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KSE-100 Profitability 1

KSE-100 Index ProfitabilityProfitability down by 1% YoY during CY19

AHL Research

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the Year: 2018Best Equity Research

Analyst: 2017

www.jamapunji.pk

REP-300

March 13, 2020

http://www.jamapunji.pk/

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Earnings of the KSE-100 index depicted a dip of 4% YoY during 4QCY19 which is owed to decline in

earnings from heavy weighted sectors. Based on sectoral weight, this was led by Fertilizer (-19% YoY;

15.4% weight), E&P (-15% YoY; 12.2% weight) and Cement (-92% YoY; 8.2% weight). On the other hand,

sectors that remained top performers were Commercial Banks (+30% YoY; 26.8% weight), Power

Generation (+89% YoY; 6.5% weight), and Chemicals (+16% YoY; 2.5% weight).

Whereas during CY19 earnings dropped by 1% YoY amid fall in profitability of Cements (-74% YoY),

Fertilizers (-17% YoY), and OMC’s (-2% YoY). Surge in profitability was witnessed in Commercial Banks

(+21% YoY), Power (+43% YoY) and E&P (+15% YoY). On sequential basis, KSE-100 Index’s bottom-line

witnessed a minute decline, which was led by Automobile Assemblers (-19% QoQ), Fertilizer (-11% QoQ)

and E&P (-9% QoQ).

Sectors leading the profitability chart during CY19 were Textile Weaving (+103% YoY), Investment Banks

(+100% YoY) and Miscellaneous (+98% YoY). During 4QCY19, Miscellaneous (+278% YoY) and Tobacco

sector (+179% YoY) led the earnings chart of the index.

During 4QCY19, the KSE-100 index climbed up by a massive 8,656 points (+27.0% QoQ) with a bullish

trend led by Commercial Banks (+2,114 points), Fertilizer (+1,209 points), E&P (+1,205 points), Cement

(+646 points) and Power Generation (+583 points). Meanwhile, Tobacco sector (-39 points) contributed

negatively to the KSE-100 index.

During CY19, the KSE-100 index jumped up by 3,669 points (+9.9% YoY) majorly owed to Commercial

Banks (+1,751 points), Fertilizer (+1,541 points), E&P (+909 points) and Automobile Assembler (+117

points). On the other hand, negative contribution to the index came from Cement (-195 points), Tobacco (-

171 points), Refinery (-146 points) and Pharmaceuticals (-93 points).

We have based our analysis on the KSE-100 index companies. We have included the result of 83

companies while the remaining 17 companies have not disclosed their results. The companies which have

been included in our analysis represent almost 92% of the market capitalization of the benchmark bourse.

KSE-100 Index Profitability

Profitability down by 4% YoY during 4QCY19



KSE-100 Profitability witnessed a decline of 4% YoY

Exhibit: Sector Wise KSE-100 Index Profitability

Source (s): Company Financials, AHL Research

(PKR mn) Weight CY19 CY18 YoY 4QCY19 4QCY18 YoY 3QCY19 QoQ

600,560 604,206 -1% 147,745 153,733 -4% 148,180 0%

Automobile Assembler 2.6% 16,545 27,522 -40% 2,227 5,280 -58% 2,755 -19%

Automobile Parts 0.9% 3,154 3,874 -19% 747 1,270 -41% 192 289%

Cement 8.2% 11,792 45,592 -74% 948 12,589 -92% (1,297) nm

Chemicals 2.5% 18,638 16,704 12% 4,174 3,597 16% 5,581 -25%

Commercial Banks 26.8% 173,050 143,365 21% 48,848 37,459 30% 44,916 9%

Engineering 0.8% 1,913 5,715 -67% 115 1,098 -90% 228 -50%

Fertilizer 15.4% 50,247 60,243 -17% 12,735 15,732 -19% 14,283 -11%

Food & Personal Care 3.3% 8,280 14,326 -42% 1,966 3,080 -36% 1,093 80%

Glass & Ceramics 0.3% 2,317 3,339 -31% 248 1,214 -80% 641 -61%

Investment Banks 0.3% 157 78 100% 89 60 48% 31 183%

Insurance 1.9% 4,833 4,607 5% 1,981 1,071 85% 1,088 82%

Leasing Companies 0.1% 1,018 1,483 -31% 272 271 1% 231 18%

Miscellaneous 1.8% 740 373 98% 396 105 278% 311 27%

Modarabas 0.1% 345 286 20% 87 83 5% 87 0%

Oil & Gas Exploration 12.2% 215,529 187,653 15% 48,031 56,810 -15% 53,025 -9%

Oil & Gas Marketing 4.8% 14,725 15,035 -2% 2,654 (2,416) nm 5,324 -50%

Pharmaceuticals 2.8% 3,642 5,392 -32% 1,135 1,349 -16% 813 40%

Power Generation 6.5% 39,053 27,226 43% 13,208 6,985 89% 11,669 13%

Real Estate Investment 0.4% 6,546 6,908 -5% 3,224 3,612 -11% 796 305%

Refinery 0.5% (4,855) (923) nm (1,907) (3,213) nm 1,240 nm

Synthetic & Rayon 0.1% 412 2,480 -83% 57 (157) nm 145 -61%

Sugar 0.1% 1,046 (512) nm 139 (353) nm (183) nm

Technology & Comm. 1.6% (430) 3,964 nm (1,132) 1,215 nm (1,509) nm

Textile Composite 2.1% 16,585 18,186 -9% 3,722 6,925 -46% 2,756 35%

Textile Spinning 0.1% 2,276 2,367 -4% 435 298 46% 551 -21%

Textile Weaving 0.0% 199 98 103% 39 52 -25% 24 63%

Tobacco 1.7% 12,889 10,338 25% 2,904 1,042 179% 2,932 -1%

Transport 0.6% (49) (1,788) nm 386 (1,353) nm 479 -20%

Woollen 0.0% (38) 273 nm 19 28 -30% (24) nm


Exhibit: Sector Wise Profitability Contribution (4QCY19)

Source (s): Company Financials, AHL Research,


KSE-100 Index Profitability Contributions (Graphs)

Exhibit: Sector Wise Profitability Contribution (CY19)


49

48

13

13 4 4 3 3 3 2

8

-

20

40

60

80

100

120

140

160

Banks

E&

P

Pow

er

Fe

rtili

zer

Chem

ical

Te

xtile

Co

mpo

site

RE

IT

To

bacco

OG

MC

s

Auto

s A

ssem

.

