009 est.)

Unemployment 15.2% (2009 est.)

Main industries

textiles, chemicals, food processing, steel, transport

equipment, automobiles, machinery, beverages,

construction, materials, clothing, paper products

External

Exports $17.87 billion (2009 est.)

Export goods

textile goods (garments, bed linen, cotton cloths, and

yarn), rice, leather goods, sports goods, chemicals

manufactures, carpets and rugs

Main export partnersUnited States 22.4%, UAE 8.3%, UK 6%, China 15.4%,

Germany 4.7% (2006 est.)

Imports $28.31 billion f.o.b. (2009 est.)

Import goods Petroleum, Petroleum products, Machinery, Plastics,

http://en.wikipedia.org/wiki/Germany

http://en.wikipedia.org/wiki/China

http://en.wikipedia.org/wiki/UK

http://en.wikipedia.org/wiki/UAE

http://en.wikipedia.org/wiki/United_States

http://en.wikipedia.org/wiki/Carpets

http://en.wikipedia.org/wiki/Sports

http://en.wikipedia.org/wiki/Leather

http://en.wikipedia.org/wiki/Rice

http://en.wikipedia.org/wiki/Yarn

http://en.wikipedia.org/wiki/Garments

http://en.wikipedia.org/wiki/Textile

http://en.wikipedia.org/wiki/Paper#Applications

http://en.wikipedia.org/wiki/Clothing

http://en.wikipedia.org/wiki/Materials

http://en.wikipedia.org/wiki/Construction

http://en.wikipedia.org/wiki/Beverages

http://en.wikipedia.org/wiki/Machinery

http://en.wikipedia.org/wiki/Automobiles

http://en.wikipedia.org/wiki/Transport

http://en.wikipedia.org/wiki/Transport

http://en.wikipedia.org/wiki/Steel

http://en.wikipedia.org/wiki/Food_processing

http://en.wikipedia.org/wiki/Chemical_industry

http://en.wikipedia.org/wiki/Textiles

http://en.wikipedia.org/wiki/Unemployment

http://en.wikipedia.org/wiki/Poverty_line

http://en.wikipedia.org/wiki/Poverty_line

http://en.wikipedia.org/wiki/Consumer_price_index

http://en.wikipedia.org/wiki/Inflation

http://en.wikipedia.org/wiki/Gross_domestic_product

http://en.wikipedia.org/wiki/WTO

http://en.wikipedia.org/wiki/WIPO

http://en.wikipedia.org/wiki/ASEAN

http://en.wikipedia.org/wiki/SAFTA

http://en.wikipedia.org/wiki/Economic_Cooperation_Organization

http://en.wikipedia.org/wiki/Fiscal_year

http://en.wikipedia.org/wiki/Paisa

http://en.wikipedia.org/wiki/Pakistani_Rupee

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Transportation equipment, Edible oils, Paper and

paperboard, Iron and steel, Tea

Main import partners

China 14.7%, Saudi Arabia 10.1%, UAE 8.7%, Japan

6.5%, United States 5.3%, Germany 5%, Kuwait 4.9%

(2006 est.)

Public finances

Public debt $50 billion (2009)

Revenues $23.21 billion (2009 est.)

Expenses $30.05 billion (2009 est.)

INDUSTRY ANALYSIS

Business Cycle:

The business cycle of Pakistan is in 2010 passing through the recession

period. The recession period started from 1990 and followed the same

negative trend. During 2005-06 & 2006-07 showed little. So, currently due

to many factors local and global factors business cycle is in its recession

state.

1) Oil and Gas Industry

The oil and gas sector has a considerable impact on the economy – the

sector attracts by far the highest level of foreign direct investments in

the country, and raises significant tax income for the government.

Pakistan has an interesting Geo-dynamic history of large and

prospective basin (with sedimentary area of 827,268 sq. km). So far

http://en.wikipedia.org/wiki/Kuwait

http://en.wikipedia.org/wiki/Germany

http://en.wikipedia.org/wiki/United_States

http://en.wikipedia.org/wiki/Japan

http://en.wikipedia.org/wiki/UAE

http://en.wikipedia.org/wiki/Saudi_Arabia

http://en.wikipedia.org/wiki/China

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about 844 million barrels crude oil reserves have been discovered of

which 535 million barrels have already been produced.

a) THE INDUSTRY’S CONTRIBUTION TO THE GDP OF THE COUNTRY

The total contribution of gas distribution in GDP during 2008-09 was

14.7% including electricity. Separately oil and gas are not indicated in

the official documents but their contribution is estimated at around 1 per

cent. The indirect contribution of oil and gas, however, is enormous.

Investment on electricity and gas is Rs. 48 billion, constituting 10 per

cent of the total. In the oil and gas sector, an investment of Rs. 16 billion

or over 3 per cent of the total is estimated. It accounts for over 80% of

total energy supplies with an average growth rate of 6% a year.

b) The main Players of The Sector

The main players of the oil & gas sector is given below:

Refineries Oil Marketing

Companies

Expolaration

Companies

Gas Companies

1. Attock Refinery Ltd.

2. National Refinery

Ltd.

3. Pak-arab Refinery

Ltd.

4. Pakistan Refinery

Ltd.

5. Byco Petroleum

Pakistan Limited

1. Pakistan State Oil

Company Limited

2. Attock Petroleum

Limited

3. Bosicor

4. Total-Parco Pakistan

Limited

5. Shell,

6. Chavron,

7. Admore Gas Limited,

8. Hascombe Storages

Pvt. Ltd.,

9. Overseas Oil Trading

Co.,

10.Askar,

11.Pearl Parco

1. OGDCL

2. POL

1. Sui Southern

Gas Company

2. Sui Northern

Gas Pipeline

c) Supply & Demand of Oil

Demand 19mt/y

Supply Local Products 8.7mt/y

Imported Products 10 mt/y

Imported Crude 143,683 b/d

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($ 1.362m)

Annual Import Bill $ 3,326m

d) Oil production & Consumption

e) Oil Refining Capacities

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f) Pakistan Existing Refining Capacities

g) Oil Marketing Companies

(Million Tonnes per Year)

Existing Under InstallationARL 1.70 Bosicor 1.5 PRL 2.20 NRL 2.70 ProposedDhodak 0.12 Iran Pak 6.0PARCO 4.50 Total: 11.22

6.3

3.9 7.5

0.8

1

0.1

0.06

PSO

SPL

COPL

APL

TPPL

PP

AGPL

HSPL

AOSPL

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PETROLEUM POLICY 2001

Salient Features

Foreign Equity 100 %

Investment No Minimum Limit

Custom Duty 5% PME (not manufactured locally)

Income tax 40% Onshore: Royalty treated as expense. 40% Offshore: Royalty treated as advance tax.

Royalty 12.5% Onshore12.5% Offshore: (with holiday for four years and reduced rate for next two years)

Pre-commercial discovery

Onshore: No obligatory “carry” for GoP or government holding company.

Post-commercialdiscovery

Offshore: Sliding scale production sharing arrangements (shallow, deep, and ultra-deep grid)

6.3

3.9 7.5

0.8

1

0.1

0.06

PSO

SPL

COPL

APL

TPPL

PP

AGPL

HSPL

AOSPL

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Production Bonus Same as before; where recoverable reserves are less than 5-10 MMBOE, first production bonus would not be payable on commencement of production.

Deep Drilling Offshore divided into shallow, deep and ultra-deep grid; GoP share based on a sliding scale foreach of the three zones.

Pipeline Construction andOperation

E&P entities allowed to construct/operate pipelines to uplift production

INVESTMENT POLICY FEATURES

Equal treatment to local & foreign investors

All economic sectors open for FDI

Foreign equity upto 100% allowed

No Government sanction required

Attractive incentive packages

Remittance of royalty, technical & franchise fee allowed

Network of Export Processing Zones

Export Manufacturing Zero-rated

Bilateral Agreements :

o Investment Protection: 47 Countries

o Avoidance of Double Taxation: 52 Countries

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BY

M.ASIM IQBAL KIANI

MBA-14A

1400015

2) Textile Industry

When we think of manufacturing industry in Pakistan , it is the textile

industry that immediately comes to mind that is playing an vital role and

position in terms of the employment generation and value added special

contribution towards the exports. The textile industry which is endowed

its strong base of raw material has started its journey from non

existence in 1947 with meager size of 78000 spindles and merely 3000

looms that is too in the unorganized sector, with only one textile unit

and it could supply 8% of the domestic demand derived from its

population of 76 million people. The industry has gone through a long

way and now possesses 443 units, 8.4 million spindles and 166000

rotors, 20,000 shuttle less looms, 200000 power looms, over 600

processing units and over 2500 garments units. The following table

shows the contribution of textile sector in the economic development of

the country.

2.1-Business cycle

2.2-No. of competitors

MAJOR COMPETITORS

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The Pakistan textile industry is facing tough competition from the Indian,

Bangladeshi and Chinese textile industries. The cost of power in Pakistan is

high as compared to that in other countries.

Bangladesh, India and China enjoy comparatively low interest rates than

Pakistan. The prevailing rates are as following, 8.5 to 9.0 per cent in

Bangladesh, 5.25 per cent in India (market rate is 10.25 per cent, however

exemption of 5 percent is provided to the textile industry) and 5.58 per cent

in China. Meanwhile, in Pakistan, the last three to four years has seen the

interest rates to have risen more than 150 percent, to 13.25 percent.

China has expanded textile exports from $ 39.5 billions in 1998 to $ 80.0

billions in 2003.

Buyers are watching the global supply position & if Pakistani Entrepreneurs

are not willing to change, the buyers will shift to China which has developed

a large supply base for Textile Products.

