Pakistan Market Outlook CY15

Friday, January 02, 2015
The Prism
Pakistan Market Outlook
KSE-100 all set to explore new highs, Targeting 36,500!
Yawar Uz Zaman
Tel : +(92 21) 32469141 - 50 -Ext 542
yawar.zaman@shajarcapital.com
KSE-100
Current Index
32,131
52 Weeks High
32,148
52 Weeks Low
25,478
1 Yr. Return
27%
1 Yr. Return (US$)
23%
Mkt Cap (PkRbn)
73,805
Mkt Cap (US$ bn)
73.80
Source: KSE & Shajar Research
Major sector performance relative to index- CY14TD
Health Care
Auto
Non Life Ins.
Chemicals
Personal Goods
Banks
Oil and Gas
0%
-40%
Food
40%
Telecom
80%
Electricity
Cement
120%
Pharma
160%
Source: KSE, SCPL Research
The outgoing calendar year (CY14) stands positive for the local equities where
the benchmark has yielded 27% YoY return (33% in US$ terms). Market
represents a mix bag news flows. The key events which enforced volatility
were the financial budget FY15 which came as a surprise to the stock market
on the back of certain unexpected developments which included i) imposition
of 5% advance tax on dividend making it a total of 15% ii) imposition of 5% tax
on bonus shares and iii) broadening of withholding tax regime to include
foreign institution. The scheduled reduction in the corporate tax rate to 33%
may also fail to create excitement at the local bourse due to imposition of
Alternate Corporate Tax (ACT) @ 17%. Despite all these negatives, KSE-100
witnessed bullish momentum with successful outgoing IMF programme amid
completion of key transactions related to the privatization of United Bank
Limited (UBL), Pakistan Petroleum Limited (PPL)and Allied Bank Limited (ABL)
and issuance of Euro bonds and sukuk bonds in the international market.
Though market is discovering new highs, KSE100 Index still trades at an
attractive forward P/E ratio of only 8.9x and a forward dividend yield of ~5.5%
against the regional P/E of 14x and dividend yield of 2%. As valuations remains
attractive, we expect the benchmark KSE100 Index to provide 20-25% return
in CY15 to reach 36,500 points by Dec15.
Political Commitments:Apart from core fundamentals, political turmoil also

PkR vs.USD Parity
110
106
102
98
94
Source: SCPL Research
Dec-14
Dec-14
Oct-14
Nov-14
Oct-14
Sep-14
Jul-14
Aug-14
Jul-14
Jun-14
May-14
May-14
Apr-14
Mar-14
Mar-14
Jan-14
Feb-14
Jan-14
90
took its toll on the market during the period (CY14). To recall, KSE100 index
shed,1,309pts(4.6%) - a historic single day loss on Aug 1114 as key opposition
parties Pakistan Tehreek e Insaaf (PTI) and Pakistan Awami Tehreek
(PAT)marched and promised to stage an extensive sit-in for fulfillment of their
demands.This influenced investors sentiments badly as the new government
was on its way to achieve key economic targets. Followed by depressing
budget and adverse political emergence, investors were concerned about the
market trend during the period. This was follwed by the unfortunate and
barbaric school attack in Peshawar during Dec14 which brought solidarity and
unity amongst allthe political parties.Going forward, we project the market to
explore new heights.
Shajar Capital Pakistan (Private) Limited.

Disclaimer: All reports and recommendations have been prepared for your information only. Summary and Analysis are not recommendation to Buy or Sell. This information should only be used by
investors who are aware of the risk inherent in securities trading. The facts, information, data, indicators and charts presented have been obtained from sources believed to be reliable, but their accuracy
and completeness cannot be guaranteed. Shajar Capital Pakistan (Private) Limited and its employees are not responsible for any loss arising from use of these reports and recommendations.
`
Energy scenario:Pakistan has been reeling from the energy crisis for a long time. The focus of policy
makers is now shifted towards resolving it through payments of the residual amount of circular debt,
initiating coal fired power projectdiverting more gas to generation based capacity and enhancing the
production mix (Coal, Hydel) for long term sustainable growth.
Privatization: During the year, the government successfully divested its 19.8% holding in United
Bank Limited, 5% holding in Pakistan Petroleum Limited and 11.5% holding of Allied Bank Limited
generating combined proceeds of PkR67bn. Now the government is focusing on privatizing those
entities in which it has larger stake and which are a burden on the national exchequer. These include
Pakistan International Airline (PIA), Pakistan Steel Mill (PSM) and other entities in the power sector in
order to improve their performance.
PKR/US$ Parity:With the onset of CY14, countrys foreign exchange position was relatively weak at
US$8.1bn in reserves. Pak rupee stands at 105.35 against US$1. With pressure on FX position and
ballooning fiscal deficit, rupee felt the immense stress and witnessed an upward march during
1HCY14. However, positivity has showed its blessing towards country where the unconditional
payment of over US$1.5bn has changed the currency outlook. This sudden change in the rupee dollar
parity compelled other players (including exporters) to offload their dollar holdings which as a result
knee-jerk the rupee to break the psychological level of below PkR100/US$. Meanwhile, solid
privatization proceeds and issuance of Euro and Sukuk bonds further strengthened the case where
rupee appreciated1.05% in CY14 against the depreciation of 9% in CY13.
International Oil Prices:The benchmark US crude oil price has fallen sharply since last 5-months as
supply shocks limit upside risk in oil prices.Consequently, West Texas Intermediate (WTI) and Brent
crude tumbled down to US$53.78/bbl and US$56/bbl (a five year low). On an annualized basis,
Pakistan fulfills ~80% of its oil needs through imports. Therefore, the recent development on
international front has changed the countrys outlook where decelerating oil prices would provide a
massive breather to the import bill. According to our estimatesthe country would save up to US$5bn
per annum if oil prices settled at US$60/bbl which will restrict dollar outflows from the country.
Monetary Policy:State Bank of Pakistan(SBP) slashed 50bps bringing down DR to 9.5% after
following the policy of monetary tightening for a year.Latest indicators suggest that the domestic
economy continued to register favorable performance with foreign exchange reserve building up
toUS$15bn. With better foreign inflows coupled with lower inflation readings, we expect SBP to
continue monetary easing stance and slash the discount rate by 1% to 8.5% in CY15.
Attractive plays for 2015:Foreign investors are eying the Pakistans market as the returns provided
by the benchmark are unmatchable. Considering the regional dynamics, the market still holds a solid
base for elevation as risks previously attached with the bourses have declined sharply. In this regard,
successful war on terror, IMF satisfaction over the reform agenda, Chinese commitment to invest
US$50bn in the country and massive decline in oil price will play key roles in the elevation of the
equity market. We recommend Cement, Power and the Banking & financial sector for CY15. Our
preferred plays are high dividend yielding stocks like HUBCO, FFC, KAPCO - blue chips and cyclical
stocks like LUCK, DGKC, MLCF and FCCL and UBL and BAHL as our top contrarian picks for the next
year.
Page 2 of 51
Table of content
1. Whats in for Pakistani stocks for 2015
2. Foreign and local investors saga
3. Economy: Road To Recovery
4. Privatization
5. Inflows that Supports Economic Variables
6. Oil price impact
7. External Account
8. Fixed income markets
9. Fiscal Deficit
10. Monetary Policy
11. Politics
Key Sectors
12. Commercial Banking
13. Construction &Materials
14. Exploration& Production
15. Fertilizers
16. Oil Marketing Companies
17. Energy Sector
18. Telecommunication
19. Textile
20. Pharmaceutical
21. Automotive Industry
Top Picks
22. Bank Al Habib (BAHL)
23. United Bank Limited (UBL)
24. Lucky Cement Limited (LUCK)
25. DG Khan Cement Limited (DGKC)
26. Fauji Cement Limited (FCCL)
27. Maple Leaf Cement Limited (MLCF)
28. Pakistan Petroleum Limited (PPL)
29. Oil & Gas Development Company Limited (OGDC)
30. FaujiFertilizer Company Limited (FFC)
31. Fatima Fertilizer Limited (FATIMA)
32. Pakistan State Oil Limited (PSO)
33. Hub Power Company Limited (HUBC)
34. KotAddu Power Company Limited (KAPCO)
35. Pakistan Telecommunication Limited (PTC)
36. Nishat Mills Limited (NML)
04
07
08
12
14
15
16
17
18
19
20
23
27
33
36
40
42
45
47
49
50
25
26
29
30
31
32
34
35
38
39
41
43
44
46
48
Page 3 of 51
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Whats in for Pakistanistocks for CY15
The CY14 endorsed a second consecutive year of appreciation for the KSE-100, where the index
appreciated by ~48% and 49% in CY12 and CY13respectively. On the macroeconomic front, increase
in foreign exchange reserves to US$15bn from their lows of US$8.1bn in Dec13, appreciation of PkR
against the US$ of 9.1% from its highs of PKR108/US$, foreign inflows of around US$421mn and
successful Eurobond auction of US$2bn in CY14 were major drivers behind the market return.
However, in contrast to past year, FY14s appreciation in the market was punctuated with periods of
high volatility due to precarious situation on the external account front as well as PkR fluctuations
against the US$(PKR/US$).
Market Valuations Matrix
P/BV (x) 2013
2.8
17.0
Philippines
2.6
15.0
Singapore
13.0
Malaysia
Indonesia
India
Regional Avg.
2.4
Indonesia
Philippines
India
2.2
Thailand
11.0
Thailand
Malaysia
2
Hong Kong
9.0
7.0
1.6
Pakistan
Singapore
1.4
EPS Growth (%) 2013
5.0
China
Pakistan
ROE (%) 2013
Hong Kong
1.2
12
15
18
21
24
Dividend Yield
7.00
Regional Avg.
1.8
China
PER (x) 2013
11
13
15
17
19
21
23
Market Cap / GDP
6.29
50.0%
6.00
48.0%
45.0%
40.0%
5.00
4.00
3.29
3.42
37.0%
35.0%
3.78
3.44
3.00
2.07
1.65
2.12
37.0%
32.0%
28.2%
30.0%
2.28
2.00
25.0%
25.0%
20.0%
21.9%
17.0% 18.0% 16.8%
16.0%
15.2%
15.0%
1.00
10.0%
5.0%
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
0.0%
FY03
Philippine
s
India
Hong
Kong
China
Indonesia
Malaysia
Singapore
Thailand
Tel : +(92 21) 32469141 - 50 -Ext 542