Oth

ers

(PKR bn)

216

173

50 39

19 17 17 15 13 12 34

-

100

200

300

400

500

600

700

E&

P

Banks

Fe

rtili

zer

Pow

er

Chem

ical

Te

xtile

Co

mpo

site

Auto

s A

ssem

.

OG

MC

s

To

bacco

Cem

ent

Oth

ers

(PKR bn)


Exhibit: Sector Wise Index Contribution (4QCY19)

Source (s): PSX, AHL Research


KSE-100 Index Contributions (Graphs)

Exhibit: Sector Wise Index Contribution (CY19)

Source (s): PSX, AHL Research

2,114

1,209

1,205

646

583

577 313

247 233

230 226

221 191 108 95 459

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Banks

Fert

ilizer

E&

P

Cem

ent

Pow

er

OG

MC

s

Pharm

a

Textile

Auto

s A

ssem

.

Tele

com

Food

Chem

icals

Insura

nce

Ste

el

Auto

s P

art

s

Oth

ers

1,751

1,541

909

117 89 61 54 31 23 14 9 8 8 7 7 3 2 1 0

966

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Banks

Fe

rtili

zer

E&

P

Auto

s A

ssem

.

Te

lecom

Lea

ther

Mis

c

Insura

nce

RE

IT

Cable

Gla

ss

Inv. B

anks

Te

xtile

Weavin

g

Paper

Lea

sin

g

Modara

ba

s

Vanaspati

Synth

etic

Fu

nds

Oth

ers


Exhibit: KSE-100 Profitability and Free-Float Market Capitalization Trend

Source (s): Company Financials, PSX, AHL Research


KSE-100 Profitability and Free-Float

Exhibit: KSE-100 Profitability and Free-Float Market Capitalization Trend

Source (s): Company Financials, PSX, AHL Research

154

151

146

154

148

157

148 148

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

140

142

144

146

148

150

152

154

156

158

1QCY18 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19

Profit after tax Free-float Market Cap (RHS)

(PKR bn) (PKR bn)

503 527

570

605 601

1,500

1,700

1,900

2,100

2,300

2,500

2,700

-

100

200

300

400

500

600

700

CY15 CY16 CY17 CY18 CY19

Profit after tax Free-float Market Cap (RHS)(PKR bn) (PKR bn)


Pakistan Economy

Key Indicators

Exhibit: Key Indicators

Source (s): PSX, MoF, SBP, PBS, Bloomberg, AHL Research

Pakistan Macros CY15 CY16 CY17 CY18 CY19

KSE 100 Index KSE 100 Index 32,816 47,807 40,471 37,067 40,735

YoY Change 2.1% 45.7% -15.3% -8.4% 9.9%

Currency and Inflation

PKR/USD

Average 102.8 104.8 105.4 121.9 149.9

PKR Dep. -1.7% -1.9% -0.6% -13.5% -18.7%

Closing 104.8 104.4 111.0 138.9 154.8

PKR Dep. -4.0% 0.4% -5.9% -20.1% -10.3%

CPI Inflation Average 2.5% 3.8% 4.6% 5.3% 9.4%

Change (bps) (468) 121 83 74 403

Discount Rate

Average 7.3% 6.3% 6.3% 7.9% 12.6%

Change (bps) (267) (92) (8) 167 473

Closing 6.5% 6.3% 6.3% 10.5% 13.8%

Change (bps) (300) (25) - 425 325

External Sector

Balance of Payments

Exports of Goods USD bn 22.7 21.8 23.2 24.8 24.8

Imports of Goods USD bn 39.8 42.7 53.7 57.7 46.9

Trade Balance of Goods USD bn (17.1) (20.9) (30.5) (32.8) (22.1)

Trade Balance of Goods YoY Change -4.4% 22.0% 46.2% 7.6% -32.7%

Remittances USD bn 19.2 19.7 19.7 21.1 22.2

Current Account Balance USD bn (2.8) (7.1) (16.9) (19.5) (6.8)

Current Account Balance % of GDP -1.0% -2.3% -5.4% -7.0% -2.4%

Foreign Exchange Reserves USD bn 20.8 23.2 20.2 13.8 17.9

With SBP USD bn 15.9 18.3 14.1 7.2 11.3

With Banks USD bn 4.9 4.9 6.1 6.6 6.6

Foreign Investment

Foreign Direct Investment USD bn 1.6 2.5 3.2 2.4 2.2

Foreign Direct Investment % of GDP 0.6% 0.8% 1.0% 0.8% 0.8%

Debt Profile

External Debt USD bn 68.9 75.9 89.3 99.0 111.0

External Debt % of GDP 24.8% 24.9% 28.5% 35.6% 39.5%

Domestic Debt USD bn 122.9 135.9 139.1 126.3 140.0

External Debt % of GDP 44.3% 44.6% 44.4% 45.5% 49.7%

Total Debt USD bn 191.8 211.9 228.4 225.3 251.0

Total Debt % of GDP 69.2% 69.6% 72.9% 81.1% 89.2%

Fiscal

Total Revenue PKR bn 4,187 4,433 5,331 5,170 5,806

Total Expenditure PKR bn 5,507 6,066 7,192 7,664 9,215

Budget Deficit PKR bn 1,320 1,633 1,861 2,494 3,410

Budget Deficit % of GDP 4.6% 5.2% 5.5% 7.1% 7.6%

Credit Ratings

Standard & Poor's (S&P) Rating B- B B B B

Outlook Positive Stable Stable Stable Stable

Moody's Rating B3 B3 B3 B3 B3

Outlook Stable Stable Stable Negative Stable


Commercial Banks

Profitability Galore as NIMs Overpower Provisons

Banking profitability is up 21% YoY during CY19. Adjusting for pension costs incurred by large banks during

CY18, earnings portrayed an acceleration of 15% YoY during CY19, while growing 9% QoQ during 4QCY19.

The spike in earnings is primarily attributable to an expansion in NIMs on the back of rate hikes (+575 bps

since Sep’18) and lagged impact on asset re-pricing of previous monetary tightening reflecting on earnings.

Spreads for the sector have increased to 6.1% as at Dec’19 compared to 5.1% SPLY. To recall, banks also

booked an additional super tax charge during 1Q this year leading to a higher effective tax rate of 42% during

CY19 vis-à-vis 38% SPLY. NII posted a surge of 28% YoY during CY19 as lagged impact of re-pricing of

loans comes through and fuels NIMs. On a sequential basis NII registered a jump of 6% QoQ as Markup

earned grew 3.4% QoQ while interest expense increased 2% QoQ.