2.3-OVERLOOK

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INVESTMENT & PORTFOLLIO MANAGEMENTDESCRIPTION CONTRIBUTIONS

EXPORTS 64% OF TOTAL EXPORTS (US $

4.9 BILLION)

MANUFACTURING 46% OF TOTAL MANUFACTURING

EMPLOYMENT 38% OF TOTAL EMPLOYMENT

INVESTMENT 31% OF TOTAL INVESTMENT

MARKET CAPITALIZATION 7% OF TOTAL MARKET

CAPITALIZATION

INTEREST Rs. 4 BILLION PER ANNUM

SALARIES AND WAGES Rs. 40 BILLION PER ANNUM

CONTRIBUTION TO RESEARCH &

DEVELOPMENT

Rs. 116 MILLION PER ANNUM

GROSS DOMESTIC

PRODUCT (GDP)

8.5% OF TOTAL GDP

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2.4-TEXTILE TARGET MARKETS

Pakistan, being the fourth largest cotton producing country provides a strong base

for development substance of textile industry in spite of tremendous growth in all

the area of textile industry, including:

Cotton

Ginning

Spinning

Processing

Made up sector

In the organization section there are 232 listed textile companies of which 153

spinning units, 28 weaving and 51 composite units while the total number of textile

units both listed and non-listed however are 443.

Contribution in Employment:

Textile unit constitute 38% of employment generated by the manufacturing sector

while textile being largest industry has got other forward and back ward relation

where it must had played its role in generating employment in related industries

for example shipping industry will definitely by mainly depended upon textile

industry.

Target market of Pakistan can be divided in to four following categories:

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2.5-TYPES OF COMPETITON

Direct Competition – Direct competition for any business includes entities that

sell similar products or services in the same target market.

Indirect Competition – Indirect competitors can be more difficult to identify. The

indirect competitor is one that sells different products or services as a primary

business but can also fill the need for your product or service.

2.6-DEMAND FACTORS

This section will do a small exercise to estimate the demand function for

the textile exports. It will test the ‘small country’ hypothesis for the textile and

clothing exports of Pakistan.

Small Country Hypothesis: demand is infinitely elastic with respect to

price. And world income has no influence on exports irrespective of the size of

the income elasticity of demand.

In order to test ‘small country’ hypothesis, a simultaneous trade model is

specified for the textile exports of Pakistan. A traditional demand function is

modeled, with price and world income, along with trade weighted real effective

exchange rate (REER) as important determinants. The purpose of including

29


REER is, it will serve the purpose of competitor’s price. The demand function is

modeled (in log-linear form):

log XDt = a0 + a1 log PX t + a2 log REER t + a3 log WYt + Ut … (1)

where

Xt = quantity of textile exports demanded;

PXt = price of textile exports;

REERt = real effective exchange rate;

WYt = world income.

Following is the demand function estimated for the textile exports of

Pakistan:

XD = 0.01 – 0.04 PX – 0.26 REER + 1.59 WY

(0.06) (0.08) (0.26) (0.89)

R2 = 0.07, DW = 2.52, DF = -6.05**

Where the numbers in brackets below the estimated parameters are t-statistics.

DF (Dickey Fuller) is the unit root test applied to the residuals of co-integration

equations, for testing the null hypothesis of no co-integration in the regression

equation. The value of –6.05 is significant at 1 percent, strongly rejecting the

null hypothesis of no co-integration.

This implies that there exists a stable long

run relationship between export demand and its price, real effective exchange

rate and world economic conditions. The coefficient of export price is found not

to differ significantly from zero. Thus implying infinite price elasticity of

demand for textile exports. The coefficient of world income is also not found

significant. Results are in confirmation to the ‘small country’ hypothesis: price

30


elasticity very low (0.04) close to zero. As a “small country” the price of textile

exports follows the world price.

Textile Policy Formulation

2.7-GOVERNMENT POLICIES

According to the government of Pakistan the following are the important policicies

regarding to textile.

1- A Textiles Investment Support Fund (TISF) will be established for

incentivizing investments in specific areas including modernization of

machinery and technology,

2- removing infrastructural bottlenecks, enhancing skills, better marketing and

use of information and communication technology (ICT). Through this fund

following initiatives will be undertaken:

Technology Up-gradation Fund (TUF):

2-. To facilitate new investments and upgradation of technology Government will

contribute part of the investment financing or part of the investment cost through

the

31


TUF. Under this scheme, for capital intensive projects, government will pick-up 50%

of interest cost of new investment in plant and machinery with a maximum of 5%.

For

small investments, government will contribute up to 20% of capital cost as a grant.

For this purpose, Government has kept a budget of Rs.1.6 billion in the current

financial year for this scheme. This will increase to Rs. 17 billion by 2014.

3-Infrastructure Development:

Based on the experience from textiles city and garments cities models,

Government plans to set up more such industrial estates to ensure availability of

all

industrial amenities at reasonable cost.

4- Clusters will be developed where small investors can set up their facilities. The

clusters will be provided with laboratories, product development centres, research

centres, common sheds etc.

5- With a view to bridging a major gap in compliance support will be provided for

setting up effluent treatment plants for the existing industry.

6-Schemes for common warehousing, storage and marketing facilities will also be

launched to ensure timely and cost effective availability of inputs.

7- An amount of Rs. 1 billion is being allocated this year for infrastructure

development in the areas just mentioned and all measures will be initiated on

public private partnership model.

Skills Development:

8-A comprehensive training plan will be developed to upgrade the overall pool of

skills in the textiles value chain in close consultation with the industry and will be

implemented during the next five years.

9-Facilities will be provided for audits to enhance productivity and efficient

processing.

10-Government will also support acquisition of foreign expertise in enhancing local

32


productivity and supervisory skills and for this purpose Government has exempted

foreign experts from income tax.

11-Government will allocate Rs. 1 billion during the current year for skill

development initiatives.

Standardization:

12-A legal framework will be developed to specify standards and testing

requirements, prescribe disclosure requirements and other matters relating to the

practices and methods relevant to the sector. This has become necessary in view

of

compliance standards imposed by major importing countries.

Zero Rating of Exports:

13-Government recognizes the principle that exports should not be taxed. Efforts

will

be made to identify all direct and indirect levies that add to the cost of doing

business

without appropriate compensation so that remedial measures can be adopted.

Rationalization of Tariff Structure

14-The principle of cascading will be implemented while ensuring adequate

protection to the local industry and removing anomalies.

Removing Regulatory Bottlenecks:

15- An extensive exercise will be undertaken covering all sub-sectors, to identify

rules, regulations, procedures, levies and other regulatory constraints that hamper

the development of the sector. Based on this exercise, appropriate measures will

be

adopted to simplify or remove such irritants.

Market Access:

33


16-Government will be expending concerted efforts to secure due access for

Pakistan in some of the key destinations of our exports. Preferential access as well

as FTAs in such markets will be the focus of such efforts.

Marketing Support:

17-Government will provide necessary support for branding, grading, labeling and

such other activities that would add value to the textiles chain.

Export House Scheme:

18-To initiate a process of building big export houses, Government is planning to

treat local sales of yarn and fabrics to large exporter as deemed exports. For this

purpose, small producers will get 1% drawback on levies and unadjusted taxes on

sales to the export houses. An amount of Rs. 2 billion has been budgeted for the

current year for this scheme.

Marketing Insurance Scheme:

19-Government will introduce an insurance scheme to protect our exporters

against

unforeseen losses, which may arise due to failure of the buyer, bank or problems

faced by the buyer country. A working group will be set up to develop a feasible

scheme for the consideration of the government. This scheme will help remove

uncertainties currently faced by the exporters, especially in a global markets hit by

a massive financial crisis.

Information and Communication Technology:

20-Government will also support efforts aimed at enhancing efficiency through the

use of information and communication technology in such fields as development of

websites and e-commerce platforms.

Sub-sector Initiatives

21-The policy will also focus on certain sub-sector issues from fibre to garments

including ginning, spinning, weaving, knitting, processing, fashion designs,

handloom

34


and handicrafts, carpets and technical textiles etc.

22- Specific schemes will be launched, mostly on public-private partnership basis,

to

upgrade and improve these sectors.

Fibres:

23-The persistent problem of contamination and trash content will be addressed

through enforcement of the standards laid down in the Cotton Control Act and

Cotton

Standardization Ordinance.

24-A comprehensive training and capacity building program will be developed to

establish a system in the private sector for grading and classifying cotton.

25-Incentives will be provided to ensure that proper premiums are paid for

increased

production of contamination free graded cotton.

Spinning:

26-Investments in rotor technology and specialized attachments like compact

spinning, lycra etc. will be encouraged along with ring spinning to attain economies

of

scale. To overcome the problems of power shortage, measures would be taken to

incentivize power generation by the mills.

Weaving and Knitting:

27-Assistance will be provided for increasing capacities, up-gradation and

defragmentation.

Cost-sharing and technical assistance will be provided to encourage Investment in

shuttle less looms, knitting and power looms sector up-gradation. Common working

sheds and clusters will be developed to ensure availability of utilities and to

encourage consolidation of non-mill sector.

Non-woven:

35


28-The non-woven sector is one of the emerging sub-sectors having considerable

uses in value-added products. To encourage this sector, training modules will be

developed to impart knowledge and skills.

Processing:

29-Policy will support new investments in processing industry, especially in the

processing of narrow-width fabric and knit dyeing. Up-gradation of existing

machiner and technology will also be supported.