Pakistan
Yawar Uz Zaman
Source: Bloomberg, SCPL Research
Governments preference for long tenor government securities resulted in overall accumulation of
PKR 2.5bn of PIBs and retirement of PKR6.3bn of t-bills. This reflects positive sentiment in the capital
markets over future direction of interest rates, where majority of the market participants expect the
policy rate to have peaked out and even anticipate monetary easing of 100bps in CY15.
Back to Table of content

Page 4 of 51
`
Sector Performance:Among sectors, major appreciation in price levels was seen in sectors which
have favorable exposure to PkR appreciation against the US$. Such sectors include Automobile &
Parts sector (CY14: +136%) and Pharma & Bio-tech (CY14: +80%). Price levels of companies in the
commercial banking sector recorded an appreciation of around 29% on the back of expectations of
increase in their respective margins due to deployment of funds in high yielding long term
government securities and increase in private sector off-takes during the period. Telecom sector was
amongst the major underperformers during the period with (-22%) return.
During the 1HCY14, KSE-100 index received yet another boost in the form of an increase in Pakistans
weight in MSCI Frontier Market Index from 3.9% to 7%. This, along with ever increasing interest of
foreign investors in the Pakistani market and robust profitability growth has helped market to
continue its run uphill. Companies in the Banking and Construction & Materials sector are expected
to outperform the market in FY15 due to anticipated appreciation in their respective profitability
margins.
Future Outlook: On the macroeconomic front, stabilization of external account balance, resolution of
the energy crises and reduction in fiscal deficit were the major objectives for the government in
FY14. Out of thesethe position of external account balance has been improved due to accumulation
of satisfactory foreign exchange reserves. However, sustainable resolution of the energy crisis
remains elusive for the government, as reduction in subsidies to reduce fiscal deficit has resulted in
an increase in the pace of the circular debt in the energy chain.
Introduction of structural reforms was tough in CY14 and will potentially become further tougher in
CY15 as subsidies would be slashed even further and some loss making State Owned Enterprises
(SOE) will come under the hammer. Reduction in subsidies will potentially result in increase in
inflation over the medium-term which can be mitigated through sizable decline in crude oil prices.
However, due to lack of any significant demand in the underlying economy, we expect the inflation
to average 6-7% in FY15. Considering expectations of persistently low inflation, discount rates will
potentially remain downward
Equity markets have cumulatively appreciated by ~27% in its on-going upsurge. With expected
earnings growth of ~15% for Shajar Universe companies and dividend yield of 6%, we expect market
return to be in the range of 20-25% in CY15.

Page 5 of 51
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Risk factors to index target
Despite the expected 20-25% index return in FY15, upside risk could be the increase in crude oil
prices above US$70/bbl in FY15 where E&P sector can push the index above the predetermined
levels.
Inflationary shock via oil / commodity prices forcing the Central Bank to furthertighten monetary
policy.
US Dollar strengthening significantly leading to imported inflation and consequent pressure on
the Balance of Payment. In this regard, historically, the KSE-100 has tended to contract whenever
the funding gap has enhanced and vice versa.
Sudden decline in inward remittances engendering a current account deficit balloon.
Reduced foreign flows to the market incase war against terror take more time than expected.
Adverse weather conditions that negatively impact agricultural growth andsubsequently the
economy.
Any major upset in the political equation relative against current expectations.

Page 6 of 51
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Foreign and Local Investors Saga
Improving economic variables: Despite improving economic variables, local participant remained
net seller in the market since during CY14. In this regard, individuals were the highest net sellers in the
market amounting US$119mn followed by corporates (US106$mn) and Mutual Funds (US$39mn).
However, Foreigners drove the index to its record high (32,148pts) owing to massive inflow of
US$398mn at the bourse. Therefore, any change in the foreign participation would drive index in the
near term.
Foreign participation to remain upward trajectary:Foreign rating agencies have showed their
confidence in the countrys overall economic performance under the International Monetary Fund
(IMF) programme where S&P maintained its positive rating outlook for the country. Consequently,
successful privatization of Pakistan Petroleum Limited (PPL) and United Bank Limited (UBL) and
issuance of Islamic bond (Sukuk) in the international market have gathered coherent and much
needed attention by the respondents.
Despite the prevailing political noise and uncertainty in the country, foreign participation in the
country would augment further in the CY15 as the new growth agenda in the manufacturing sector
(that includes US$50bn Chinese investment) will be a confidence booster for the countrys economic
standing.
Opportunity and Prospects for local participants: Most of the local participants hold healthy cash
in their asset class as the majority of them remained on the opposite side of the picture. We believe
the recent developments on political front (where most of the opposition parties have showed their
foot prints in the democratic movement in the country) would attract further inflows. Therefore, it
has been an ideal opportunity for local investorsto inflate their stake in the domestic market .Most of
the local participants hold enough cash at the balance sheets which could provide them a helathy
entry position and support the market from any such decline due to political unrest.
Foreighn Investment Portfolio (FIPI)
300
100
200
80
60
100
40
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
(100)
Jan-14
20
-
(200)
(20)
(300)
(40)
(400)
(60)
Gross Buy (USD mn)
Gross Sell (USD mn)
Net Buy/Sell (USD mn)
Source: NCCPL & Shajar Research

Page 7 of 51
`
Hamza Kamal
Tel : +(92 21) 32469141 - 50 -Ext 543
hamza.kamal@shajarcapital.com
Syed Faizan Ahmed

Tel : +(92 21) 32469141 - 50 -Ext 543
faizan.ahmed@shajarcapital.com
Economy: Recovering path