NFI accelerated 17% on a sequential basis led by 3.4x higher capital gains on the back of a ~25% return in

the equity market during 4Q. On a yearly basis NFI improved by 6% YoY during CY19. Banks posted losses

on sale of securities worth PKR 572mn during 9MCY19 vis-à-vis gain of PKR 13.8bn in 9MCY18. However a

gain was recorded on sale of securities worth PKR 3.5bn during 4QCY19. Volatility in the FX market helped

banks’ income from FX operations (+23% YoY during CY19). Dividend income was down 8% on a yearly

basis owing to liquidity constraints/economic slowdown which forced companies to reduce payout. Fee

income of the sector is up 7% YoY/10% QoQ.

Provisioning of the KSE-100 banking sector posted a 55% YoY surge during CY19 on account of NPL

accretion (credit provisions are up 266% YoY) as well as hefty impairment charges booked by banks on their

respective equity portfolios. On a sequential basis provisioning went up 11% QoQ. Stock market rebound

helped banks to record reversals against impairments on the equity portfolio which clocked in at PKR 1.2bn

in 4QCY19 against impairment charges of PKR 4bn in 3QCY19.

In spite of inflationary pressure in the economy (8MFY20 inflation stands at 11.7% against 6% SPLY), new

initiatives on the technology/financial inclusion front, regulatory costs, and branch expansion mode in some

banks, Cost/Income of the KSE-100 Banking sector settled at 55.5% for CY19 vis-à-vis 57.6% in CY18.

Notable profitability trends during CY19 include MEBL (+74% YoY), AKBL (+59% YoY) and SCBPL (+43%

YoY). Amongst large banks overall HBL has posted the highest profitability jump of 27% YoY/36% QoQ.

Exhibit: Banking Sector Profitability

Source (s): Company Financial, AHL Research

CY19 CY18 YoY 4QCY19 4QCY18 YoY 3QCY19 QoQ

ABL 14,489 13,032 11% 4,852 2,924 66% 3,395 43%

AKBL 7,029 4,429 59% 2,647 811 227% 1,252 111%

BAFL 13,047 10,899 20% 3,312 2,052 61% 3,283 1%

BAHL 11,195 8,458 32% 4,192 2,517 67% 2,557 64%

BOP 8,160 7,537 8% 2,070 2,029 2% 2,132 -3%

FABL 6,004 4,828 24% 1,602 1,246 29% 1,397 15%

HBL 15,333 12,056 27% 6,696 2,424 176% 4,931 36%

HMB 6,646 6,180 8% 1,603 1,637 -2% 1,842 -13%

MCB 23,868 20,353 17% 7,715 6,777 14% 5,732 35%

MEBL 15,584 8,958 74% 4,727 2,542 86% 3,893 21%

NBP 16,583 19,913 -17% (19) 3,773 -101% 5,249 -100%

SCBPL 16,017 11,239 43% 4,585 3,466 32% 4,201 9%

UBL 19,095 15,483 23% 4,867 5,262 -8% 5,052 -4%

Total 173,050 143,364 21% 48,848 37,459 30% 44,916 9%


Exhibit: Historical Net Interest Income and PAT of Banking Sector


Exhibit: Banking Industry IDR and ADR

Source (s): SBP, AHL Research

Commercial Banks


25.0

30.0

35.0

40.0

45.0

50.0

55.0

70

85

100

115

130

145

160

175

Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Net Interest Income PAT (RHS)

(PKR bn)(PKR bn)

52.5%

55.0%

57.5%

60.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%


IDR (LHS) ADR (RHS)


Exhibit: Monetary Tightening


Exhibit: Banking Sector Spreads


Commercial Banks


6.5%6.8%

8.3%

9.5%

10.7%

12.3%

13.8% 13.8%

-

100

200

300

400

500

600

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%


Average DR bps YoY

4.8%

4.9% 4.9%

5.1%

5.5%

5.6%

6.0%6.1%

(40)

(20)

-

20

40

60

80

100

120

140

4.6%

4.8%

5.0%

5.2%

5.4%

5.6%

5.8%

6.0%

6.2%


Average Spreads bps YoY


Fertilizer

Earnings Decline by 19% YoY during 4QCY19

Fertilizer sector witnessed a 41% YoY decline in profitability during 4QCY19 to PKR 12,802mn.

Likewise, on a QoQ basis, the sector posted a 17% decline.

Sector topline remained stagnant during 4QCY19 despite 10% YoY growth in urea offtake, the

lower DAP prices tagged with 10% YoY decline in DAP offtake nullified the said impact.

Sector gross margins improved by 1.21ppt YoY to 26.1% during 4QCY19. The increase in gross

margins was primarily on account of higher urea prices and lower DAP offtake.

FFC posted a decline in earnings of 21% YoY in 4QCY19 amid lower urea and DAP offtake by

3% YoY and 56% YoY respectively tagged with higher financial charges.

While EFERT’s profitability during 4QCY19 surged by 23% YoY mainly due to 28% YoY increase

in urea offtake tagged with higher other operating income.

Whereas FFBL unveiled a loss after tax (LAT) of PKR 2.5bn as compared to a PAT of PKR 1.9bn

during same period last year. Major reason for subdued result is lower gross margins (9.9% in

4QCY19 vs. 14.3%) amid lower DAP margins and 13% YoY decline in DAP offtake tagged with

lower other income.

Exhibit: Fertilizer Sector Profitability

Source (s): Company Financial AHL Research, *Ex. FATIMA, **Ex. FATIMA, ENGRO and DAWH

PKR mn CY19 CY18 YoY 4QCY19 4QCY18 YoY 3QCY19 QoQ

DAWH 5,653 14,247 -60% 1,727 256 575% 1,710 1%

EFERT 16,871 17,414 -3% 6,361 5,164 23% 3,326 91%

ENGRO 16,533 12,708 30% 3,507 2,759 27% 6,150 -43%

FFBL (5,921) 1,437 nm (3,503) 1,640 nm (467) nm

FFC 17,110 14,439 19% 4,643 5,913 -21% 3,563 30%

Total* 50,247 60,243 -17% 12,735 15,732 -19% 14,283 -11%

Total** 28,061 33,289 -16% 7,500 12,718 -41% 6,423 17%


Exhibit: Historical Profitability and GMs of Fertilizer Sector


Fertilizer


Exhibit: Urea and DAP Prices Trend

Source (s): NFDC, AHL Research

5.7 5.2

9.7

12.7

5.8

8.3

6.4

7.5

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

-

2.5

5.0

7.5

10.0

12.5

15.0


Profit after tax Gross Margins (RHS)