Home Textiles:

30-Home Textiles is the first stage of high value-added products. Of late, Pakistan

has made significant advances in this area and its products are ranked amongst

the

best. However, the values realized are still low compared to those available to

other

brand names. Here the efforts will have to focus on fashion and design and

branding.

2.9-SWOT ANALYSIS

Strengths Weaknesses

Availability of Local Cotton

Availability of labor

Domestic Market

Lack of a Strategic Plan

Lack of Professional Manpower

Old Plant and Equipment

High Cost of Operation

High Cost of Financing

Inferior Quality

Opportunities Threats

Growing Demand of Textile Products.

Share in the international textile trade

is less than 1%. As such, Pakistan has

an enormous opportunity to increase

its market share in the global market.

Lack of Strategic Planning.

High Cost of Operation.

Multiplicity and high rate of taxation.

High Cost of Financing.

Lack of Project Financing.

Inferior Quality.

Lack of effective support from the

36


Government.

2.10-TECHNOLOGICAL IMPACTS

IMPACT OF CLIMATE CHANGES IN PAKISTAN

Climate change raises serious concerns for developing countries like

Pakistan, with its tremendous social , environmental and economic impacts.

The agricultural productivity in Pakistan will be affected due to changes in

land and water resources.

Although Pakistan has ideal climate condition for the growth of cotton

providing a factor advantage to the textile industry, but it is also quite

vulnerable to pesticides that can lower the yield per hector.

The textile sector is largely dependent on the supply of raw material of

agricultural sector and hence whatever happens to the agricultural sector

like floods will adversely affect the textile industry rendering it even more

vulnerable to environmental conditions.

ENVIRONMENTAL HAZARDS

From the early days of the industrial revolution, the textile industry has been

seen as a major polluter of rivers .

The facilities of sanitation and hygiene are available to limited urban

population.

An estimated amount of 17.5 million tons of solid waste is generated every

year in Pakistan.

The untreated water flows into stream rivers and irrigation canals.

Deforestation is taking place in the country at a rapid pace.

A large number of intermediate industrial processes are conducted through

imported chemicals that produce effluents and emit hazardous gasses.

Textile processing is a water intensive process. Almost 1.08-0.15 m3of water

is consumed to produce one kilogram of finished fabric, translating into

1,000-3,000 million cube of wastewater generation per day against a

production of 12-20 ton/day of finished fabric.

Currently the wastewater generated by the industry is discharged into the

local environment without any treatment that serious negative effect on the

environment.

37


A wide range of chemicals are used by the processing industry for dyeing

and printing operations. These include bleaching agents, vat dyes, azo dyes,

sulphur dyes, disperse dyes and color pigments, which are manufactured by

using chemicals such as formaldehydes, hydrochloric acid, ammonia,

chromium salt, soda ash, caustic soda, sodium sulphate, sulphuric acid, etc.

Extensive usage of these chemicals by the processing industry results in

discharge of toxic elements as effluents, which if not treated properly have

the potential to cause significant environmental degradation.

working in a car garage or textile factory can expose a person to hazardous

chemicals, dusts, and fibers that may lead to a lifetime of lung problems if

not properly diagnosed and treated.

SOCIAL IMPACT

Textile industry is associated with some environmental issues , some of

them are:

• Large volumes of water.

• Usage of complex chemicals.

• Discharge of untreated effluent

• Water Pollution

• Air Pollution

• Labours concern

2.11-CONCLUSION

Textile Industry is providing one of the most basic needs of people and the

holds importance; maintaining sustained growth for improving quality of life. It

has a unique position as a self-reliant industry, from the production of raw

materials to the delivery of finished products, with substantial value-addition at

each stage of processing; it is a major contribution to the country's economy. It

has a vast potential for creation of employment opportunities. If Pakistan

overcomes all the problems, definitely we can back on the position stands of

Textile Market.

38


3) Fertilizers Sector

The fertilizer industry in Pakistan is of an oligopolistic nature.The fertilizer industry plays an important role in the Economy of Pakistan as Pakistan is an agricultural base country which depends heavily on the agriculture.

BUSINESS CYCLE

The business cycle in Pakistan Since 1950 is been fluctuating and its been different trends and changing from time to time and in current situation it is going to be at the increasing trend.

INDUSTRY LIFE CYCLE

The Fertilizer industry is in expansion stage in Pakistan. Still there are a lot of new companies being established. There are very few barriers to the entry in this industry. We can say it’s a good chance for investors to invest in this industry to start up and there are not that many difficulties in this industry as compared to few others.

COMPETITORS

The Fertilizer Industry of Pakistan is the main industry which is contributing effectively to the economy of Pakistan. There is a competition among four major companies in the industrial sector of Pakistan.

These Four main companies

Engro FFC FFBLDawood Hercules

Few other companies are also doing their in this particular industry but they haven’t have make remarkable effect in this industry yet. The companies have the significant effect on the overall Economy of the Country. As per previous point the trend in the industry is growing due to the chances of more expansions in the industry.

MARKET SHARE

The market share of the companies in the fertilizer sector is given below and there is also a pie chart which can give a graphical look on the market share of these companies

Engro (20% of total urea production)

39


FFC (45% of total urea production)FFBL (13% of total urea production)Dawood Hercules (11% of total urea production)Others (11% of total urea production)

20%

45%

13%

11%

11%

Production

EngroFFCFFBLDawood HerculesOthers

This pie chart shows the market share of the companies which are operatig n this particular sector. The others represent the other companies which are in the fertilizer industry.

40


Engro FFC FFBL Dawood Hercules Others0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Production

The two other companies are Pak American and Pak Arab companies both with 11% of total urea production of Pakistan. The bar chart shows the market share of the companies.

TYPES OF COMPETITION

There are two types of competitions in the market

Direct Direct competition for any business includes entities that sell similar products or services in the same target market.

Indirect Indirect competitors can be more difficult to identify. The indirect competitor is one that sells different products or services as a primary business but can also fill the need for your product or service

In this industry the type of competition is the direct competition as for any Company includes entities that sell similar products or services in the same target market

UREA PRODUCTION CAPACITY

The total urea capacity of total industry and its company and also the capacity utilization of the companies is given in the table below.

41


Manufacturer Urea Capacity Capacity Utilization

FFC 1,904,000 118%

Engro 850000 107%

FFBL 551,100 105%

Dawood Hercules 445,500 91%

Pak American 350,000 100%

Pak Arab 92,400 124%

TOTAL 4,193,000 110%

DEMAND AND SUPPLY

The market demand for urea during the nine months ended September 30, 2009, was 4.7 million tons, an increase of 18% over the same period of last year (4.0 million tons). The increase is attributable to two major reasons, which are, better farm economics for wheat, which led to increased sowing and sowing of BT cotton which requires greater application of urea over conventional cotton varieties. Domestic production at 3.74 million tons was almost the same as compared to 3.73 million tons during the same period last year.

The market demand for urea, during the first quarter of 2009 was 1.55 million tons, showing an 11% increase over the first quarter of 2008 with demand at 1.4 million tons. The enhancement in demand is attributed to an improved farm economics for wheat, which has led to an increased sowing and also improved urea application. Domestic production 1Q09 was 1.16 million tons, which was 3% lower as compared to 1.2 million tons during the same period last year.

International urea prices declined during the period and on average the landed price of imported urea was approximately Rs 1,210 per bag ($300/ton) against the prevailing average domestic price of Rs 670 per bag. Industry-wide sale of phosphatic fertilizers increased by over 100% to 0.2 million tons as compared to 0.1 million tons for the same period last year. Low phosphatic fertiliser prices kept the demand high.

In 2008 with industry urea sales standing at 5.5 million tons, posting a 12% growth over 2007 despite acute shortages. This growth was attributed to (a) negative growth of 6.2% in 2007 vs 2006, (b) lesser application of phosphatic fertiliser and related market uncertainties, (c) Increase in area under BT cotton requiring more urea. With an industry of 5.5 million tons, this translated in 5-year CAGR of 4.2% and 10-

42


year CAGR of 3.5%, respectively.

Domestic urea production was 4.98 million tons, 5% higher than 2007. Additionally, TCP imported 0.44 million tons. Price differential between local and imported urea persisted with local urea being provided at a relatively lower cost so as to pass on the benefit to the farming community. Net benefit worth Rs 147 billion was passed onto the local farmers out of which Rs 34 billion was owing to the subsidy given by the government.

Domestic fertilizer industry witnessed positive trend in production during the year under review. The production in nutrient terms increased from 2906 thousand tones during 2008‐09 to 3024 thousand tonnes during 2009‐10 showing an increase of

4.1 per cent. Nitrogen production was 2611 thousand tonnes during 2009‐10 and recorded an increase of 3.2 per cent (86.3 per cent in total nutrient production), phosphate 403 thousand tonnes (13.3 per cent share in total nutrient production), which increased by 10.7 per cent. Potash blends production was bout 10 thousand tonnes and was almost same as in previous year (0.3 per cent share in total nutrient production).

The subsidy on phosphate and potassic fertilizers was eliminated on 31st December 2008. However, from January, 2010, the Government of Pakistan (GOP) initiated a new scheme of subsidy amounting to Rs. 500 per bag of 50 kg for potassic fertilizers only. For 2009‐10, the subsidy on potassic fertilizers has been estimated as Rs. 0.5 billion. Along with this, the subsidy on imported Urea by picking the difference over its local price (for price stabilization purpose) continued for 2009‐10. On flip side,

imported Urea as cost the GoP in 2009‐10 at least Rs. 1400 per bag, while, the total

subsidy on imported Urea is estimated as about Rs. 14 billion for 2009‐10. In addition to this, the Government is also providing an indirect subsidy to fertilizer manufacturers by selling feedstock gas (80% of the raw material cost) at approximately 50 per cent lower rates as compared to the price for commercial users.