Impressive performance in FY15:Pakistans economy demonstrated an impressive performance
during FY14 despite weak economic fundamentals. The year was marked by unprecedented
appreciation of PKR as a result of improvement in FX Reserves facilitated by augmenting remittances,
grant of US$1.5bn, issuance of Eurobond,3G/4G proceeds and divesture of the holding of
Government of Pakistan(GoP) in United Bank Limited(UBL) to name a few. Adding to the positivity
was the inflation that was contained within single digits through declining global commodity prices;
also reducing the import bill and consequently, the current account deficit.
GDP growth at 4.1% in FY14:Pakistan achieved an economic growth of 4.1% during FY14 as against
3.7% in FY13 and the five year CAGR of ~2.8%(FY09-FY13).The growth was aided by expansion in the
industrial sector which dispenses almost 20.8% to the GDP. A mediocre performance from
agriculture and services sector not only resulted in offsetting the impact of industrial expansion but
also dragged the economic growth down. Industrial sector expanded by 5.8% on the back ofgrowth
in large scale manufacturing during FY14 of 5.5% (FY13:4.5%). This was primarily due to one-off
measure of resolution of circular debt to the tune of PkR480bn that added power amounting
1752MW to the national grid. Fertilizer, Sugar and Beverages showed hefty growth of 28.19%,
19.19%, and 32.28% respectively. An improved performance in construction was also witnessed
consorted by flood rehabilitation and other public sector development projects (PSDP). The
slowdown in transport, storage and communication sector (+3% as against five year average ~3.5%)
continues to hamper the growth of services sector. An escalation in agricultural production dipped
owing to declining cotton output as well as of other minor crops but somehow compensated by the
improved output of rice, sugarcane, wheat and maize crops. Livestock also reported a modest growth
of 2.9%.
On the demand side: Economic growth in FY14 was accompanied by increased private
consumption registering a growth of 4.6% through mounting remittances and improved net rural
income from major crops. Total consumption translated into an economic impact of 6% and provided
impetus to the growth in investments, although minimal. The ratio of Fixed Investment to GDP
continued to decline, falling to 12.4% from 12.6% in FY13. Private and Public Enterprise Investment in
the various production sectors during FY14 slipped to 9.5% (FY13:10%) and 0.9%(FY13:1.1%) of GDP
respectively. The decline was partly offset by government investments rising to 2.5%(FY13: 2.2%) of
GDP. Net exports turned negative, omitting 70bp from GDP as growth in imports surpassed that
witnessed in exports.F
Page 8 of 51
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The countrys performance registered an improvement in comparison to its regional peers
includingIndia, Bangladesh and Sri Lanka which reported an average growth (CAGR) of above 6% in
the last five years.
Achieving fiscal sustainability is a recurring challenge for the brains behind policy formulation in
Pakistan. Fiscal discipline has eroded in recent years with a persistent need to finance expanding
energy sector subsidies, worsening losses incurred by state-owned enterprises, and high
expenditures for security. The resolution of the power sector debt issues is integral to the revival of
the investment climate of the country. Also,the priority of the government should be to overcome
the rampant energy crisis that has influenced Pakistans GDP growth by an average 2-3% per annum.
Resolving energy crises-Key to development:Pakistan has been reeling from the energy crisis as our
political representative shied away in addressing the structural and governance issues due to which
reverberations are being felt throughout the real economy on production, consumption, jobs and
well-being. Furthermore, the focus of policy makers upon short term measures (e.g. resolving circular
debt, rental power project, diverting more gas to generation based capacity) have only aggravated
the problem.
The average shortfall of electricity is between 4000-5000MW. The reasons for this growing gap are
not only the rising demand and high system losses, but also the declining generation capacity.
Moreover, seasonal reductions in the availability of hydropower, decrease in indigenous gas
resources, the countrys heavy reliance on imported fuel oil for power generation, and forcedpower
outages due to capacity degradation or scheduled outages for the maintenance of existing power
plants are all responsible for the diminishing generation capacity. The unavailability of oilgiven the
economys mounting circular debt (~PkR500bn in 5MFY15) as the government fails to adjust energy
prices to reflect supply cost has only accentuated the energy crisis.
Demand and Supply of Electricity
Demand
FY 14
FY 13
FY 12
FY 11
FY 10
FY 09
FY 08
24000
22000
20000
18000
16000
14000
12000
10000
FY 07
24000
22000
20000
18000
16000
14000
12000
10000
Supply
Source: Nepra & Shajar Research

Page 9 of 51
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The dismal performance of power sector has affected a very large wheel which is coming to a halt.
Also, large-scale manufacturing (LSM) has been languishing at growth rates below 2% during
4MFY15, whereas in the corresponding period last year, the figure was almost 6%. Most of the spur
to growth came from the renewed supplies of power due to the retirement of circular debt, and
diversion of gas towards fertilizer which accounted for a large share of the uptick in LSM earlier.
LSM Index Dragged by structural inefficiencies
140
130
120
110
100
90
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
80
Source: SBP & Shajar Research
Electricity mix andhigher cost of production:Hydroelectric power stations are classified as the most
efficient power plants with an operational efficiency of up to 90% given the availability of water.
Overthe last three decades, the share of hydropower in the national electricity supply mix has seen a
fall. This is principally due to the focus of 1994 Power Policy towards easy-to-generate thermal power
over hydropower in the face of political pressure and high initial cost, increasing the overall cost of
generation in Pakistan.
The share of power generation through natural gas is decreasing drastically given the countrys
depleted gas resources. Gas tends to be reserved for domestic consumers and industry; its
availability for power generation is minimal. To note, gas consumption of power sector has
decreased to ~29% in FY14 vs. last 10 years average of 32%. With power generation from gas costing
almost one-third of generation from oil, the above situation highlights a strain on the sector. Any
fluctuation in the international oil market directly affects the average cost of electricity generation.
Similarly, any interruption in oil supplies directly intervenes in power supply. Therefore, it is critical
that power generation sources are diversified to include more indigenous resources such as
hydropower, coal, and renewable energy resources, including wind and solar power which are known
to be abundantly available in Pakistan.

Page 10 of 51
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Coal Based Plants- Future:Coal is the cheapest source of fuel used in thermal production (PkR3.46
per kWh in 2012/13). Simultaneously, and quite unfortunately, it is the least used to generate
electricity and its use is declining, given the lack of adequate maintenance. Like water, the country
has enormous coal reserves, with an estimated 185 billion tonnes in Thar. It is estimated that, by
using only 2% of these reserves, Pakistan could generate around 20,000 MW of electricity for almost
40 years. The contribution of coal to the total electricity supply in a number of developed economies
such as the UK, US, and Australia, stands between 60 and 70%. India has increased its reliance on
coal and at present, 54% of its total electricity production is from coal-based thermal power stations
with only 1% of its total thermal capacity running on fuel oil.
Transmission and distribution losses:Apart from the expensive generation mix, another major
reason for soaring electricity costs is exceeding losses in the transmission and distribution system.
The system losses, which at a national level stand at an unsustainable level of 23-25%, compare quite
unfavorably with the transmission and distribution losses incurred globally. The weighted average
cost of electricity jumps from PkR12 per kilowatt-hour at the generation stage to PkR14.70 per unit
at the distribution stage, a differential of exactly 22.5%. Some of that rise is due to the cost of
running obsolete and poorly managed power distribution network. The prevailing transmission &
distribution (T&D) system can reliably handle a load of only 11,500-12,500 MW during a given period.
In other words, any load beyond this increases the likelihood of a breakdown in the distribution
network, which is becoming more common.
Below cost consumer end tariffs and the circular debt:The expensive fuel generation mix coupled
with a mismanaged distribution network results in an unaffordable cost of electricity for consumers.
The differential between the NEPRA approved tariffs and the government notified tariffs has picked
up.
The inability of the DISCOS (distribution companies) to recover their costs either through their own
revenues or through timely reimbursement of the subsidy from the government and their inability to
meet their financial obligations results in the power sector inter-corporate circular debt. Over the
last four years, the government has pumped in billions of rupees in bailing out the power sector
entities but the Achilles heel - circular debt fails to wither. There is no shortcut to wriggle out of this
disastrous mess unless the cost of power generation and distribution is restrained through drastic
measures to plug the leakages caused through electricity theft, fuel pilferage and nonpayment of
dues. Simultaneously, the consumer end tariff has to be rationalized by bringing it closer to the cost
of delivery of services.
Improving post harvest supply chain infrastructure: Despite contributing 21% to the total GDP of
Pakistan and providing employment to 44% of the countrys labor force, the potential of Pakistans
Agriculture sector is yet to be completely harnessed. This is because of inadequate supply of
agricultural inputs and lack of proper postharvest supply chain infrastructure. For example, out of
the total 10mn12mn tons of fruits and vegetables (~PkR48bn/~US$500mn in exports) produced
annually, an estimated 30% of this product is wasted in transit, specifically due to the lack of roads,
storage and refrigeration facilities. We believe a fast track highway development program linking the
untapped rural farming constituencies (Balochistan and KP) together with cold chain infrastructure
establishment along the agriculture value chain is necessary to form the base of sustained
agricultural growth going forward.
Page 11 of 51
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Improving governance: We emphasize that our intention here is not to highlight inefficacy of the
government but to concentrate on the importance of addressing long term structural issues instead
of implementing shortterm fire fighting techniques to address immediate problems. The following
analysis is meant to obtain a broad overview of the cost of weak governance and does not include
losses incurred by other public sector corporations in aviation, gas distribution, power generation
and distribution, steel, engineering works, etc.
The inefficient management of affairs in Public Sector Entities (PSE) like Steel Mills, PIA, Pakistan
Railways, WAPDA etc. causes an already financially constrained nation a huge sum of money in the
form of subsidies. The irony is that all the money pumped into these institutions over decades seem
to have little effect upon their performance as they have continued the downslide.
During FY14, the government disbursed subsidies amounting to PkR323bn or 1.2% of GDP over
running budget of PkR240bn;specifically subsidies to power sector(WAPDA and KESC) amounted to
PkR310bn which was spent to provide relief to customers from the high cost of production of
electricity. Similarly, subsidies to the inefficient power sector (WAPDA and KESC), USCs and PASSCO
have together averaged around 70% of total subsidies given since FY00. The debt profile of PSEs also
hints at weak governance where outstanding debt of public sector corporations and government
autonomous bodies stands at PkR366bn (equivalent to ~1.2% of FY15 GDP) as at Sep14.
Amount if Subsidies in PkR bn
Impact of Subsidies on the Economy