(PKR bn)

1,419 1,491

1,641 1,752

1,813 1,841 1,924

2,006

2,954

3,199

3,362

3,590 3,562 3,557 3,635

3,692

0%

10%

20%

30%

40%

50%

60%

1,250

1,600

1,950

2,300

2,650

3,000

3,350

3,700

4,050


Urea Price DAP Price Change YoY (Urea) Change YoY (DAP)(PKR/bag)


Exhibit: DAP Off-take went down by 11% YoY during 4QCY19


Fertilizer


Exhibit: Urea Off-take registered an increase of 10% YoY during 4QCY19


121 106

193

325

63

152

172

289

-60%

-40%

-20%

0%

20%

40%

60%

50

85

120

155

190

225

260

295

330

365


DAP Offtake Change YoY(000 tons)

417

492

470

558

453

509 498

615

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

200

250

300

350

400

450

500

550

600

650


Urea Offtake Change YoY(000 tons)


Exploration and Production

Earnings Decline Amid Fall in Oil Prices

The sector profitability nose-dived by 15% YoY to PKR 48.0bn in 2QFY20 attributable to decline in oil prices

by 6% YoY. Earnings of OGDC and PPL plummeted by 14% and 39% YoY, respectively. Whereas,

profitability of MARI and POL depicted a growth of 23% and 13% YoY, respectively.

OGDC’s profitability portrayed a decline of 14% YoY to PKR 25.9bn (EPS: PKR 6.01) in 2QFY20. Topline

witnessed an uptick of by 3% YoY to PKR 67.2bn amid Pak Rupee devaluation against Greenback by 14%

YoY. Whereas, oil and gas production during 2QFY20 declined by 6% and 8% YoY, respectively followed by

a fall in oil price during the quarter. Whereas, exploration expense surged by a massive 156% YoY, amid

three dry wells in 2QFY20. Moreover, other income plunged by 34% YoY due to absence of exchange gain

on foreign currency account.

PPL’s earnings clocked-in at PKR 10.3bn (EPS: PKR 3.79), significantly declining by 39% YoY compared to

PKR 16.9bn (EPS: PKR 6.19) in SPLY. Meanwhile, the revenue climbed up by 8% YoY owed to PKR

depreciation against USD. Whereas, oil and gas production declined by 5% and 13% YoY, respectively

tagged with oil prices tumbling. Furthermore, exploration expenses significantly jumped up by 85% YoY amid

dry wells (Noah X-1 and Talagang X-1) incurred during the period. Whereas, other income decreased by

68% YoY amid absence of exchange gain on foreign currency account.

POL posted a profit after tax of PKR 4.6bn (EPS: PKR 16.07), up by 13% YoY. Net sales witnessed a 2%

YoY drop in 2QFY20 amid i) fall in oil and gas production by 12% and 3% YoY, respectively and ii) 6% YoY

decline in average realized oil prices. Furthermore, the exploration costs swelled up by 5x YoY in 2QFY20,

clocking-in at PKR 415mn against PKR 79mn, on the back of higher geological and geophysical cost.

Whereas, other income during 2QFY20 showed a massive decline of 69% YoY, setting at PKR 707mn, amid

absence of exchange gain on Pak Rupee depreciation against USD.

MARI’s bottom-line in 2QFY20 settled at PKR 7.3bn, depicting a jump of 23% YoY amid i) entitlement factor

of Mari Gas Field, ii) Pak Rupee Devaluation against USD and iii) oil production 4% YoY. However, gas

production declined by 12% YoY. Meanwhile, finance income witnessed a hefty jump of 3x YoY on account

of interest income from short term investments and bank deposits. Whereas, exploration expense surge by

59% YoY in 2QF20 owed to higher prospecting expenditure reported during the quarter.

Exhibit: Exploration and Production Sector Profitability


PKR mn 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY 1QFY20 QoQ

MARI 14,748 11,058 33% 7,285 5,916 23% 7,463 -2%

OGDC 53,184 56,756 -6% 25,868 30,021 -14% 27,316 -5%

POL 8,568 7,889 9% 4,560 4,022 13% 4,008 14%

PPL 24,554 31,039 -21% 10,317 16,851 -39% 14,237 -28%

Total 101,055 106,742 -5% 48,031 56,810 -15% 53,025 -9%


Exhibit: Historical Profitability and GMs of E&P Sector




Exhibit: Pakistan’s Oil and Gas Production

Source (s): PPIS, AHL Research

38.4

42.5

49.9

56.8

51.8

62.7

53.0

48.0

55.0%

57.0%

59.0%

61.0%

63.0%

65.0%

67.0%

15.0

25.0

35.0

45.0

55.0

65.0

75.0


Profit after tax Gross Margins (RHS)(PKR bn)

3,200

3,300

3,400

3,500

3,600

3,700

3,800

3,900

4,000

4,100

72,000

74,000

76,000

78,000

80,000

82,000

84,000

86,000

88,000

90,000

92,000

94,000

3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20

Oil Prodcution (LHS) Gas Prodcution (RHS)(BOPD)

(MMCFD)


Exhibit: 14% YoY PKR depreciation during 2QFY20




Exhibit: Oil Prices dropped by 6% YoY during 2QFY20

Source (s): Bloomberg, AHL Research

112

117

124

134

139

147

158 156

-25%

-20%

-15%

-10%

-5%

0%

100

110

120

130

140

150

160

170


PKR/USD PKR Depreciation YoY

66

73

76

69

64

69

63 65

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

35

40

45

50

55

60

65

70

75

80


Arab Light Arab Light YoY(USD/bbl)


Cements

Heading Back to Greener Pastures Cumulative bottom-line of the KSE-100 index Cement sector managed to turn green again in 2QFY20 to PKR

948mn compared to earnings of PKR 12,589mn in SPLY, after posting losses in the last quarter. While all

players displayed a drastic decline in profitability, MLCF, CHCC, KOHC and BWCL were the key laggards.

Pertinently, topline of the sector displayed a dip of 9% YoY in the quarter under review attributable to lower

retention prices which offset the impact of a 10% jump in total dispatches to 13.61mn tons (local offtake

depicted a 6% growth YoY to 11.25mn tons while exports augmented by a massive 33% YoY to 2.36mn tons

in 2QFY20).