TECHNOLOGICAL IMPACTS

The technology is improving day by day and lots of new and modern techniques are making the work easier in almost all the aspects of life, same is the case of this particular industry lots of new methods are introducing and making the work more efficient and effective as the advancement in the technology occurs more the work is convenient may new plants and machineries in the fertilizer sector are making the job easier and more reliable for the manufacturers of the fertilizer industry.

So, it can be said that the technology has made the positive and helping impact on the fertilizer industry as it has made in the other sectors.

GOVERNMENT POLICY

The fertilizer sector is heavily supported by the government because of its significant position in the agricultural sector. Producers are assured of a supply of gas

43


at existing prices for the purpose of feedstock and there are concessional rates for feedstock at about one-sixth of international prices. Further both urea and DAP prices are deregulated and there is no excise duty or sales tax on fertilize sales. The import of plant and machinery is allowed duty-free as is phosphate rock.

4) Electricity

Electricity sector in Pakista n: Electricity in Pakistan is generated, transmitted, distributed and retail supplied by two vertically integrated public sector utilities; Water and Power Development Authority (WAPDA) - For the whole Pakistan (Except Karachi) and the Karachi Electric Supply Corporation (KESC) - For the City of Karachi and its surrounding Areas. There are around 16 independent power producers that contribute significantly in electricity generation in Pakistan.

The electric power sector in Pakistan is still primarily state-owned. Over half of the electricity goes to household consumers, about one third to industrial consumers, and the rest to commercial and government consumers. Rates are determined by the National Electric Power Regulatory Authority (NEPRA).

Other sources of generating electricity are Independent Power Producers (IPP's), some of which have been funded by foreign investors, and a few WAPDA hydroelectric dam projects. The two largest private power plants in Pakistan are the Hub Power Company (HUBCO) and the Kot Addu power company (KAPCO). HUBCO, with a 1,300-MW capacity, is owned by a consortium of International Power (UK), Xena (Saudi Arabia), and Mitsui Corporation. The Kot Addu plant, with a 1,600-MW capacity, was privatized in 1996 (from WAPDA). International Power holds a 36 percent equity stake in the Kot Addu plant, while the government holds a

44


soon-to-be divested 64 percent stake. Both of these plants, as well as a few other small private operators, sell power to the national grid currently run by WAPDA.

Government Energy Policy:The govt. policy for the energy sector has been reformed from time to time but we will take a closer look at the policies.

Energy Policy

Energy sector is regulated and to a large extent owned and operated by the Government of Pakistan (GOP). GOP has been carrying out institutional reforms in the energy sector for the last 15 years. Besides improving the efficiency of public sector institutions, policies are aimed at increasing private sector participation in the development of energy sector

Introduction of Independent Power Producers (IPPs)

When the ‘Policy Framework and Package of Incentives for Private Sector Power Generation Projects in Pakistan‘ was announced by GOP in March 1994, the total installed capacity in the country was 10,800 MW. This capacity was insufficient to meet the demand on year round basis, particularly during low river flows period, and it necessitated load shedding of the magnitude of 2,000 MW during peak load hours. At that time, an optimistic load projection at the rate of 8% per annum for the next 25 years gave rise to an estimated 54,000 MW additional electricity generation capacity requirement up to year 2018. Such an ambitious programmes could not be financed by the GOP, and therefore, resource mobilization in the private sector was considered essential to meet these development targets.

Supply & Demand of electricity in Pakistan:Pakistan's current installed capacity is around 19,845 MW, of which around 20% is hydroelectric. Much of the rest is thermal, fueled primarily by gas and oil.

Installed Capacity:

Electricity - total installed capacity: 19,505 MW (2007)

Electricity - Sources (2007)

o fossil fuel - 12,580 MW - 65% of total

o hydro - 6,463 MW - 33% of total

o nuclear - 462 MW - 2% of total

Electricity production:

Electricity - production: 88.42 TWh

Electricity - production by source

o fossil fuel: 63.7% of total

o hydro: 33.9% of total

o nuclear: 2.4% of total Growing demand

45


Supply & demand of electricity

2008 2009 2010 2011 2012 2013 2014 2015

Existing Generation 15,90315,903

15,903 15,90315,903

15,90315,903

15,903

Proposal / Committed Generation

530 4,235 7,226 10,11510,556

13,30713,520

14,607

Total Existing/Committed Generation

16,48420,138

23,129 26,01826,459

29,21029,423

30,510

Expected Available Generation

13,14616,110

18,503 20,81421,167

23,36823,538

24,408

Demand (Summer Peak)

16,48417,868

19,352 20,87422,460

24,12625,919

28,029

Surplus/Deficit Generation

-3,338 -1,758 -849 -60 -1,293 -758 -2,381 -3,621

2008 2009 2010 2011 2012 2013 2014 2015

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Existing GenerationProposal / Committed Genera-tionTotal Existing/Committed GenerationExpected Available GenerationDemand (Summer Peak)Surplus/Deficit Generation

46


Current Crisis:

In June 2007, the power cuts in Pakistan lasted no more than 3 or 4 hours a day. Today, in extremely hot weather, Pakistanis have to endure without electricity for 8 to 10 hours a day. Industrial production is suffering, exports are down, jobs are being lost, and the national economy is in a downward spiral. By all indications, the power crisis in Pakistan is getting worse than ever.

Pakistan Electric Power Company PEPCO blames independent power producers (IPPs) for the electricity crisis, as they have been able to give PEPCO only 3,800 MW on average out of 5,800 MW of confirmed capacity. Most of the IPPs are running fuel stocks below the required minimum of 21 days. IPPs complain that they are not being paid on time by PEPCO.

Extended electricity load shedding in Karachi's five major industrial estates is causing losses in billions of rupees as the production activity has fallen by about 50 per cent. KESC, Karachi's power supply utility, is dealing with with a shortfall of around 700MW against a total demand of 2200MW.

Response to the crisis:

Neelum-Jhelum hydroelectric project, first formally announced by former Minister Omar Ayub on June 10, 2007, is finally starting in earnest under the PPP government of Prime Minister Yousaf Raza Gilani. This hydro project is expected to add 963MW power generating capacity at a cost US $2.2 billion, according to Business Wire. Prior to this project, the new Pakistani Prime Minister signed a deal with a Chinese company, Dong Fong, for setting up 525 MW thermal power plant with an investment of $450 million at Chichoki Mallian (Sheikhupura). Both of these projects are expected help partially close the 3000 MW gap that exists today between supply and demand in Pakistan.

47


Future plans:

Pilot Project for Installation of Indigenously Developed Micro Wind Turbines:A total of 140 Micro Wind Turbines have been installed at various sites within Sindh and Balochistan, for providing electricity to the rural households, as well as for water pumping.

(2x50) MW Wind Power Generation Project at Gharo, Sindh

On commercial grid connected electricity generation program, the Government of Pakistan has decided to install 100 MW Wind Power Farm by June 2009. This program initiated by the Alternative Energy Development Board (AEDB), involves financing through private sector, land from Government of Sindh and power purchase by NTDC for HESCO. The Government of Pakistan guarantees are backed through NEPRA. The Board has recently issued LOIs to 30 national and international companies for generation of 1500 MW power through wind energy.

A wind corridor at Gharo-Keti Bandar, Sindh has been identified with an actual potential of 50,000 MW. The pre-feasibility study of the site has been done by AEDB. AEDB drafted the Power Purchase Agreement (PPA) and the Implementation Agreement. 8 companies with financial and technical viability have been short-listed.

Conclusion:

It is clear that Pakistan is a suitable country for the installation of wind, due to high winds near cities; the presence of rivers and lakes as well as the availability of wind turbines from nearby India. There are also other reasons for installing renewable energy. It is quite normal for extended power outages to happen on a daily basis in the country, but this cannot continue if the Pakistani economy is to grow. In March 2007, President Musharraf stated that renewable energy should be part of the push to increase energy supplies by 10 to 12 percent every year. The government also set a target of 10 percent of energy to come from renewable by 2015. If the new PPP-led government follows through with aggressive renewable energy push, Pakistan could be an Asian leader in renewable energy given its natural resources of wind and solar as its strategic endowments.

48


5) Cement Sector

Pakistan's cement sector presently is one of those sectors that have managed to thrive in adverse conditions being faced by business across the board in 2008-09. The country at present has 29 cement plants with an installed capacity of producing around 39 million tones of cement mainly Pak-land cement.

Competitors and Market Share

The competitors and their market shares in the Pakistan cement industry is as follows.

S.No

Company Market Share(%)

1 Al-Abbas Cement Industries Limited 4.789

2 Attock Cement Pakistan Limited 1.894

3 Bestway Cement Limited 8.549

4 Cherat Cement Company Limited 2.508

5 D. G. Khan Cement Company Limited 7.984

6 Dadabhoy Cement Industries Limited 2.578

7 Dandot Cement Company Limited 2.489

8 Dewan Cement Limited (Pakland) 9.379

9 Fauji Cement Company Limited 18.194

10 Fecto Cement Limited 1.197

11 Flying Cement Company Limited 4.619

12 Gharibwal Cement Limited 6.085

13 Javedan Cement Limited 0.763

14 Kohat Cement Limited 3.379

49


15 Lucky Cement Limited 8.486

16 Maple Leaf Cement Factory Limited 9.769

17 Pioneer Cement Limited 5.236

18 Thatta Cement Company Limited 2.094

Al-Abbas

Cemen

t Industr

ies Lim

ited

Bestw

ay Cem

ent L

imite

d

D. G. K

han Cem

ent C

ompan

y Limite

d

Dandot C

emen

t Com

pany Lim

ited

Fauji C

emen

t Com

pany Lim

ited

Flyin

g Cem

ent C

ompan

y Limite

d

Javed

an Cem

ent L

imite

d

Lucky Cem

ent L

imite

d

Pionee

r Cem

ent L

imite

d0

2

4

6

8

10

12

14

16

18

20

Market share %

Market share %

Growth In Cement Industry over Ten Years

The cement sector posted a growth rate of 4.71 percent during July-March 2008-09. Pakistan is not only meeting its domestic needs but also exporting the surplus. The demand and production of cement is in the following Table.