40%
600
35%
500
30%
25%
400
20%
15%
300
10%
200
5%
% of GDP
FY15E
FY14
FY13
FY12
FY10
FY15E
FY14
FY13
FY12
FY11
FY10
FY11
0%
100
% of Fiscal Deficit
Source: M.O.F & Shajar Research
Privatization:During the year, the government successfully divested its 19.8% holding in United
Bank Limited, 5% holding in Pakistan Petroleum Limited and 11.5% holding of Allied Bank Limited
generating combined proceeds of PkR67bn. Although, the initiative taken by the government is a
positive step towards economic revival, depoliticizing the process is the need of the hour. The
government should focus on privatizing those entities in which it has larger stake and are a burden
on the national exchequer such as PIA and Pakistan Steel Mills in order to improve their performance
so they are able to contribute according to their potential in the GDP.
Going forward, privatization proceeds of Heavy Electrical Complex, HBL and OGDC are expected to
improve the fiscal position. Therefore, we reiterate the successful privatization program of the
mentioned entities can generate a sizable fiscal space for the government, while can also substantial
reduce the drag on economy caused by these institutional inefficiencies.

Page 12 of 51
`
Entities under consideration for sale
Mode of Transaction
Oil and Gas Development Co. Ltd (OGDCL)

Pakistan Petroleum Ltd (PPL)
Mari Petroleum Ltd.
Government Holding Private Ltd (GHPL)
Pak Arab Refinery Ltd (PARCO)
Habib Bank Limited (HBL)
United Bank Limited(UBL)
Allied Bank Limited (ABL)
National Bank Limited (NBP
State Life Insurance Corp. (SLIC)
Kot Addu Power Company Ltd. (KAPCO)
National Insurance Co. Ltd. (NICL)
National Investment Trust Ltd. (NITL)
Small & Medium Enterprise (SME) Bank
Pakistan Reinsurance Co Ltd. (PRCL)
Heavy Electrical Complex (HEC)
Islamabad Electric Supply Co. Ltd (IESCO)
Faisalabad Electric Supply Co. Ltd (FESCO)
Lahore Electric Supply Co. Ltd (LESCO)
Gujranwala Electric Power Co. Ltd (GEPCO)
Mutan Electric Power Co. Ltd
Hyderabad Electric Supply Co. Ltd (HESCO)
Sukkur Electric Power Co. Ltd (SEPCO)
Peshawar Electric Supply Co. Ltd (PESCO)
Quetta Electric Supply Co. Ltd (QESCO)
Lakhra Power Generation Company
Jamshoro Power Generation Co. Ltd (J
Northern Power Generation Co. Ltd (NPGCL)
National Power Construction Co. (NPCC)
Pakistan Steel Mills Corp (PSMC)
Pakistan Engineering Co Ltd (PECO)
Pakistan International Airlines Corp (PIAC)
Pakistan National Shipping Corp (PNSC)
Convention Centre, Islamabad.
PIA Investment Ltd-Roosevelt Hotel NY & Scribe Hotel-Paris
Pakistan State Oil Co Ltd (PSO)
Sui Southern Gas Co Ltd (SSGC)
Sui Northern Gas Pipelines Ltd (SNGPL)
Capital Market
Capital Market
Capital Market
Capital Market
Capital Market
Capital Market
Capital Market
Capital Market
Capital Market
Capital Market
Capital Market
Strategic Private Sector Participation
Restructuring followed by Privatization

Page 13 of 51
`
Better inflows to support economic variables
Ups anddownsin PKR-US parity:With the onset of CY14, Countrys foreign exchange position
stands at only US$8.1bn with pressure on FX position and ballooning fiscal deficit, rupee felt the
immense stress and witnessed an upward march during 1HCY14. However, IMF has showed
satisfaction over economic performance but net outflow towards IMF has underpin dollar demand
resulted in PKR depreciation where PkR has mark the intraday high of PkR110 against US$. However,
positivity showed its blessing towards country where Saudi Arabia provided an unconditional
US$1.5bn aid to the country resulting in improved currency outlook. This sudden change in the rupee
dollar parity enforced other players (including exporters) to offload their dollar holdings which as a
result knee-jerk the rupee to break the psychological level of PkR100.
PkR vs.USD Parity
110
106
102
98
94
Dec-14
Dec-14
Nov-14
Oct-14
Oct-14
Sep-14
Aug-14
Jul-14
Jul-14
Jun-14
May-14
May-14
Apr-14
Mar-14
Mar-14
Feb-14
Jan-14
Jan-14
90
Source: SCPL Research
In the meantime: Pakistan has issued Eurobond worth of PkR2bn which eased pressure in the forex
market and appeased BOP concerns. Political sit-ins during August within the capital had created
panic enough to cause dollar to again march upward above PkR100/US$ in both interbank and open
markets. However, under the privatization programme, govt has offloaded 19.8% and 5% stake in
UBL and PPL. Notwithstanding, government has shelved the ODGCs privatization as lack of foreign
and local interest in the oil sector resulted in below expected revenues due to decline in crude prices
during the year.
Sukuk Issuance further added support:However, this was compensated through Sukuk issuance
of US$1bn against projected target of US$500mn has satisfied IMF who is likely to provide US$1.1bn
by Dec14. On a positive note the depleting oil prices would also results in a net saving of over
US$2bn in FY15 which would respite the balance of payment crisis and strengthen rupee. Meanwhile,
government has achieved CY14 targetof US$15bnamid better inflows.We anticipate rupee to be
range bound b/w PkR100-103 till end of FY15.

Page 14 of 51
`
Oilprice impactonPakistans economy
Oil prices fallen sharply in 2HCY14:The benchmark US crude oil price has fallen sharply since last
5-months as supply shocks limit upside risk in oil prices.Consequently, West Texas Intermediate (WTI)
and Brent crude knock down to US$75.78/bbl and US$78.33/bbl (a four year low) or down by 30%
since June-14.The recent boom in US crude oil where the world largest consumers production has
reached to over 9mn bbl/day (level seen last in 1986) against the past 10-yrs average of 5.6mn
bbl/day showing a mark able increase of 60%.
OPEC directing the oil market:OPEC which controls almost 40% of oil exports is likely to be
uninterested in providing synthetic support to the oil prices by any production cut as the countries
under the umbrella would be more interested to maintain a market share rather than bearing any
production hack.In the OPEC countries, Saudi Arabia which accounts for 13% of the intl oil export
would likely to support other countries stance and overlook any such move related to cut in
production levels.We anticipate the upcoming OPEC meeting would further drag down oil prices in
the medium term as most of the members would rather stand for market based prices.
Oil prices down 30% YoY in CY14:International oil prices have fallen sharply by an average
30%CYTD as excesssupply norms have overshadowed the upside risk in oil prices. The key
reasonbehind the prevailing bearish market and increase in shale oilproduction by US and better law
and order situation in gulf region whichwas previously fighting chaos. Therefore, the big oil forum
OPEC (Organization of thePetroleum Exporting Countries) refused to consider any production cut or
prefer market based price mechanism. To recall, OPEC is currently producing 30.5mn bbl/day of
oil(almost 40% of the world oil export) against a production ceiling of 30mnbbl/day. Whereas in the
recent developments, United States shale productionhas reached over 9mn bbl/day against the past
10yrs average of 5.6mnbbl/day showing a marked increase of 60%. Consequently, US dependence
oninternational crude has been lowering down which has embarked a downsiderisk in international
oil outlook.
At Pakistans perspective:On annualized basis, Pakistan fulfills 80% of its oil needs through
imports. In FY14, the country imported 19mn tons of petroleum products resulting in a net outflow
of US$14.8bn. According to IMF projections, cumulative import bill for FY15 would be US$58.9bn vs.
exports of US$36.4bn where trade deficit settled at US$22.5bn in FY15. However, the recent
development on international front has changed the countrys outlook where decelerating oil prices
would provide a massive breather to the import bill. According to our estimates, the current bearish
oil prices outlook bode positive for the country as they would result in an import bill saving of
US$5bn if oil prices settled at US$60/bbl, keeping all other things constant.