With that said, gross margins of the sector underwent a massive retraction to 9.1% during the period

(2QFY19: 27.9%) due to weakness in retention prices, PKR depreciation against the US Dollar (14% YoY)

and incremental costs associated with new capacities.

MLCF posted a loss of PKR 785mn vs. PAT of 748mn in 2QFY19 owed to weaker margins (5.5% in 2QFY20

vis-à-vis 28.5% in SPLY) amid pressure on prices, augmented depreciation charge on its new 2.2mn tons

line and higher raw material packaging costs. In addition, a 2x jump in finance costs to PKR 870mn given

higher borrowing and rate hikes by the SBP, further dampened the bottom-line.

Meanwhile earnings of CHCC also remained red in the outgoing quarter (LAT of PKR 222mn vs. PAT of

596mn in 2QFY19). Gross margins were eroded by 10ppts YoY to 9.3% (2QFY19: 19.3%) due to

aforementioned reasons. This, alongside hefty finance costs, which escalated by 5x YoY to PKR 658mn in

the quarter led by higher borrowing as well as interest rate hikes, eroded the profitability of the company.

Whereas DGKC fared better than its peers, depicting a 56% YoY decline in profitability. Gross margins of the

company witnessed attrition of 5% YoY during 2QFY20 to 13.2% owing to lower retention prices and PKR

depreciation which offset the impact of a robust growth in volumes of 23% YoY to 3.89mn tons post COD of

its new line. Pertinently, improvement in prices as well as offtake tagged with lower coal prices on a QoQ

basis translated to an improvement in margins from last quarter (1QFY20: 5.9%).

On a QoQ basis, gross margins of the sector witnessed an improvement of 3ppts (1QFY20: 5.7%) led by a

22% growth in total offtake and lower average coal prices (lagged impact).

Exhibit: Cement Sector Profitability



BWCL 421 6,881 -94% 120 4,623 -97% 301 -60%

CHCC (560) 1,027 nm (222) 596 nm (339) nm

DGKC (847) 1,742 nm 581 1,324 -56% (1,428) nm

FCCL 482 1,824 -74% 189 1,023 -81% 293 -35%

KOHC 98 1,527 -94% 10 998 -99% 88 -89%

LUCK 1,937 5,501 -65% 981 3,008 -67% 956 3%

MLCF (1,767) 1,335 nm (785) 748 nm (982) nm

PIOC (112) 527 nm 74 269 -73% (185) nm

Total (348) 20,363 -102% 948 12,589 -92% (1,297) nm


Exhibit: Historical Profitability and GMs of Cement Sector


Cements

Heading Back to Greener Pastures

Exhibit: Industry Cement Dispatches

Source (s): APCMA, AHL Research

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

24.0%

28.0%

32.0%

36.0%

(1.5)

0.5

2.5

4.5

6.5

8.5

10.5

12.5

14.5

16.5

Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19

Profit after tax Gross Margins (RHS)(PKR bn)

19%

11%

5% 4%

-9%

10%

3%

10%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0


Local Exports Change

(Mn Tons)


Exhibit: Average Cement Prices decreased by 4% YoY in 2QFY20

Source (s): PBS, AHL Research

Cements

Heading Back to Greener Pastures

Exhibit: Average Coal Prices decreased by 24% YoY during 2QFY20


529

555

577

602 605

571

586

576

-10%

-5%

0%

5%

10%

15%

20%

520

530

540

550

560

570

580

590

600

610


Cement Cement YoY(PKR/bag)

94

100 103

97

85

67

62

73

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50

60

70

80

90

100

110


Coal Coal YoY(USD/ton)


Power Generation and Distribution

Coal plants and true-up income jacked up the profitability

Profitability of the Power Generation and Distribution sector went up by 89% YoY to PKR 13.2bn during

2QFY20. On a QoQ basis, it went up by 13%. This takes the profitability for 1HFY20 to PKR 24.9bn, up by

83% YoY. The uptick is witnessed due to higher dollar indexation, other income and addition of coal-based

power plants.

Net sales of the sector witnessed a decrease of 24% YoY due to 73% YoY decline in dispatches. Availability

of relatively cheaper sources of power generation (Coal, Hydel and RLNG) was the primary reason behind

the decline in generation of furnace oil based power plants.

KAPCO: During 2QFY20, sales witnessed a decrease of 28% YoY. The decline in sales was driven by lower

dispatches. The load factor of the plant remained very low due to availability of relatively cheaper sources of

power generation (coal and hydel). Gross margins went up by 26pps to 53.6% during 2QFY20. The rise in

gross margins was mainly on account of lower dispatches and 26% YoY higher dollar indexation. Other

income went up by 75% YoY to PKR 6,969mn due to tariff true-up (PKR 4,525mn) along with higher interest

rates compared to same period last year. Finance cost surged by 7% YoY to PKR 2,466mn due to 5% YoY

higher short term borrowings (PKR 54.5bn as of Sep’19).

NCPL: During 2QFY20, net sales witnessed a decline of 29% YoY to PKR 2,356mn due to lower dispatches.

During 1HFY20, the same trend in sales has been witnessed - down 8% YoY. The load factor of FO based

plants remained very low amid lower demand of electricity and availability of relatively cheaper sources of

power generation (coal and hydel). During 2QFY20, gross margins of the company increased by 30pps YoY

to 70% due to 21% PKR depreciation along with lower load factor. Finance costs went up by 91% YoY to

PKR 587mn, due to higher short term borrowings (up by 64% YoY to 13.9bn as of Sep’19) along with higher

interest rates.