July-June

Production capacity

% age Inc/Dec

Local Dispatches

% age Inc/Dec

Exports % age Inc/Dec

Total

Despatches

% age

Inc/Dec

Capacity Utilizatin

Surplus Capacity

(Mn. Tonnes)

(Mn. Tonnes)

(Mn. Tonnes)

(Mn. Tonnes)

Total %age Mn. Tonnes

2000-01 15.534 -5.16 9.933 -0.04 0 0.00 9.933 -0.04 63.95 5.600

2001-02 15.723 1.22 9.833 -1.01 0.107 100 9.940 0.06 63.22 5.783

2002-03 16.321 3.81 10.980 11.66 0.430 303.6 11.41 14.8 69.91 4.911

2003-04 16.936 3.77 12.545 14.25 1.160 169.5 13.705 20.11 80.92 3.231

50


2004-05 17.909 5.75 14.788 17.88 1.565 34.95 16.353 19.33 91.32 1.555

2005-06 20.955 17.01 16.907 14.33 1.505 -3.83 18.412 12.59 87.87 2.543

2006-07 30.251 44.36 21.034 24.41 3.188 111.8 24.22 31.56 80.07 6.028

2007-08 37.157 22.83 22.569 7.3 7.71 142.0 30.286 25.03 81.51 6.871

2008-09 41.76 12.39 19.39 -14.0 11.38 47.48 30.775 1.61 7.69 10.98

Pakistan Cement Industry produces exportable surplus of cement which is exported mainly to Afghanistan, India, Africa and the Middle East. The average capacity utilization, production and export of cement in the past three years have been given in the table and explained in graph as given below

S.No Year Export(Mil tons)

Value

1 2006-07 3.2 185

2 2007-08 7.7 450

3 2008-09 8.9 534

4 2009-10(July-March 10)

6.7 356

The results of above table are graphically explained in the following graph

Sales

2006-072007-082008-092009-10(July-March 10)

51


Pakistan cement factories continue to make significant progress in cement exports. Now Pakistan is ranked 5th in the world's cement exports after a huge increase of 47 percent in exports during last fiscal year.

Overall cement plants of Pakistan operated at 80 percent capacity utilization as compared with 81 percent utilization in the same month of last year. Although Fauji Cement has claimed 100% utilization during last year. Cement exports of Pakistan continue to show healthy and positive growth trend and recorded 45 percent growth on Y-o-Y basis. However, on M-o-M basis, cement exports represented a decline of 3 percent.

Weight of sea based cement exports during the month was recorded at 68 percent in overall cement exports as compared to 63 percent in July 2008. It is important to note that cement exports to India during the month were recorded at 63,000 tonnes, which is lower when compared with the initial monthly average of 100,000 tonnes

52


COMPANY ANALYSIS

1) Pakistan State Oil Company Limited

Pakistan State Oil Company (PSO), is the largest Oil Marketing Company

(OMC) operating in Pakistan and engaged in the storage, distribution

and marketing of POL products and is among the country’s largest

corporate entities with highest earnings and capitalization. Supported by

well-established infrastructure built at par with international standards,

omprising around 877,000 million tons storage facilities representing

almost 81% of the total storage capacity in the country. PSO has an

edge over its competitors

in terms of economies of scale and cost effective operations.

PSO has always been considered as a blue chip company with market

capitalization of around Rs. 50 billion (USD 860 million). The company is

the winner of “Karachi Stock Exchange Top Companies Award” and

a member of World Economic Forum.

The PSO’s retail coverage of over 3,800 outlets which representing 80%

participation in total industry network. The rapidly expended

international standard New Vision outlets are more than 800. These new

outlets accommodate the end user’s needs but also add beauty to the

landscape. These outlets are equipped with convenience stores,

business

centers, Internet facility and CNG facility, etc. To ensure the quality of

the products being sold to customers, 16 mobile quality-testing units

have been deployed in all major cities to carry on-the-spot checks for

quality and quantity.

Industry Profile

53


There are four main OMCs in Pakistan that includes PSO,Shell, Caltex

and Total. PSO is the market leader by holding overall 67% of market

share and with 22% share Shell Pakistan hold second position.

54


55


PSO’s Market Share

Market SegmentationPetroleum industry is categorized into two main markets according to

the nature of the products and their usage. The Whit Oil segment

includes MOGAS, Kerosene, Diesel and Jet Oil that are purified fuel. The

Black Oil segment represents the products, which are less purified and

used in mostly industrial sectors.

The White Oil Markets has registered the 2.6% growth while the Black

Oil Market faced 15% decline due to low demand in power sector

especially by HUBCO. PSO holds market leadership in White Oil Market

with 59 % and Black Oil Market with 79% participation.

56


SWOT Analysis of PSO

1. Market Share of 70% is one the main strength of PSO.

2. Company reputation in the industrial sectors adds the strengths for

PSO.

3. Product quality is also strength especially in industrial sector.

4. Service quality like plastic cards and non-fuel activities adds the

value.

5. Distribution & Fleet network, which covers 81% country retail network,

is the key edge on PSO its competitors.

6. Promotional activities add value in brand awareness and attraction of

new customers.

7. Innovation like Auto Car Wash helps PSO to differentiate with its main

competitors.

8. Storage capacity, which holds 80% of total storage capacity of the

country, is also key advantage over its competitors.

9. Technical skills in Fleet management are another strength for PSO.

10. Visionary, capable leadership adds value to PSO strength like

their NVRO operations.

11. Financial Stability with strong reserves, paid-up capital adds the

trust of stakeholders.

12. Product line width adds long range of products for more revenue

opportunities.

13. Castrol brand affiliation with PSO adds strength in terms of

brand awareness.

14. Relations with Government one of the key strength of PSO in

order to get legal protections.

Weaknesses1. Lost & Dissatisfied customers are major weakness of PSO as they are

causing the perception of inefficient PSO.

2. Old retail outlets are major weakness for PSO as they are not enough

capable to compete the Shell, Caltex or Total outlets.

3. Untrained staff at outlets is causing inefficient services.

4. Quality assurance is not so effective to build the image of “Quality &

Quantity”.

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Opportunities

1. Afghanistan's Market is the biggest opportunity for OMCs in Pakistan.

2. De-regularities of Oil industry in Pakistan add the opportunity to fill

the deficiency in few sectors of petrochemicals markets.

3. Export Opportunities of Black Oil Products is also adding the

opportunities by exporting Black Oil products, which is facing downfall

due to the introduction Gas Oil.

4. Industrial & Trade growth in Pakistan is also the opportunity for PSO

as they are adding revenues in Power sector that is the major

customer of PSO.

Threats

1. Risk of forward integration of Supplier is the key threat for PSO and

other OMCs in Pakistan. As the example, the PARCO who is one of

the main POL product suppliers to OMCs adopt the forward

integration strategy by introducing its own OMC with its new business

alliance TOTAL and named its OMC as TOTAL-PARCO.

2. Risk of Diversification in technology is also a key threat for PSO as

due to new technology used in industrial sector are causing decline in

particular POL products.

3. Availability of Substitutes in Black Oil Market are causing a solid

reason for the declining trend in Black Oil Products, which is major

threat for PSO.

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2) NISHAT MILLS LIMITED

1-INDUSTRY OVERVIEW:

Nishat has grown from a cotton export house into the premier business

group of Pakistan with 5 listed companies, concentrating on 4 core

businesses; Textiles, Cement, Banking and Power Generation. Today, Nishat

is considered to be at par with multinationals operating locally in terms of its

quality products and management skills.

NISHAT MILLS LIMITED (NML) commenced business in 1951 as a partnership

concern, which was converted into private limited company in 1959. In

1961, the company went public and was listed on the Karachi stock

exchange, the only stock exchange in the country at that time.

NML started out as a weaving unit with 500 semi-automatic looms; later

10000 spindles were added, laying the foundation on nation’s biggest

textiles composite project. Composite project at Nishat mills limited

Faisalabad covering 98 acre of land is providing all production process

under one roof i.e. spinning, weaving, processing, stitching and power

generation.

1.1-HISTORY AND PRESENT STATUS OF NISHAT

The history of Nishat dates back to 1951, when Mian Mohammad Yahya

founded Nishat Mills. After almost half a century of undaunted success,

Nishat Group is among the leading business houses of the country and

ranks among the top 5 groups in terms of assets and sales revenue. The

group has its roots firmly planted into four-core business namely.

Textiles

Power generation

Banking

Cement

The textile business is further subdivided into 2 textile divisions;

Nishat Faisalabad

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Nishat Chunian

The textile capacity of the group is the largest in the country. An addition of

20,000 new spindles, 100 new air jet looms and new dyeing plants has

increased the existing capacity of 242,000 spindles, 740 looms and dyeing

and finishing capacity of 5 million meters. The largest exporters of textile

products from Pakistan, for more then decade!