Page 15 of 51
`
ExternalAccount: Lower oil pricebetter economic outlook
External Account:July-Nov14 paints a negative picture for the current account position with CAD
rising ~10% to US$2,345 vs. last years corresponding time period. Although rising remittances (up
15%YoY), declining commodity prices and CSF (US$371mn) provided some relief but widening of
trade deficit eroded the effect (up11%YoY). Total reserves currently stand at ~US$14bn with SBP
reserves of US$~9bn providing import cover of 2 months.
Going forward:Falling oil prices is expected to decrease pressure on the import bill. We believe with
current decline in oil price savings of PkR4bn is expected to materialize assuming price of
US$80/barrel. Furthermore, we expect remittances to increase by 17%YoY and supplement the
reduction in deficit. Textile exports are expected to pick up on the back of resumption of gas supply
and diversion of electricity to the textile sector, and materialization of GSP+ status impact. On the flip
side, downward pressure on the deficit is expected to result from decline in cotton prices and rising
imports. Moreover, restriction on CSF to US$1bn implies limited inflow from that front.
CAD to stands at 1.5% of GDP:Subsequently, we project Current Account Deficit to stand around
1.5% of GDP and expect Pak rupee to depreciate by 1-2% against US dollar to PkR103 by Jun15.
CA expected to remain under pressure

25,000
6%
4%
20,000
2%
0%
15,000
-2%
10,000
-4%
-6%
5,000
-8%
Trade Deficit (LHS)
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY03
FY02
-10%
FY01
CAB as % of GDP (RHS)
Source: Economic Survey & Shajar Research

Page 16 of 51
`
Fixed income markets: PIB charms gathered interest
Pakistan is the country that has been experiencing deficit in fiscal house mostly since its inception.
Increased financing requirement by the government has propelled the banking sector to place
depository flows towards government securities (crowding out effect). A view of the numbers
justifies the hypothesis as the banking sectors IDR (Investment to Deposit Ratio) that gradually rose
and peaked to 60% in Jan13 remained flatas of Nov14.
PKRV Rates for 3 Years, 5 Years and 10 Years Tenor
14%
13%
12%
11%
10%
9%
3 Years
5 Years
Dec-14
Dec-14
Nov-14
Oct-14
Oct-14
Sep-14
Aug-14
Jul-14
Jul-14
Jun-14
May-14
May-14
Apr-14
Mar-14
Mar-14
Feb-14
Jan-14
Jan-14
8%
10 Years
Source: Shajar Research
Governments strategy of debt re-profiling bodes well for money market:Further charm to
the strategy came from governments intention to shift borrowing in longer-tenor high yielding
instruments i.e. Pakistan Investment Bonds (PIBs) that played extremely well for the banking sector.
The SBP has so far conducted 12 monthly auctions of PIBs with collective target and maturity of
PkR930bn and PkR368bn respectively, while the realization during these auctions amounted to
massive PkR2.510tn (exceeding target by gigantic PkR1.580tn). The major part of the show was
conducted during the 1H2014, when the central banks PIB auction exceeded the target by
PkR1.378tn to stand at PkR1.858tn. On the flip side, the SBP has set target of Market Treasury Bills
(MTBs) as PkR6.670tn (maturity of PkR6.311tn) but has managed to attract only PkR4.383tn during
CY14, a significant shortfall of PkR2.287tn.
Excess Realization in PIB
PkR bn
MTB Auctions falling short of target

Target
Target
Realization
Realization
4QCY14
3QCY14
2QCY14
1QCY14
4QCY14
3QCY14
2QCY14
3,000
2,500
2,000
1,500
1,000
500
1QCY14
1,200
1,000
800
600
400
200
-
Source: SBP, Shajar Research

Page 17 of 51
`
Fiscal Deficit: Enhancing the revenue sources
Fiscal deficit:While the increasing forex reserves consort a rhythm of positivity for the browbeaten
economy, the procrastination in IMF tranche has only added to the country woes. The budgetary
deficit for 1QFY15 is 1.2% of GDP and hence, the anticipated figure for FY15 is 4.8% of GDP which is
less than the government target of 4.9%. The government has targeted a growth of 5.1% for FY15.
The government is observing a prudent fiscal policy where the fiscal deficit has reduced by
US$348mn or 1.2% of GDP. The economic results for the 5MFY15 do not show much performance,
the economy still seems to be in incubation and is unable to recover from the stakes involved with
OGDC privatization which has been postponed. The remittances are crucial in materialization of
projected foreign inflows. Where remittances increased by 15.47% YoY to US$7.38bn in 5MFY15 and
the increasing trend is to sustain only if the decreasing oil prices trend is to break down as 62% of the
remittances to the economy are contributed by GCCs oil-rich countries. In consideration, the SBP has
also decided to play cautious and projected a modest increase of only 5.3% in remittances for the
current year which refutes earlier increase percentages in double digits. However, we believe the
plummeting oil prices are to translate into another face saving for the government with an impact of
0.8% onGDP. This is likely to be offset by the resurgent unpaid bills to power companies worth a
hefty sum out of which PkR50bn were due this month.
Declining subsidies:Although, subsidies declined YoY by 0.3% of GDP, it surpassed the budgetary
target by 0.4% of GDP due to significant power tariff increases during the year to bring income closer
to cost recovery. Enduring fiscal weaknesses were subsequently overshadowed by strong cyclical
revenue intakes in the shape of grants of PkR204mn and the manna of third-generation mobilephone license receipts.
While, much condemnation stands at governments ineptness to boost agricultural productivity,
increasing subsidies to the sector are to stimulate economic growth as would the positive influence
of declining oil prices where a dollar decline slashes production cost by a multiple of five.
Higher tax collection:Tax collection is projected to increase to 9.7% of GDP from 8.9% in FY14.
However, tax increases will be offset by a 31% drop in nontax revenue, which was buoyed in FY14 by
the one-off receipt of US$1.5 billion from Saudi Arabia and large proceeds from the auction of the
3G/4G spectrum. As a result, budget revenues are expected to increase only marginally in FY15 to
equal 14.5% of GDP, up from 14.3% in FY14. Materialization of privatization proceeds of PkR198bn
and issue of Bonds worth PkR247bn will remain the key swing factor.
Remittances
Source: SBP, SCPL Research
Oct'14
Nov'14
Sep'14
Aug'14
Jul'14
Jun'14
Apr'14
May'14
Mar'14
Feb'14
Jan'14
Remittances providng cushion to the trade deficit

2,000
1,500
1,000
500
0
-500
-1,000
-1,500
-2,000
-2,500
Trade Deficit

Page 18 of 51
`
Monetary Policy: Another 100bps cut likely in CY15
Declining interest rate environment:State Bank of Pakistan(SBP) slashed 50bps bringing down DR
to 9.5% after following the policy of monetary tightening since one year.Latest indicators suggest
that the domestic economy continued to register favorable performance with foreign exchange
reserve building up toUS$14bn(1HFY14:8bn), broad money growth contained to 2%(1HFY14: 5%), the
lowest in 6 years due to low government borrowing for budgetary support, and foreign exchange
rate remaining stable through effective management of market sentiments with calibrated liquidity
operations.
Core CPI hovering around 8%
SBP eying +ve real interest rate return
CPI
Core Inflation
16
14
12
10
8
6
4
2
0
CPI
12
Discount Rate
Real Interest Rate
4
3
3
2
2
1
1
0
-1
-1
-2
10
8
6
4
2
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Nov-14
Jul-14
Sep-14
May-14
Jan-14
Mar-14
Nov-13
Jul-13
Sep-13
May-13
Jan-13
Mar-13
Nov-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
The average CPI inflation in during 5MFY15, 6.47%, is in single digits for the consecutive year. For
FY15, the SBP expects average CPI inflation to remain in the range of 7.5 percent to 8.5 percent.
CPI vs WPI/SPI
CPI
WPI
SPI
30
25
20
15
10
5
Sep-14
Nov-14
Jul-14
Mar-14
May-14
Jan-14
Sep-13
Nov-13
Jul-13
May-13
Jan-13
Mar-13
Nov-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Challenges remain firmly grounded:However, challenges and vulnerabilities remain. Absence of

tax reforms further puts pressure on SBPs net domestic assets (NDA) and reserve money. Private
sector borrowed PkR76bn during 1HFY15 as compared to PkR175bn, corresponding period last year
of which majority is for meeting working capital needs. Going forward, energy crises and worsening
law and order situations hints in deteriorating credit quality of major industries.
Upside risks:Furthermore, as mentioned earlier, the key risk to the state of the economy is the
weakening external position and its consequent impact on the currency, in our view. In this regard,
while CPI tracking is one of the tools used to gauge the direction of the DR, however, a trend analysis
suggests that SBPs interest rate policy has also been subservient to Pakistans external account if
looked at from a long term perspective. We can expect downward trajectory in the DR in 2HFY15
owing to weaker oil prices outlook and buildup of reserves. That said, continuation of the monetary
easing cycle would depend on 1) exchange rate stability, 2) possible uptick in CPI during 2HFY15
(higher gas prices and a diminished base effect), 3) net government borrowing through domestic
sources 4) relatively high liquidity injections by the SBP and 5) chronic power shortages retarding the
growth of the economy. 6) Key IMF targets (NDA reduction, reduced borrowing from SBP and
maintenance of NIR).
Page 19 of 51
`
Hamza Kamal
Tel : +(92 21) 32469141 - 50 -Ext 543
Politics: Moving towards consensus