Exhibit: Power Sector Profitability

Source (s): Company Financials, AHL Research, *Consolidated


HUBC* 11,052 5,407 104% 5,484 2,447 124% 5,568 -2%

KAPCO 11,727 6,322 86% 6,694 3,581 87% 5,033 33%

NCPL 2,098 1,854 13% 1,030 957 8% 1,068 -4%

Total 24,877 13,583 83% 13,208 6,985 89% 11,669 13%


Exhibit: Historical Profitability and GMs of Power Sector




Exhibit: Share of KSE 100 companies declined to 1%

Source (s): NEPRA, Company Financials, AHL Research

6,019

7,624

6,598 6,985

7,381 6,795

11,669

13,208

12.0%

22.0%

32.0%

42.0%

52.0%

62.0%

72.0%

-

1,500

3,000

4,500

6,000

7,500

9,000

10,500

12,000

13,500

15,000


Profit after tax Gross Margins (RHS)(PKR mn)

23,702

35,167

40,320

24,838

22,072

35,478

41,904

24,724

3,187 4,452

3,383 1,098 898

2,814 2,925

326

0%

2%

4%

6%

8%

10%

12%

14%

16%

-

7,500

15,000

22,500

30,000

37,500

45,000


Country's Power Generation KSE100 Index Companies

Share of KSE100 Companies(GWh)


Exhibit: Receivable and Overdue Receivables of AHL Power Universe




Exhibit: Source wise generation break-up

Source (s): NEPRA, AHL Research

198 198

214 208

187 192

213 211

228

238

256

247

217

233

262

244

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

140

160

180

200

220

240

260

280


Overdue Receivables ReceivablesOverdue Receivables (YoY) Receivables (YoY)

(PKR bn)

29%

12%

9%21%

17%

7%5%

34%

19%4%

21%

12%

7%4%

Hydel Coal FO RLNG Gas Nuclear Others

1HFY191HFY20


Oil & Gas Marketing Companies

Absence of Outliers Lead to Earnings Normalization

OMC sector’s earnings increased by 423% YoY during 2QFY20 on the back of i) favorable movement of

PKR against USD resulted in exchange gains compared to exchange losses in same period last year, ii)

Lower inventory losses in the period under review, and iii) increase in margins of regulated (MS and HSD)

products. During 1HFY20, bottom-line improved by 26% YoY to PKR 8bn.

PSO’s bottom-line in 2QFY20 upsurge drastically by 43x YoY to PKR 2,906mn. Topline of the company

settled at PKR 313bn for 2QFY20, up by 7% YoY, given higher prices of products along with increase in

overall sales volume by 9% YoY. Gross margins increased due to lower inventory loss compared to higher

exchange loss in same period last year. Along with, company also received PKR 5bn as mark up n delayed

payments. Despite higher finance cost, bottom-line of the company increased by 6,435mn, up by 51% YoY

compared to PKR 4,249mn in SPLY.

APL’s earnings dropped by 36% YoY in 2QFY20 on account of volumetric decline (-5.2% YoY; volumes of

Mogas and HSD dropped by -1.3% and -15.2%) and higher inventory loss dragged overall result of the

company. Gross margins settled at 1.62% in 2QFY20 against 2.50% in SPLY. Decline in gross margins can

be attributable to company recording inventory at lower of cost or net realizable value

Exhibit: Oil and Gas Marketing Sector Profitability

Source (s): Company Financials, AHL Research, *Ex. HASCOL and SHEL, Ex. HASCOL


APL 1,580 2,103 -25% 355 556 -36% 1,225 -71%

PSO 6,435 4,249 51% 2,906 68 4164% 3,528 -18%

SHEL (38) (2,705) nm (608) (3,040) nm 570 nm

Total* 8,015 6,352 26% 3,261 624 423% 4,754 -31%

Total** 7,976 3,647 119% 2,654 (2,416) nm 5,324 -50%


Exhibit: Historical Profitability and GMs of Oil and Gas Marketing Sector




Exhibit: Monthly Volume and Price Trend

Source (s): OGRA, AHL Research

7,512

3,877

6,063

(2,416)

2,219

4,529

5,324

2,653

1.0%

1.8%

2.6%

3.4%

4.2%

5.0%

5.8%

(3,700)

(2,400)

(1,100)

200

1,500

2,800

4,100

5,400

6,700

8,000



(PKR mn)

0.9

1.0

1.0

1.1

1.1

1.2

1.2

1.3

1.3

1.4

1.4

60

70

80

90

100

110

120

130

140

Jan-1

9

Fe

b-1

9

Mar-

19

Apr-

19

May-1

9

Jun-1

9

Jul-19

Aug-1

9

Sep-1

9

Oct-

19

Nov-1

9

Dec-1

9MoGas HSD Retail Volumes (RHS)

(mn Tons)(PKR/Liter)


Exhibit: Industry Quarterly Volumes

Source (s): OCAC, AHL Research



Exhibit: MS Price Break up

Source (s): OGRA, AHL Research

1.72 1.9 1.92 1.76 1.87 1.85 1.95 1.90

2.012.25

1.83 1.89 1.7 1.8 1.54 1.82

0.99

1.87

0.850.6 0.72 0.85

0.72 0.46

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0


(mn tons)MS HSD FO

40

50

60

70

80

90

100

110

120

Dec'18 Jan'19 Feb'19 Mar'19 Apr'19 May'19 Jun 19 Jul 19 Aug 19 Sep 19 Oct 19 Nov'19 Dec'19

Sales Tax Petroleum levy Dealer Margin

OMC Margins IFEM Ex-Refinery(PKR/Liter)


Textile

Exchange Losses Depressed Bottom-line

Topline of the listed textile entities increased by 11% QoQ to PKR 65bn (highest quarterly topline) due to

addition of new plant and machinery and PKR depreciation resulted in higher selling price. Despite demand

for textile products appearing weaker globally, domestic companies managed to increase exports as

currency depreciation and incentives for exporters improved competitiveness. However, local demand

remained weak due to decline in purchasing power parity coupled with higher sales tax of 17%. Meanwhile,

earnings declined by 46% YoY during 2QFY20 due to exchange losses compared to significant exchange

gains in same period last year.

During 1HFY20, NCL profitability nosedived by 74% YoY to PKR 522mn due to substantial increase in cost

of raw material (higher cotton prices), increase in labor cost, energy cost, exchange losses compared to

exchange gains, and lower dividend income from subsidy (NCPL). On the other hand, rise in interest rates

impacted profitability as company has higher reliance on borrowing to meet working capital requirement.

NML posted profit after tax of PKR 1,891mn, down by 40% YoY compared to PKR 2,018mn in same period

last year. The decline in profitability is due to global economy slowdown, higher input cost, decrease in gross

margins, absence of dividend income from NPL, LPL, PKGP and exchange gain.

FML registered jump in sales by 25% YoY, during 1HFY20 to PKR 16.2bn. However, profitability remained

weak due to lower gross margins and higher exchange loss of PKR 550mn compared to exchange gain of

PKR 776mn in same period last year.