1.2-Major competitors

Nishat competitors are

Crescent

Chena

Arzo

Alkarms

Sitara

Kohinoor

Amtex

But main competitors of Nishat Mill are

“Crescent Textile Mills”

“Chenab Textile”

1.3-ACCOUNTING POLICIES

BASIS OF PREPARATION OF FINANCIAL STATEMENTS

These financial statements are unaudited but subject to limited scope

review by the

auditors and are being submitted to shareholders as required under section

245 of the Companies Ordinance, 1984. These have been prepared in

accordance with the

International Accounting Standard 34 “Interim Financial Reporting” as

applicable in

Pakistan and notified by Securities and Exchange Commission of Pakistan

(SECP).

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ACCOUNTING POLICIES AND COMPUTATION METHODS

The accounting policies and methods of computations adopted for the

preparation of

these interim financial statements are the same as applied in the

preparation of the

preceding annual published financial statements of the company.

1.4-Earning forecast

Coverage on Nishat Mills Ltd (NML) with a SELL recommendation based on

SOTP based fair value of PkR 55.14 presenting a downside potential of

18.32% from the current market price. Core business sums up to PkR

21.13/share (38%) and portfolio

PkR 34.01/share form 62% of fair value after applying 50% discount to it.

NML is a key player in composite textile manufacturing with around 2%

share in total textile exports of the country. With almost 85% of the

revenues generated from exports, the sales growth is dependant on (1)

Global economic recovery (2) Trade concessions from US and EU (3)

Competitiveness against local, regional and global peers. NML is positively

exposed to Rupee depreciation and 20% currency depreciation helped the

company to improve its gross margins from 15.4% in FY08 to 18.2% in FY09.

NML holds a strong portfolio in group companies with 31.4%, 6.8%, 5.8%,

13.6% and 63.2% stake in DGKC, MCB, AICL, NCL and NPL respectively. The

stock trades at prospective FY10 earnings and BV multiples of 11.43 and

0.70 as compared to

FY05-FY09 his orical average of 14.72 and 0.80 respectively.

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Y/E June 30 FY08A FY09E FY10F FY11F

1.5-ANALYSIS OF FINANCIAL STATEMENTS

profitability

The profitability of NML has declined considerably, in line with the textile

industry. Despite a rise in the gross margin from 15.41% in FY08 to 18.23%

in FY09 on the back of improved top line, the profit margin reduced to

5.31% in FY09 as against 31.86% in FY08. The factors contributing to this

fall in bottom line are the 32% increase in operating costs and 59.4%

increase in the financial charges. The 6-month KIBOR rate surged up by

380bps which in turn increased the finance costs by 50% for the textile

sector. Return to equity and return to asset demonstrate a similar negative

trend, declining my 75% and 73% respectively.

LIQUIDITY

The liquidity analysis shows that the liquidity has declined in FY09. This has

been the second consecutive year of deteriorating liquidity position. The

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current ratio has declined from 1.19 in FY08 to 0.86 in FY09 while the quick

ratio has declined from 0.80 in FY08 to 0.38 in FY09. The decrease in

current liabilities in FY09 is 18.08% while the decrease in current assets is

by 40.46%. There is a decline in quick assets by 52.5% against a substantial

decline in quick assets of the company. In order to comply with the

requirements of IAS 39 and in view of market conditions and current

economic scenario in the country, the company decided to record full

impairment of Rs 17.259 million against those available for sale securities

where fair market values were less than their cost as at 30 June 2009.

Despite improved revenue the firm has low working capital available for

short-term funding needs.

1.6MARKET WORTH

The price to earnings ratio shows a positive surge despite the prevalent

uncertain market conditions. EPS declined by 82.27% due to the eroded

profitability. The prices displayed an overall declining trend amongst several

fluctuations from a high of Rs 85.97 in FY08 to a low of Rs 22 but recovering

to Rs 34.29 at the end of FY09. The dividend per share has declined from Rs

2.5/share to Rs 2/share. The book value has shown a decline due to increase

in the number of shares outstanding. The company issued 79,892,858

ordinary shares of Rs 10 each, paid at Rs 25 per share (inclusive of premium

of Rs 15 per share). Thus, the paid up capital of the Company has increased

from Rs 1,597,857,170 to Rs 2,396,785,750 by the issue of said right

shares. The funds were utilized by the company to meet the working capital

requirements and to counter the liquidity crunch of banks.

1.7-FUTURE OUT LOOK

According to the Alfalah Securities research, the nishat mills ltd will get the

following results.

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1.10-SWOT ANALYSIS:

Strengths:

ISO 9001-2000:

Strong Security System

High quality product

Latest mechanized machinery.

Tremendous market positioning

Highly qualified and skilled management

Highly Motivated Workforce

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Adequate financial resources

Competitive advantage

Equipped with MIS System

Own power generation plant

Weaknesses

High cost of production

Centralized decision making

Weak image in the international market

Small international market share

Less promotional activities

Lack of benefits and rewards for the employees.

OPPORTUNITIES:

Organization Can expand product lines

Organization Can capture new market segments around the world

Organization Can reduce the cost by proper utilization of resources

Organization Can hire more well-educated and experienced person

Threats:

New Entry of competitors

Buyer needs demands changes

Political instability

Changed of government policies

Globally Economic instability

3) ENGRO CHEMICALS COMPANY ANALYSIS

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As we know that the Ferlizer sector has the great importance in the Economy of Pakistan and one of the main companies in the fertilizer sector of Pakistan is the Engro Chemicals Pakistan Limited.

Company Valuation(Rs/Shr) Contribution Valuation ModelEngro Fertilizer & Exim

130 55.3% FCF

Engro Foods 65 27.7% Price to saleEngro Polymer

15 6.4% DCF

Engro Energy 13 5.5% DDMEngro Vopak 11 4.7% DDMEngro Avanceon

1 0.4% Valued at Cost

Engro Corporation

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This table shows the valuation and contribution of Engro Corporation’s which shows the contribution of different branches of Engro and also the valuation of share in rupees. The Fertilizer and Exim has the highest valuation of Rs 130 per share and the contribution of 55.3%. This shows the importance of Fertilizer in the whole Engro company.

Engro Chemicals Pakistan Limited is an agri-based company, engaged in the business of manufacturing and marketing of fertilizers. The company was incorporated in 1965 and was formerly known as Exxon Chemical Pakistan Limited until 1991. Engro Chemical Engro is country’s second-largest urea manufacturer with a market share of 19% during CY08. It also imports and sells DAP, in which it had a 14% market share as of CY08. The company is growing from its fertilizer roots to become a diversified conglomerate. Apart from its urea manufacturing business, Engro has subsidiaries andjoint ventures engaged in PVC manufacturing, dairy products, bulk chemical handling and power generation, while recently company has announced de-merge of the business as discussed earlier. Going forward company is in the process of massive expansion plan at a cost of approximately USD1.05bn to expand its urea capacity to2.3mn tones which is 133% percent of its current capacity.

ANALYSIS OF FINANCAIL STATEMENTS

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The analysis of the financial statements of Engro includes the financial position of the company and the ration analysis

DEBT MANAGEMENT

2004 2005 2006 2007 2008 2009

Total debt to asset 0.50 0.48 0.47 0.59 0.62 0.71

Total debt to equity

1 0.91 0.90 1.44 1.61 2.49

Time Interest Earned

6.64 9.28 8.03 6.90 3.81 4

Long term debt to equity

0.55 0.53 0.43 1.11 1.35 2.25

PROFITABILITY

2004 2005 2006 2007 2008 2009

Net Profit Margin 13% 13% 14% 14% 18% 13%

Grass Profit Margin

26% 21% 27% 21% 27% 23%

Return on Assets 12%

16% 11% 8% 7% 4%

Return on Equity 24% 31% 22% 20% 18% 15%

LIQUIDITY

2004 2005 2006 2007 2008 2009

Current Ratio 1.5 1.8 1.6 3 2.6 1.7

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Dividend Per Share

8.50 11 9 7 6 6

Earnings per share 8.30 11.30 12.40 13.54 16.8 1.4

INTERPETATION OF FINANCIAL POSITION

During FY09, the company produced 952,000 tons of urea which is 4% lower than 995,000 tons of 2008 production; this was mainly due to the planned maintenance shutdown in the second quarter. The company sold 933,000 tons of urea and consumed 20,000 tons in the Zarkhez operations. Also there has been a decline in Engro s share because of production remaining constant having reached the maximum capacity and while there was a growth in urea demand, the distribution of imported urea was handled directly by NFML.

During the year under review, the company sold 357,000 tons of phosphates as compared to 128,000 tons in 2008, achieving a market share of 21% against 16% in 2008. The growth was based on the focus on anticipating demand and market trends. As a result of the higher international potash prices in 2009, the potash nutrient industry registered a 33% decline during the year. Being the largest player in the potash market, Zarkhez sales dropped to 55,000 tons, a decline from 69,000 tons levels of 2008. However, the market share of potash increased from 51% in 2008 to 65% in 2009.

Net sales of the company have shown an increasing trend over the last 5 years. The sales stood at Rs 18,276 million in FY05, whereas in FY09 these have increased to Rs 30,172 million. The gross profits have also shown an upward trend, increasing from the levels of Rs 3,912 million in FY05 to Rs 6,931 million in FY09.

The profits after tax have been showing a fluctuating trend over the last 5 years. They stood at Rs 4,240 million in FY08, and declined to Rs 3,957 million in FY09. This fluctuating profitability trend has lead to fluctuations in the profitability ratios of the company. The net profit margins in FY09 stood at 13% in FY09 as compared to 18% in FY08 and 14% in FY07. Also, the gross profit margins stood at 23% in FY09 as compared to 27% in FY08 and 21% in FY07.