Domestic political environment in full swing:FY14 was marked by political chaos where the
1H14 involved an exercise of military operations in North Waziristan and the latter is influenced by
political rallies by Imran Khan and cleric turned politician Tahir-ul-Qadri. The former had demanded a
detailed investigation into verification of votes casted in elections 2013. Upon seeing no progress in
the demand however, the party leader decided to stage a nationwide protest. During this period, the
presiding government of PML-N headed by Nawaz Sharif has not only lost political fervor and clout
but is also seemingly unable to settle the questions concerning its legitimacy.
Whats in for local politics in 2015:With reasonable assessment, we expect 2015 to be the year of
calmness in the political temperature with elections of half the senate (the upper house) due in
Mar15. According to the predefined methodology, PML (N) is likely to hold driving position in the
house, which is currently under dominance of PPP-P. Though the majority position in Senate will play
favorably for PML(N) in the enactment of subsequent legislation, we believe strong opposition by the
PTI will continue to exert pressure on the PML(N). Moreover, the present political rhetoric (in the
form of back to back large public gatherings at the national level political parties such as PPP, JI, JUIF, MQM gives us a hunch of local bodies elections somewhere in mid-2015. If this development
materializes, we expect a strong contention between the ruling PML (N) and PTI.
No.of Members
Party
PPP-P
PML-N
ANP
IND
MQM
JUI-F
Others
Current
40
16
12
11
7
6
12
104
Outgoing
21
8
6
6
3
3
5
52
Composition %
38.46%
15.38%
11.54%
10.58%
6.73%
5.77%
11.54%
100%
Zarb-e-Azb success stories painting a favorable picture on national securitys canvas:As

highlighted above, the armed forces of Pakistan decided to come up front to combat the rising
national terrorism in Jul 14. To date, the same action is still underway and according to independent
sources, the operation continues to present success stories. As we all know, worsened law and order
condition has always deterred investment in the country (foreign as well as domestic), however,
success stories in military operation are likely to improve perception of the countrys security; a step
which is integral to spurring investment in Pakistan. Moreover, on the provincial front, Sindh
government is carrying out operations to wipe out notorious elements to restore peace in Karachi.

Page 20 of 51
`
Foreign Investment YoY
FY14
FY13
FY12
FY11
FY10
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14
FY09
500
FY08
1000
FY07
1500
FY06
2000
8000
7000
6000
5000
4000
3000
2000
1000
0
FY05
2500
FY04
Foreign Investment MoM
India-Pakistan Relations - Conflicts continue to stifle development of warmth:Whereas in

India, CY14 marked landslide win for Indias conservative BhartiyaJanta Party (BJP). With a
conservative premier in the Chair, Nawaz Sharif, things were not expected to be easy between the
two countries. The past provides us with concrete evidence when back in 1999-2004 when BJP was in
charge of the chair through Vajpayee, the relationship between the two swung from a post-war
dissent to agreement to convene peace talks.
With BJP emphasizing an unfavorable regional policy as evident from several firing incidents at the
line of control followed by an abolishment of foreign secretariat talks and Modis administration
hostile attitude to top it off, the situation does not seem to support establishment of regional
stability.Despite anti-Pakistan sentiments in India, we believe tensions to be temporarily linked to
Kashmirs 87-member assembly elections. As Modi has reputed credentials of being an effective and
business friendly administrator, the time may be ripe for resumption of talks as the elections in heldKashmir are over. Supplementing the above, Modi may want to pursue MFN trade status from
Pakistan for which the pro-Modi business lobby in India is eager to procure which would not only
open door to the multimillion dollar market of Pakistan but also act as a gateway to the big market of
Central Asia.
Trade potential- still remains to be attended:Though trade between the two countries has
increased in the last couple of years, it is still far from reaching its potential which according to a
study is ten to twenty times from current levels, and remains extremely vulnerable to political
fluctuations. In FY14, trade between India and Pakistan totaled US$1.8bn, a fraction of the total trade
of the two countries. The potential gains from bilateral trade in terms of regional economic vibrancy,
strengthening of economic growth, creating much-needed productive jobs, and ushering in peace
and stability are virtually limitless. The process of liberalization must not be disrupted for the
noneconomic objectives of the grand strategists in Pakistan and India nor stunted by the narrow
interests of the protectionist lobbies.
Afghanistan-Pakistan Relations; Recovery on cards:The post-2014 gradual US exit presents

opportunities and challenges for Pak-Afghan relations. The new government stance on Pakistan
would be critical where Ashraf Ghani seeks better ties with Pakistan, while the stance by the chief
executive of Afghanistan, Abdullah Abdullah on Pakistan is still unclear. As history tells us, being a
foreign minister in Hamid Karzai cabinet, he had very stiff relations with Pakistan and was bent
towards India.
Page 21 of 51
`
It is of strategic importance for Pakistan to build stable and friendly relations with Afghanistan
because it cannot afford to have yet another hostile regime in its neighborhood and to exploit the
trade opportunities that opening of Central Asian Republics (CARs) will offer. Cooperation is also
needed to clear the borders with terrorist with dual combat strategy from the annihilation of the
toxic ideology of terrorism and the operatives who implement its dark agenda.
Good relations with Afghanistan present many opportunities for Pakistan including in the
construction and consumer goods sector. Pakistan exports to Afghanistan during FY14 stands at
US$1.2bn, a rise of 17.6% as compared to FY13 and comprise of 20% of the total imports of
Afghanistan. More than 6,000 Afghan students are also studying in Pakistani Universities which is a
good development into a favorable relationship between the two countries.
Renewed focus on relations with Russia:The relationship between Pakistan and Russia has been
difficult and is a prey of evolving international dynamics; the Syrian crisis, the post-2014 Afghanistan
scenario, sanctions from US and Europe affecting the economy is some of the compelling reasons
that are driving Russia closer to Pakistan. Since last year, the defense engagements between the two
sides have intensified as China is far behind military technology than the US and the European
countries.With the pitfall of Ukrainian crisis, the EU is swaying away from buying Russian gas and at
the same time, America is in offing of cheaper Shale gas to EU countries having free trade
agreements with the US. Furthermore, Russia has stopped agricultural imports from Europe and is
looking for an alternative. Therefore, Pakistan ought to capitalize this situation and engage Russia in
bilateral trade that could turn out to be mutually beneficial for bothimporting gas from Russia and
exporting food products to Russia.
Pakistan-American Alliance:The bitter relationship of US with Pakistan has been improving lately
after years of apportionment of blame. General Raheel Sharifs warm reception at the hand of US
government reflects the appreciation of Pakistan military strategy to fight terrorism. It is pertinent to
mention that Gen Sharifs predecessor, General Ashfaq Pervez Kayani had a tense relationship with
Washington amid accusations that Islamabad was failing to take action against Haqqani extremists
and other insurgents based in Pakistan that devise attacks on American and NATO troops in
Afghanistan. Improved relations can also be witnessed on the economic front as American congress
has extended Coalition Support Fund (CSF) for one year although it will be less than a billion.
Furthermore, Obama administration has requested US$1bn to support the new government of
Pakistan in its reform, economic growth, and long-term stabilization efforts. Apart, from US$1bn,
Pakistan will also get US$280mn under Overseas Contingency Operations (OCO) that will enhance
the Pakistan Army, Frontier Corps, Air Force, and Navys ability to conduct counterinsurgency (COIN)
and counterterrorism (CT) operations against militants and also encourage continued US-Pakistan
military-to-military engagement.
However, as US has decided to withdraw its troops from Afghanistan, its government has asked
congress for a sharp slash in economic and security aid to Pakistan for the year 2014 from the total
assistance (excluding Coalition Support Fund) of about US$1.9bn to nearly US$1.2bn. This pattern of
aid flows from US clearly suggests that the geostrategic and political imperatives determine the
direction and amount of foreign aid rather than the economic needs of the people of Pakistan.
Back of Table of content