Exhibit: Textile Sector Profitability



ANL 313 (13) nm 182 (3) nm 131 39%

FML 1,654 2,258 -27% 910 1,512 -40% 744 22%

GATM 1,069 2,052 -48% 705 1,401 -50% 365 93%

KTML 1,029 1,095 -6% 609 750 -19% 420 45%

NCL 522 2,018 -74% 349 1,166 -70% 173 101%

NML 1,891 3,164 -40% 968 2,100 -54% 924 5%

IDYM 63 53 21% 39 52 -25% 24 63%

STJT 97 40 144% 24 0 11752% 91 -73%

Total 6,639 10,667 -38% 3,785 6,978 -46% 2,871 32%


Exhibit: Historical Profitability and GMs of Textile Sector (Composite)


Textile

Exchange Losses Depressed Bottomline

Exhibit: Textile Exports went up by 5% YoY during 2QFY20


2,838

4,842

3,649

6,925

4,100

6,007

2,756

3,722

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000



3.4

3.5

3.3

3.4

3.3 3.3

3.4

3.5

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

3.2

3.2

3.3

3.3

3.4

3.4

3.5

3.5

3.6

3.6


Textile Exports YoY Change(USD bn)


Exhibit: Primary Yarn Margins


Textile

Exchange Losses Depressed Bottomline

Exhibit: 14 % YoY PKR depreciation during 2QFY20


(0.20)

(0.10)

-

0.10

0.20

0.30

0.40

0.50

0.60

-

0.50

1.00

1.50

2.00

2.50

Oct-

18

Nov-1

8

Dec-1

8

Jan-1

9

Fe

b-1

9

Mar-

19

Apr-

19

May-1

9

Jun-1

9

Jul-19

Aug-1

9

Sep-1

9

Oct-

19

Nov-1

9

Dec-1

9

Yarn Price Cotton Price Primary Margins (RHS)

(USD/kg) (USD/kg)

112

117

124

134

139

147

158 156

-25%

-20%

-15%

-10%

-5%

0%

100

110

120

130

140

150

160

170




Automobile Assembler

Drop in Demand Resulted in Lower Profitability

Topline of the sector dropped by 33% YoY to PKR 65bn during 2QFY20 compared to PKR 96bn in SPLY.

Despite increase in vehicle prices by an average of 20-25%, topline plunged due to massive volumetric

decline of 47% YoY to 32,875 units compared to 61,886 units in preceding period last year. However, two

wheelers (ATLH) sales volume increased by meager 1% YoY to 280,057 units compared to 277,865 units in

2QFY19.

Albeit, profitability of the Automobile sector (Assemblers & Parts) fell drastically due to receding margins of

all listed players given inability to completely pass on the impact of adverse currency movement together with

change in government policies and imposition of additional custom duties from 2%-7% on imported raw

materials.

INDU remained the worst performing company in the sector with its bottom-line recorded a decline of 71% to

PKR 986mn in 2QFY20 vs PKR 3,404mn in preceding period last year. Pertinently, company margins

dropped drastically to 8.0% (down by 428 bps) due to currency depreciation, higher duties, and change in

sales mix from high margin vehicle to low margin car. In addition, closure of plant during quarter increased

fixed cost per vehicle.

HCAR bottom-line turned negative to PKR 41mn compared to profit of PKR 602mn in 2QFY19. This can be

attributable to i) lower gross margins, ii) escalated finance cost on account of higher interest rate and higher

borrowings, and iii) change in sales mix. During 1HFY20, profitability plunged by 71% YoY due to reason

aforementioned above.

MTL earnings settled at PKR 452mn, down by 36% YoY compared to PKR 702mn in 2QFY19. During the

period under review, volumes slumped by 40% YoY to 3,714 units due to slowdown in tractors’ demand on

account of lower yields for farmers on agriculture products along with higher interest rates.

Exhibit: Auto Sector Profitability

Source (s): Company Financials, AHL Research, *Ex. PSMC


ATLH 1,401 1,319 6% 830 573 45% 570 45%

HCAR 468 1,632 -71% (41) 602 nm 510 nm

INDU 2,304 6,912 -67% 986 3,404 -71% 1,319 -25%

MTL 808 1,825 -56% 452 702 -36% 356 27%

AGIL (2) 500 nm 1 288 nm (3) nm

THALL 940 1,494 -37% 746 983 -24% 194 284%

Total* 5,920 13,682 -57% 2,973 6,550 -54.6% 2,947 1%


Exhibit: Historical Profitability and GMs of Auto Sector




Exhibit: Auto Sales down by 47% YoY during 2QFY20

Source (s): PAMA, AHL Research

9,367

8,346

7,132

6,550

7,415

6,364

2,947 2,973

5.0%

6.5%

8.0%

9.5%

11.0%

12.5%

14.0%

15.5%

-

1,200

2,400

3,600

4,800

6,000

7,200

8,400

9,600



68,596

65,898

58,556

61,886

65,315

54,889

34,635

32,875

-57%

-47%

-37%

-27%

-17%

-7%

3%

13%

23%

25,000

32,000

39,000

46,000

53,000

60,000

67,000

74,000


Passenger Cars and LCV YoY Change(Units)


Exhibit: CRC Prices went down by 7% YoY during 2QFY20

Source (s): Bloomberg, AHL Research,



Exhibit: 14% YoY PKR depreciation witnessed in 2QFY20

Source (s): SBP, Bloomberg, AHL Research

747

721 704

659 638 635

612 611

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

350

400

450

500

550

600

650

700

750

800


CRC CRC YoY(USD/ton)

112

117

124

134

139

147

158 156

108 109 112 113

110 110 107

109

-25%

-20%

-15%

-10%

-5%

0%

95

105

115

125

135

145

155

165


PKR/USD JPY/USD PKR Depreciation YoY JPY Depreciation YoY


Chemicals

ICI Leads the Show

Chemical sector’s profitability witnessed an increase of 16% YoY during 4QCY19. The increase is led by ICI

(+267% YoY) followed by COLG (+27% YoY). However, EPCL and LOTCHEM witnessed a decline of 18%

YoY and 21% YoY, respectively.

LOTCHEM: The company posted a profit after tax (PAT) of PKR 809mn (EPS: PKR 0.53) during 4QCY19,

down by 21% YoY compared to PKR 1,023mn (EPS: PKR 0.68) during SPLY. On a QoQ basis, earnings

went down by 52% QoQ. This takes the CY19 earnings to PKR 5,542mn (EPS: PKR 3.66), up by 25% YoY.