The return on assets and return on equity have been declining over the

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last 5 years. The RoA declined from 15% in FY05 to 4% in FY09. The RoA stood at 7% in FY08. There has been a massive increase in the total assets of the company. The total assets increased from Rs 57,164 million in FY08 to Rs 93,709 million in FY09.

The property, plant and equipment have increased from Rs 33,553 million in FY08 to Rs 69517 million in FY09. The property, plant and equipment have increased mainly on account of the urea expansion project. The property, plant and equipment included in capital work in progress due to urea expansion project increased to Rs 47,081,203 thousands in FY09 as compared to Rs 23,064,182 thousands in FY08. The RoE has declined from 18% in FY08 to 15% in FY09. This has been due to the increase in the equity. The equity increased from Rs 21,054 million in FY08 as compared to Rs 26,888 million in FY09.

The total liabilities of the company have been increasing over the last 5 years. They have increased from Rs 36,111 million in FY08 to Rs 66,821 million in FY09. Tremendous increase has been seen in the long term liabilities. They have increased from Rs 30,112 million in FY08 to Rs 60,426 million in FY09. The borrowings of the company have increased from Rs 27,757 million in FY08 to Rs 58,565 million in FY09. The increase in the borrowings has been for the urea expansion project. Included in these are the loans from consortium of development finance institutions comprising of DEG, FMO and OFID for an amount of US $85,000. Also the company has contracted a loan with International Finance Corporation for US $50,000.

Another major increase on the liabilities front has been in the employee housing subsidy. In 2008, the company announced a medium term Employee Housing Subsidy Scheme for its employees who were not entitled to Employee Share Options. The company has completed disbursements of Rs 395,606 thousands in FY09 as compared to Rs 152,223 thousands in FY08. With the increase in the liabilities the total debt to equity ratio of the company has reached a level of 2.49 as compared to 1.61 in FY08. Even the debt to total assets has increased to 0.71 as compared to 0.62 in FY08.

The current ratio of the company has been declining over the years. During FY09 it declined to 1.7 as compared to 2.6 in FY08 and 3 in FY07. During FY09 the current liabilities of the company increased from FY08 levels of Rs 5,999 million to Rs 6,395 million. Increase was seen in derivative financial instruments, which have increased from Rs 155 million to Rs 740 million. The company has entered into forward exchange contracts to hedge its foreign exchange exposure.

The company has forward contracts to purchase euro 9,543 in FY09 as

69


compared to Euro 130,505 in FY08. Also, the company has entered into foreign exchange option contracts to hedge its currency exchange against US dollars relating to the expansion project. The country had foreign exchange options amounting to Euro 12,628 in FY09. The company has entered into an interest rate swap agreement to hedge its interest rate exposure on floating rate committed borrowing from a consortium of Development Finance Institutions for notional amount of US $85,000. During FY09 the current assets of the company declined to Rs 10,749 million in FY09 from Rs 12,042 million in FY08.

With the increasing net profits after tax for the last 6 years, the earnings per share have also increased. The net income stood at Rs 1,611 million in FY04 as compared to Rs 3,957 million in FY09. Also, the EPS has increased to Rs 14 in FY09 as compared to Rs 8.3 in FY04. The dividend per share has been fluctuating over the last 5 years. In FY05 the dividend was Rs 11 which has declined to Rs 6 in FY09 showing a payout ratio of 43%, as compared to a payout of 100% in FY05.

4) Hub Power Company Limited

History

In 1985, the Government of Pakistan, with the help of the World Bank, developed a long-term energy strategy which envisaged the involvement of private investors in power generation. The objective was to meet the increasing demand for power in the country, in the most efficient and effective way to achieve the levels of growth the Government had set for the economy. A year later, the development of the Hub Power Project began.

Company Profile

Overview:

The principal activities of Hub Power Company Limited (HUBCO) are to own, operate and maintain an oil-fired power station with a net capacity of 1,200

70


MW that today provides about 6 percent of the country’s total electricity generation, and also to carry out the business of power generation, distribution and sale at other places in Pakistan. This company is located in Tehsil Hub, District Las bella, Balochistan.

The Hub Power Company Limited or HUBCO was incorporated in Pakistan in 1991. It is publicly owned company listed on the Karachi, Lahore and Islamabad stock exchanges.

The HUBCO power station is the first and largest power station to be financed by the private sector in Southern Asia and one of the largest private power project in the newly industrialized world. The power plant is operated and maintained under contract by International Power Global Development (IPGD), One of the leading power producer in the world.

The hub power station was the first project to be successfully co-financed by several government, the World Bank as well as international private sector lenders and investors. It set the standards for the formulation of a private power framework in Pakistan which has since resulted in up to 40 present of Pakistan’s energy needs being met by private power producers.

Growth Through Energy

Living with the motto of Growth through Energy, HUBCO is embarking on two new energy sector Projects – a 220 MV thermal power project that will be established at a site in Norowal in the Punjab Province, and a 84 MV hydropower project to be located 8 kilometres downstream from the Mangla Dam. HUBCO was the first Independent Power Producer to set up a thermal power plant in Pakistan and now it will be the first IPP to establish a hydropower project.

Tripple Bottom Line Concept

HUBCO is dynamic company whose business operations are firmly based on sustainable growth and development. To this end the company actively pursues the Tripple Bottom Line of People, Plant and Profits.

People

‘People’ in the context of HUBCO’s operations include its employees, the community, its business partners and its shareholders.

HUBCO believes that its employees are the Company’s most important resource. The recruitment of the employees follows stringent procedures to ensure that the very best talent is taken on in all specialities, be it

71


engineering, finance and accounting, HR, administration, information technology, company law, logistics, business development and so forth.

Planet

As a caring corporate citizen, HUBCO takes a long-term view on its own responsibility to the planet. Before the planet was commissioned in June 1996 a comprehensive environmental and social soundness assessment was completed which set the standard for the project’s environmental operations in meeting both the national and World Bank’s environmental targets and standards.

In the future context, HUBCO will be the first independent power producer (IPP) in Pakistan to establish an environmentally friendly hydropower project. To achieve this, HUBCO acquired 75 percent controlling interest in Laraib Energy Limited at the beginning of August 2008 with the objective of doing everything necessary to ensure the timely complection of an 84 MV, run of the river hydropower generating complex being set up about 6 kilometers downstream of Mangla Dam.

Profits

HUBCO has consistently achieved targeted profits since its inception and remains committed to maintaining the HUBCO share as a secure and sustainable investment.

So, for the evaluation of the company’s success, the profits that it achieves remain a key performance indicator. Extending this into the realm of the, Tripple Bottom Line concept, two other factors should also be noted.

First , the profits must be consistent, Second, the profits must be sustainable,

The Hub Power Company Limited has by now amply demonstrated that it meets these parameters. Not only it has consistently paid dividend to its shareholders in line with its projections and markets expectations, it has already committed on a future growth strategy.

The Norowal Project comprises of 11 ‘V’ type low-speed MAN diesel engines each having a capacity of 18.43 MV, and 11 heat recovery steam generators. Under site conditions, the gross capacity of this new power plant will be 219.16 MV, while the net capacity will be 213.60 MV. The Net Thermal Efficiency would be 45 percent at 100 percent Load Factor. The electricity generated will be sold to the National Transmission and Distribution Company (NTDC) under a 25 year Power Purchase Agreement (PPA).

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Future Growth in Energy

Now in its leadership role as the largest independent power producer (IPP) in Pakistan, HUBCO is looking ahead positively to the future under its new motto Growth through Energy, adopted in year 2006. In practical terms the company’s motto is being enacted through new projects that are already in the pipeline. The First, the Norowal thermal power project is expected to be on stream in March, 2010, less than 20 months from now. The second, The Laraib hydropower project, is expected to be fully operational in about 39 months. This project will also be the country’s first hydropower project by an IPP.

As the country’s demand for energy continues to grow rapidly, HUBCO stands committed to enhance its own generation capacity through new power projects.

Competitors:

Altern Energy , Genertech, Japan Power, K.E.S.E, Kot Addu Power, Nishat Chun Power, Nishat Power Ltd, Sitara Energy, Southern Electric Tri-Star Power

Share Market:

Hub Power Company contribute its share to the market in the electricity generation and production point of view, it is the second company who is generating electricity according to its competitors in the market. Its share to the market contribution is shown below,

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Market ShareALTERN ENERGY LIM-ITEDGenertech Pakistan Ltd (GPL)Hub Power CompanyJapan Power Generation LimitedKESC).Kot Addu PowerNishat Chunian Power Ltd.Sitara Energy LTD.Southern Electric Power Project

Financial Analysis

In financial analysis we will discuss about HUBCO turnover, gross profit, total operating expense net profit before taxes and after taxes during the last 10 years,

Turnover:

1 2 3 4 5 6 7 8 90

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

Total Turnover

Total Turnover

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Interpretation:

Turnover for the year 2001, was Rs.29, 086 million and in 2000, was 25,601million.

In 2002, turnover decrease and it was Rs. 21,367 million, and in 2003 further decrease turnover was Rs. 19,514 million.

In 2004 turnover was Rs.16,003 million and in 2005 increase and reach 16,978 million, and 2006 was Rs. 27911 million.

In 2007 it was Rs. 44,131 million and in 2008 it was continuously increase and reaches to 62,435 million.

In 2009 turnover tremendous increase and reaches Rs. 82784 million. Comments:

If we analyze turnover data of last 10 year we can say that from last year there is a increasing trend of Hub Power Company turnover, which is a good sign for the investor to invest in the shares of this company.