Page 22 of 51
Commercial Banks
Hamza Kamal
Tel : +(92 21) 32469141 - 50 -Ext 543
Banks
No of listed Companies
Syed Faizan Ahmed
Market Cap (PkRMn)
Tel : +(92 21) 32469141 - 50 -Ext 543
Market Cap (US$Mn)
faizan.ahmed@shajarcapital.com
Dividend Yield %
P/E
P/bv
23
1,587,445
15,772
6.16
12.08
2.01
Weight in KSE-100 (%)

12M Avg. Turnover '000'
12M Avg D T Value (PkRmn)
12Months BETA
Sector Return
Absolute Return
Rel. Index Return
24.31
38,617
1,046
1.06
1M 6M
12M
0.06
0.05
0.29
0.03 (0.03) 0.02
Profitability: The Shajar universe banking sector depicted impressive performance during the
9MCY14. The sectors profitability grew by sizable 42%YoY to stand around PkR91.09bn against
PkR64.14bn during the same period last year. Key drivers to the profitability include i) respectable
uptick of 19%YoY in Net Interest Income (NII) on the back of portfolio shift towards high yielding
government securities ii) reduced provisioning during the period under review (down 74%YoY) amid
improved borrowers dynamics, recovery drive and prudent credit management policies and iii)
decent rise in the Non-Funded Income (NFI), up 18%YoY due to improved focus of banking sector on
trading income (through branchless banking), higher capital gains component and rise in income
from dealing in foreign currencies.
Shajar Banking universe Profitability
25
20
15
10
(10)
9MCY14
FABL
AKBL
BAHL
BAFL
ABL
MCB
NBP
(5)
UBL
HBL
9MCY13
Portfolio tilt towards high yielding PIBs, expected to continue income drive:During the CY14,
the banking sector has opted for a portfolio shift towards high yield Pakistan Investment Bonds. A
view of the Shajar banking universe reveals nearly all the banks have parked their depository mix in
high yield PIBs that subsequently driven the Markup income of the Shajar banking universe (up
15%YoY). Going forward, we believe the income flows from such instrument are expected to
continue in the CY15 alongwith any realization of capital gains amid relaxation in the discount rate by
the central bank.
Banks shifting their portfolio to high yielding PIBs
PkR bn
PIB
PIB as % of Deposit
35%
Tbills (MTBs)
3,000
30%
2,500
25%
2,000
20%
1,500
15%
10%
1,000
5%
500
Sep'14
FABL
AKBL
BAHL
BAFL
ABL
MCB
NBP
UBL
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QY12
3QFY12
HBL
0%
Dec'13
Source: Financial Reports & Shajar Research
Page 23 of 51
`
Gradual uptick in CASA: Alongwith a decent growth in depository flows, the sector has also
played efficiently in mixing low cost funds i.e. CASA deposits in order to dilute the effect of linkage
of Minimum Deposit Rate (MDR) to repo rate (through discount rate). To recall, the SBP has
announced a regulatory change in Nov13 to link MDR with the prevailing repo rate, to which the
banks reacted efficiently as depicted by a limited increase in markup expense by 13%YoY. Thus
overall, the Net Interest Income (NII) of the bank due to above developments (the PIB
phenomenon and CASA deposits attraction) posted a respected uptick of 19%YoY to stand around
PkR209.96bn against PkR176.92bn in the corresponding period last year. Going forward, the
continued focus on low cost funds (CASA deposits, particularly Current Accounts) is expected to
provide further breather to the banks bottomline.
Deposits Growth of Sector
CASA rising-expected to dilute markup cost
PkR tn
8.10
9MCY14
CY13
CY12
CY11
CY10
0.10
Sep'14
FABL
HBL
1.10
AKBL
2.10
BAHL
3.10
BAFL
4.10
ABL
5.10
MCB
6.10
UBL
7.10
NBP
95%
90%
85%
80%
75%
70%
65%
60%
55%
50%
Dec'13
Improved borrowers capacity played well for sectors credit portfolio health:During the
period, the sector has depicted improved credit portfolio quality as depicted by controlled infection
ratio. The industrys infection ratio that peaked to 16% in CY11 has been standing at a level of 13%
(down 3pps over the period) as of Sep 3014. On the other hand, the coverage ratio of the sector is
touching the mark of 78%. Moving forward, with economic recovery on cards, the gradual
improvement in the portfolio credit quality alongwith adequate provisioning bodes well for the
bottomline growth of the banking sector.
NPL starting to show some respite
Improved Asset quality: better coverage & infection ratio
9MCY14
2013
2012
2011
2010
2009
Coverage (LHS) 86%
Sep'14
100
CY13
200
CY12
300
CY11
400
CY10
500
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
CY09
600
CY08
80%
78%
76%
74%
72%
70%
68%
66%
64%
62%
60%
700
Infection (RHS) 8%

Page 24 of 51
Bank Al-Habib Limited

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
BAHL
BAHL PA
48.55
53,959.70
536.11
1,111
50.09
45.52
50.09
34.63

3M Avg Turnover '000
12M Avg. Turnover '000
3M Avg DT Value (PkRmn)
3M Avg DT Value (US$mn)
Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.03
0.00
0.73
719.06
645.65
34.59
0.34
60%
1.24
12M
0.17
(0.10)
6M
0.08
(0.00)
Growth driven through investment in PIB:In tandem with the broader industry practice of
portfolio shifting towards longer tenor, high yielding PIBs, BAHL is no exception to this. To concrete
our thesis, the bank has nearly 8% of the total deposits parked in PIBs as of Dec13, which now has
been increased to 29% as of last reported numbers (Sep 3014). On the flip slide, MTBs failed to
show growth of similar quantum due to governments strategy of borrowing through longer term
papers.
Augment in Net Interest Margins:The above phenomenon has played quite positively for the
banks Markup Income that rose by 13% YoY to PkR31.78bn (despite restricted growth in advances).
On the other hand, the banks markup expenses grew by 3.2% to PkR18.1bn amid increasing CASA to
76% as of Sep 3014 against 75% in Dec13). Drilling deeper, the CA component of CASA mix has
expanded by 46% (Dec13: 43%), while more importantly the SA component has receded by 3ppts to
stand around 30% as of Sep 3014. The rise in CA and said reduction in SA component poses double
effect under the tougher regulatory regime of MDR-Repo Linkage (introduced by SBP in Oct13)
Lowest Infection Ratio (NPL Ratio): In the entire banking industry of mere 7-years average of
2.1% shows banks efficacy in managing the advances. Moving in to the future, we believe the banks
management to stay cautious to avoid contamination of their loan portfolio with 2014E
NPL/Infection Ratio to clock at 2.3%.On the coverage front, the bank has been leading the industry
with highest coverage ratio averaging around 143% in past 7 years.
NFI contributing to bottomline:On the Non-Funded Income (NFI) Avenue the bank managed to
post decent performance however the baseline number fell due to absence of sizable capital gains
component (PkR534mn). The bank is currently trading at 2014E P/BV and P/E of 1.81x and 8.9x and
offering an attractive ROE of ~25%.
We maintain buy on the stock with a target price of PkR59/sh (total return 30%).
Source: Company Reports, SCPL Research
KSE100
BAHL
130%
120%
110%
100%
90%
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
80%
Aug-14
5.40
6.00
17%
11%
8.99
8.09
3.00
4.00
6%
8%
26.84 28.84
1.81
1.68
25%
25%
KSE Vs BAHL
Jun-14
2015E
May-14
4.10
4.90
4.60
20%
-6%
11.84
9.91 10.55
2.50
3.00
2.00
5%
6%
4%
17.86 21.53 22.75
2.72
2.25
2.13
28%
28%
23%
2014
Apr-14
2013
Feb-14
2012
Mar-14
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
2011
Jan-14
BAHL
Source: KSE & SCPL Research

Page 25 of 51
United Bank Limited

KATS Code
Bloomberg Code
PPrice PkR
IMarket Cap (PkRmn)
BMarket Cap (US$mn)
(mn)
sShares
3M High (PkR)
3M Low (PkR)
p12M High (PkR)
12M Low (PkR)
UBL
UBL PA
176.71
216,325
2,149
1,224
196.60
161.91
198.39
130.36