During 4QCY19, net sales went down by 15% YoY to PKR 12,922mn, which is majorly owing to lower

volumetric sales and lower PTA prices (-31% YoY). However, PKR witnessed a depreciation of 14% YoY

during the period. Gross profit margins for the company clocked in at 7.9% during 4QCY19, declining by

266bps on the back of 34% YoY decline in international PTA margins. On the other hand, other income

jumped up by 144% YoY to PKR 429mn during 4QCY19 on the back of higher income from short-term

deposits.

ICI: During 4QCY19 (2QFY20), the company posted a profit after tax (PAT) of PKR 1,016mn (EPS: PKR

11.00), jumped up by 3.7x YoY. The rise in earnings is primarily driven by better performance of all

segments. The PSF segment witnessed gross margins of 7% during 4QCY19 (2QFY20) compared with

gross loss during 4QCY18 (2QFY19). The rise in margins is triggered by 4% increase in volumes along with

addition of specialized variants of PSF for domestic and international market. The soda ash segment’s gross

margins went up by 470bps to 30% during 4QCY19 (2QFY20) compared with 26% during 4QCY18

(2QFY19). The rise in margins is witnessed on the back of lower energy cost due to 24% YoY decline in coal

prices. Pharma segment’s gross margins also went up by 14pps to 31% during 4QCY19 (2QFY20) compared

with 17% during 4QCY18 (2QFY19). The rise in margins is witnessed due to manufacturing efficiencies.

Animal health segment’s gross margins also went up by 303bps to 22% during 4QCY19 (2QFY20) compared

with 19% during 4QCY18 (2QFY19). However, the sales of the segment went down by 11% YoY due to

stressed market conditions in the poultry segment. Livestock segment growth slightly offset the decline in

poultry segment. The chemical segment’s gross margins also increased by 331bps to 26%. The margins

increase is triggered by increased sowing of sunflower (high margins product).

Profitability of COLG also went up by 27% YoY led by a 72% YoY rise in other income.

ARPL’s earnings remained stable YoY during 4QCY19.

Exhibit: Chemical Sector Profitability


PKR mn CY19 CY18 YoY 4QCY19 4QCY18 YoY 3QCY19 QoQ

ARPL 1,723 1,588 8% 333 333 0% 613 -46%

EPCL 3,704 4,917 -25% 865 1,060 -18% 1,298 -33%

COLG 4,107 3,293 25% 1,149 903 27% 1,151 0%

ICI 3,562 2,474 44% 1,016 277 267% 836 22%

LOTCHEM 5,542 4,431 25% 809 1,023 -21% 1,682 -52%

Total 18,638 16,704 12% 4,174 3,597 16% 5,581 -25%


Exhibit: Historical Profitability and GMs of Chemical Sector


Chemicals

ICI Leads the Show

Exhibit: PKR Depreciated 14% YoY during 4QCY19


4,036 4,088

4,984

3,596

4,692

4,191

5,581

4,174

18.0%

20.0%

22.0%

24.0%

1,500

2,250

3,000

3,750

4,500

5,250

6,000


Profit after Tax Gross Margins(PKR mn)

112

117

124

134

139

147

158 156

-25%

-20%

-15%

-10%

-5%

0%

100

110

120

130

140

150

160

170




Exhibit: International PVC margins witnessed an increase of 12% YoY in 4QCY19


Chemicals

ICI Leads the Show

Exhibit: International PTA margins witnessed a decline of 39% YoY in 4QCY19


322 312 313

404 405 422

477

452

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

50

100

150

200

250

300

350

400

450

500


International PVC Margins PVC Margins YoY(USD/ton)

141

175 178

169

130

200

169

103

-60%

-40%

-20%

0%

20%

40%

60%

80%

50

70

90

110

130

150

170

190

210


International PTA Margins PTA Margins YoY(USD/ton)


Engineering

Flat Steel Margins Remain Weak

Cumulative profitability of the KSE-100 index Steel sector (Engineering sector) arrived at PKR 115mn in

2QFY20, undergoing a drastic 90% YoY decline from PKR 1,098mn in SPLY. While negative earnings of INIL

eroded sectoral bottom-line, ISL’s profitability decline (dip of 87% YoY) also remained a culprit for weak

performance in the quarter under review.

INIL posted a loss after tax of PKR 3mn vis-à-vis a PAT of PKR 191mn in 2QFY19. Volumetric sales of the

company remained considerably lower given economic slowdown and its emanating impact on the

automotive, construction, steel and other related capital-intensive industries, together with imposition of anti-

dumping duty by importing countries. This translated in lower gross margins (9.0% vis-à-vis 10.3% in

2QFY19). Moreover, other income shrunk by 69% YoY to PKR 73mn led by lack of dividend payout from

subsidiary – ISL.

Meanwhile ISL demonstrated an 87% decline in PAT to 118mn from PKR 907mn in 2QFY19. Pertinently,

margins recoiled by 3ppts to 7.2% on account of augmenting competition as new capacity of CRC came

online (volumetric decline in domestic offtake) together with Pak Rupee depreciation. Albeit, robust exports

mitigated the impact. In addition, finance costs took off by 2x YoY in 2QFY20 owed to incremental borrowing

and rising interest rate scenario.

Exhibit: Engineering Sector Profitability



INIL (122) 921 nm (3) 191 nm (119) nm

ISL 466 1,748 -73% 118 907 -87% 348 -66%

Total 344 2,669 -87% 115 1,098 -90% 228 -50%


Exhibit: Historical Profitability and GMs of Engineering Sector


Engineering


Exhibit: Steel Products Production


1,723

1,322

1,572

1,098 1,048

522

228 115

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

-

500

1,000

1,500

2,000

2,500



(PKR mn)

1.3 1.2 1.3

0.9 0.8

0.9 0.8 0.8

1.1 1.1

1.1

1.1

1.1 1.1 1.1

1.1

-30%

-20%

-10%

0%

10%

20%

-

0.5

1.0

1.5

2.0

2.5


Billets | Ingots H/C.R.Sheets | Strips | Coils YoY Change

(Mn tons)


Exhibit: Average CRC Prices decreased by 7% YoY in 2QFY20


Engineering


Exhibit: Average HRC Prices decreased by 8% YoY in 2QFY20


747

721 704

659 638 635

612 611

-23%

-15%

-8%

0%

8%

15%

23%

30%

38%

350

400

450

500

550

600

650

700

750

800


CRC CRC YoY(USD/ton)

643 652

632

571 563

580

540 528

-20%

-10%

0%

10%

20%

30%

40%

50%

350

400

450

500

550

600

650

700


HRC HRC YoY(USD/ton)


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