Gross Profit:

1 2 3 4 5 6 7 8 90

1,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,000

10,000,000

Gross profit

Gross profit

Interpretation:

Gross Profit of Year 2002 is Rs. 9,829 million more than, 2001 is Rs. 8,492 million.

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In 2003 gross profit is Rs. 8,492 million, In 2004 gross profit is Rs. 7,896 million, In 2005 is Rs, 7,157 million. In 2005 gross profit is Rs. 4,358 million, and in 2007 is Rs. 4,163

million. Gross profit increase in 2008 with Rs. 4,749 million to in 2009 with Rs.

6,097 million.

Comments:

If we analyze the data of last 10 years for the investment point of view to whether the Hub Power Company is consistently maintain and increase its gross profit or not. We analyze after analyzing the financial statement s that is increasing its gross profit from the last year and it is a good sign for the investor to invest in the securities of this company.

Net Income / Loss:

1 2 3 4 5 6 7 8 90

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Net income (loss)

Net income (loss)

Interpretation:

Net profit in year 2001 is Rs. 10,859 million and in 2002 it was Rs. 7,286 million.

With decrease of it was in 2003 Rs. 6,102 million and in 2004 it was Rs.5,483 million.

In 2005 profit was 5,385 million and in 2006 it was Rs. 2,768 million.

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In 2008 profit was Rs. 2,602 and in 2009 with the increase it was reached Rs. 3780 million.

Comments:

After analyzing the data of net profit of the company we analyze that the Hub Power Company is going into profit, and now company will grow and it will sustain the profit. Because last year it earn profit 11 million more than from the previous year which is a good sign to invest in these securities. If company earns more profits then there will be more return on the investment.

COMPANY ANALYSIS

Lucky Cement Company Limited is currently the largest manufacturer of cement in Pakistan. During FY09, Lucky Cement started operation of 1.25mtpa production capacity of Line 'G' at Karachi plant, increasing its total production capacity to 7.75mtpa.

The company increased the capacity of its Karachi plant keeping in view the lucrative potential of export to Gulf region and African countries.

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During FY09, the company's production of clinker and cement increased by 8.7% and 8.9% respectively. Lucky Cement produced 5.61 million tons of clinker and 5.72 million tons of cement during FY09. As a result of massive capacity expansion over the past years, Lucky Cement has been able to consolidate its position as the largest cement exporter. The company has the highest export market share of 30% and a major portion of local sales with the market share of 13%.

FINANCIAL POSITION

The profits of Lucky Cement has been increasing since FY03, however, at varying rates. The growth in profits had been declining from FY06 to FY08 due to rising costs but surged during FY09. During FY08, the growth of the company's profits slowed down to 5%.

FY08 was marked by the cement sector as not only the year which saw growth in cement prices, both locally and internationally, helping the companies to secure more profits; but also the year in which they faced massive growth in operation costs, primarily fuel and electricity costs. This led the cement companies of the country to face massive problems in continuing productions and even to obtain profits from sales after the deduction of operation costs. Many cement companies were faced losses due to these costs.

Lucky Cement managed to obtain profits during FY08 when other companies posted losses. Lucky Cement anticipated these events and quickly employed counter strategies, like shifting to exports and reducing finance costs, resulting in high profits for the company. Also the energy and fuel crisis has also been spotted by the company in due time and preventive measures are employed with the hope that they will reduce operations and fuel costs in the future.

Lucky Cement had showed a growth of 35.4% in sales, from Rs 12.25bn in FY07 to Rs 16.95bn in FY08. This growth was achieved through increase in exports, along with the rise in cement retention prices over the year. Local retention prices showed an increase of Rs 133.7 per bag in FY08 from Rs 129.7 per bag last year, having a growth of 3.1%. Export retention prices on the other hand, showed an increase of US $55.7 per ton (Rs 152.6 per bag) in FY08 as against US $47.2 per ton (Rs 133.2 per bag) in FY07.

Although sales volume of the company grew by 19.7% to 5.56m tons as compared to 4.64m tons last year, yet domestic sales for the same period declined by 9.2% to 2.89m tons as against 3.18m tons last year. This

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occurred due to more focus toward high yield exports, which showed a growth of 83.0% to 2.67m tons in FY08 from 1.46m tons last year. During FY08, ratio of local sales to export was 52:48 against 69:31 in FY07.

The gross profit margin of the company revived to 37.26% during FY09 from 25.73% in FY08. Likewise, the profitability margin of the company also improved from 15.79% in FY'08 to 17.46% in FY09. This shows that the profitability of the company has improved during FY09 after declining in FY08.

The gross margin showed a declining trend in FY08, primarily due to the rising costs of production, especially in terms of rising fuel prices like coal, which rose from US $80 per ton to US $210 per ton from FY07 to FY08. Also the price of furnace oil was increased. Net margin showed a similar decline although finance charges were reduced since last year from Rs 836m to Rs 127m, representing a decline of 85.3%, as the company entered into cross country swap agreements with the banks. But the effect was nullified, as the fair value loss on these agreements was included in the other charges under exchange differences.

Return on assets (ROA) and Return on Equity (ROE) also increased during FY09 due to a higher proportionate increase in profits as compared to the increase in asset and equity base of the company. The assets and equity of the company increased by 12% and 24% while the profit after taxation surged by 72%.

DEMAND ANALYSIS

The local demand became the driver for volume growth for nine months ending March 31 2010. The cement industry witnessed an overall volumetric growth of 12.4% both in local and export sales with overall volume of 25.3 million tons in nine months ending March 31, 2010 as compared to 22.5 million tons sold during the same period last year. The overall sales volume increased by 2.8 million tons, mainly on the back of cement demand in local markets.

The industry witnessed local sales volumetric growth of 17% during the nine months of current financial year with sales volume of 17.5 million tons as compared to 14.9 million tons sold during the same period last year. The export sales volume of the industry increased by 3.5% with volume of 7.9 million tons as compared to 7.6 million tons sold during the same period last year.

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Lucky Cement achieved a sales volume of 4.86 million tons as compared to 4.15 million tons sold during the same period last year. The local sales registered a hefty growth of 24% whereas export sales volume witnessed 12% growth. During the quarter under review, the local sales volume increased by 46% which enhanced the local market share to 13.8% from 13% previously. The export market remains shaky in the aftermath of financial crisis and new capacities coming online in the potential export zones. The export growth in the 3Q10 was negative. However, the recent grant of inland freight subsidy to the tune of 35% would no doubt bolster the exports of the sector.

In line with the industry trend the net sales revenue of Lucky cement during the nine months decreased by 5.7% as compared to same period last year because of decline in the cement prices both in local and export markets. The local prices were decreased by 27.53% whereas the export prices were decreased by 12.90%. The ratio of sales revenue from exports was 61% whereas the local sales accounted for 39% during the nine months of current year.

Due to rising input costs and declining prices, gross margins were hit across the industry. Lucky cement achieved a gross profit rate 35% for the nine months ended March 31, 2010 as compared to 37.2% gross profit rate achieved during the same period last year. However, going forward, the waste heat recovery project of Karachi has started operations that would certainly benefit the company in terms of cheaper electricity generation in the future. The margins therefore going forward are expected to pick up in comparison to the industry.

The finance cost decreased to Rs 418.309 million from Rs 998.032 million during the same period last year through repayment of expensive debt and resorting to cheaper export refinance facility. The distribution and selling charges have surged due to volumetric increase in export sales. Lucky earned a net profit after tax of Rs 2.56 billion, as compared to Rs 3.07 billion during the same period last year. The earnings per share for this quarter was Rs 2.02, whereas on cumulative nine months basis the earnings per share was Rs 7.92 as compared to EPS of Rs 9.5 in the same period last year.

A comparison of Key Financial Results of the Company is as under.

Particulars 2009 2008 Percentage

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Sale Revenue 26330404 16957879 55.27 %

Gross profit 9811266 4357173 125.18 %

Operating Profit 7217493 3076367 134.61 %

Profit Before Tax 5177001 2306529 124.45 %

Net Profit After Tax

4596549 2677670 71.66 %

Earnings Per Share

14.24 9.84 44.41 %

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PSO (Pakistan State Oil) ------------ Suhail Munir Kiani Engro Corporation------------------- Zeeshan Ali Ahmed Lucky Cement------------------------ Ghulam Ali NIshat Mills--------------------------- Asim Kiani HUBCO-------------------------------- M Jamshaid

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This is the Bar Chart of the technical analyses of PSO (Pakistan State Oil)

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This is the Bar chart of Technical Analysis of Engro corporation.

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LUCKY CEMENT

PricesMoving average (Prices)

This is the Bar chart of Lucky Cement

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INTERPETITATION OF TECHNICAL ANALYSIS

The technical analysis we have made on the five companies of different sectors of Pakistan which show the share price of each company for the last five years that are 2005 to 2009.

TOOL

We use the BAR CHART to represent the prices over the past years and a trend line to more clarify the trend of share prices.

TIME PERIOD

We take the share prices of these five companies on the monthly bases nd closing price of each month is been selected.

TREND OF COMPANIES SHARE PRICE

The share prices trend of all five companies are as under

PSO has the cyclical trend of prices with the highest price of Rs 546 and the lowest price of Rs 139.Nishat Mills Limited also has the cyclical trend of prices with the highest price of Rs 139 and the lowest price of Rs 22.06.Engro has the cyclical trend of prices as well with the highest price of Rs 329.05 and the lowest price of the share Rs 96.46.HUBCO also has the cyclical trend of prices with the highest price of Rs Lucky Cement has the cyclical trend of prices as well with the highest price of Rs 187 and the lowest price of Rs 36.

Documents

Ipm Project