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
(0.00)
(0.03)
2.92
1,200
1,335
218
2.17
40%
1.175
12M
0.33
0.06
6M
0.05
(0.03)
o
sitively impacting bottom line: United Bank Limited, the third largest bank of the country (in
terms of asset size) has depicted an impressive performance so far in CY14. The banks bottomline
grew by 23% to PkR15.85bn in 9M2014 against PkR12.94bn in same period last year.Despite
restricted core banking spreads during 9M2014, the banks growth story continues to stem from the
PIB phenomenon as evident by the 17%YoY growth in core-income of the bank. During the 9M,
banks investment in PIBs rose to PkR268bn from PkR103bn in Dec13.
Diversified deposit base:Further charm to the banks performance arrives on the back of deposit
mobilization from middle eastern markets. To recall, the bank has deposit concentration of nearly
~23% in the international avenues, which on average cost 2.5% against 4.4% cost of domestic funds.
Moreover, the domestic CASA has also improved from 83.45% in Dec13 to ~86% as of Sep 3014 that
would further bode well in arresting the markup expenses.
NFI minimizing bottomline risk:The Banks non-Interest Income improved by 10% when
compared to the same period last year. Major contribution came from fee, commission and
brokerage income (up 16%YoY) with bancassurance income contributing major chunk, dividend
income that increased by 31%YoY on the back of steady investments in equity market and income
from dealing foreign currencies that increasedby 47%YoY. The growth was arrested by decrease in
capital gain by 43% YoY.
Outlook:Despite a marginal earnings growth in CY14, we believe UBL is potentially better placed
relative to its peer group in the present easy interest rate environment due to its robust fee income
franchise, international diversification and potential for capital gains on both its equity (bull run on
the KSE) and fixed income portfolios (lower yields). UBL can surprise on the upside by realizing gains
on its investment portfolio (capital gain backlog: PkR3.5bn) as re-investment yields bottom out.
Looking just at its Equity investment portfolio, classified under AFS securities have estimated
unrealized gains of PkR2.7bn (PkR2.16/sh) which should flow through equity if capital gains are not
booked. Presently, UBL is attractively trading at a P/BV of 1.9x with current price level implying an
upside of 23% to our target price of PkR219/sh.
KSE100
UBL
Dec-14
Nov-14
Oct-14
160%
150%
140%
130%
120%
110%
100%
90%
80%
Sep-14
19.70
11%
8.97
13.50
8%
95.03
1.86
24%
Aug-14
17.70
16%
9.98
12.00
7%
88.83
1.99
24%
Jul-14
15.20
4%
11.63
10.00
6%
82.43
2.14
22%
Jun-14
12.70 14.60
15%
13.91 12.10
7.50 8.50
4%
5%
64.66 74.47
2.73 2.37
24% 24%
2015E KSE Vs UBL
May-14
2014
Apr-14
2013
Feb-14
2012
Mar-14
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
2011
Jan-14
UBL
215%
190%
165%
KSE100
DGKC
Page 26 of 51
Construction & Materials
M. Taha Bin Yamin

Tel : +(92 21) 32469141 - 50 -Ext 542
taha.yamin@shajarcapital.com
Construction & Material

Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
35
502,961
4,997
1.05
11.96
2.37

12Months BETA
Sector Return
Absolute Return
Rel. Index Return
8.96
39,641
1,582
1.29
1M 6M
12M
0.09
0.28
0.62
0.06
0.20
0.35
Local demand spurring growth:Cement sector has been in the limelight on account of increased
local demand, decrease in coal prices, and discount rate reduction. Utilizing only 8% of PSDP in
1QFY15, 5MFY15 cement sales posted growth of 6.39% to 14.02mn tons led by staunch growth in
local sales which was up ~9%YoY to 10.57mn tons while exports declinedby 2%YoY to 3.45mn tons.
Going forward, we believe local sales to remain upbeat in FY15 with growth rate of 10% as PSDP
utilization kicks in. To note, as of 1HFY15 approximately 31% of PSDP has been released.
Furthermore, we believe exports to remain under pressure with decreased exports from Afghanistan
partially compensated by increase in dispatches to India and African regions. To recall, FY15TD
Afghanistan exports declined 24% to 1.1mn tons while exports to India witnessed increase of 76%YoY
to 246k tons.
Coal price decline Impact to be passed on?:Coal prices have been subdued in FYTD15 with
average prices hovering around US$66/ton, down 14% from FY14 average price of US$77/ton. We
believe average coal prices to remain subdued at current levels throughout FY15. Consequently, this
reduction in cost have added ~2% to the gross margins of the industry. LUCK using 100% imported
coal stands to be the major beneficiary in this regard. Cost per bag of the Shajars Cement Universe
was PkR220 as of 1QFY15. Our back of the paper calculations suggest every coal price reduction of
US$5/ton decreases the average cost per bag by PkR13/bag. In the backdrop of this, cement price
reduction could pose as a key risk to the sector; but that said, we believe cement prices to remain
stable going by the past history where cement players have shown reluctance in passing on the
reduced input costs to the consumers.
Cement Dispatches
USD
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
PKR
Local
Source: Shajar Research, APCMA
600
500
400
300
200
100
Cement
Export
Jul-14
Nov-14
Mar-14
Jul-13
Nov-13
Mar-13
Jul-12
Nov-12
Mar-12
Jul-11
Nov-11
Mar-11
Jul-10
0
Nov-10
Nov'14
Oct'14
Sep'14
Jul'14
Aug'14
Jun'14
May'14
Apr'14
Mar'14
Feb'14
Jan'14
140
120
100
80
60
40
20
0
Coal

Page 27 of 51
`
Future plan Expansion vs. cost efficiency?:Expansions usually fuel price wars but in this
scenario we believe the risk is overplayed because: i) there is enough demand in the country to cater
ii) With renewed focus on the diversification companies are looking to expand into other sectors
(LUCK diversifying into power and chemicals). iii) Companies looking to cut power costs via installing
Waste Heat Recovery (WHR) technologies. With current utilization levels around 76%, we expect the
industry to quietly absorb the increased demand raising the utilization levels to 82%. In the backdrop
of this, we believe CY15 could witness cutting of power costs becoming the priority of the cement
players through installation of WHR technology. A 10MW WHR plant saves approximately PkR500mn
with payback period of around 3 years which makes it the favored technology as it not only saves
costs but also reduces power tariff hike exposures.

Page 28 of 51
Lucky Cement (LUCK)

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
LUCK
LUCK PA
500.28
161,778.05
1,607.33
323
504.74
390.28
504.74
296.63

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.05
0.02
2.19
794.36
692.54
359.54
3.57
40%
1.01
12M
0.67
0.40
6M
0.22
0.14
Market Leader:LUCK is the industry leader with 19% market share comprising of 16% share in local
sales and 31% share in exports. LUCK has a industry high gross margin of 43% as opposed to Shajars
Cement Universe of 35%. With capacity utilization reaching its cap (90% as of FY14) LUCK has been
focusing on cutting costs, expanding internationally and diversifying its sources of revenues.
Cost efficiency project:LUCK has implemented various projects to enhance its profitability. LUCK
already is self sufficient in power generation, additionally it has undertaken WHR projects for cheap
generation of power and minimizes exposure to gas tariff hikes. LUCK has installed two 5MW WHR
plants of which one is to come into production by end of CY14 and second plant to commence
production by end CY15. Cumulatively these plants are expected to result in savings of PkR242mn.
Furthermore, LUCK has installed vertical roller mills in its cement grinding facility which is expected
to start operation by 1HFY15. We believe this project to yield savings of PkR224mn (EPS PkR0.7/sh).
International projects:Furthermore, LUCK has undertaken international projects with investment

in 1.2mn ton plant in Congo to start operations by FY18. Secondly, its grinding facility in Iraq of
0.8mn tons has commenced operations and by 1QFY15 it had reached capacity utilization of 95%. We
believe this project to add PkR2/sh to the companys EPS.
Coal price adding value:We expect coal prices to remain subdued in FY15. With FY15TD coal prices
trading at an average of US$68/ton we have taken conservative estimate of US$70/ton in our
valuation. Consequently, every US$5/ton decrease in coal price is expected to add PkR1 to EPS.
From a valuation perspective: LUCKs global business warrants high multiple and is trading at
forward P/E of 12.6x, with our Dec-15 TP of PkR562/sh, providing 12.3% upside from current levels
and yielding total return of 14.7%. Key downside risk stems from reduction in cement prices where
every PkR5 reduction could downsize FY15E earnings by PkR0.7.
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
LUCK
Jul-14
Jun-14
KSE100
Apr-14
2015E KSE Vs LUCK

39.70 160%
13% 150%
140%
12.60 130%
12.00 120%
110%
2% 100%
181.68 90%
80%
2.75
22%
May-14
2014
35.08
17%
14.26
9.00
2%
153.98
3.25
23%
Mar-14
2013
30.04
43%
16.65
8.00
2%
151.24
3.31
20%
Jan-14
2012
20.97
71%
23.86
6.00
1%
102.86
4.86
20%
Dec-13
LUCK
2011
EPS (PkR/sh)
12.28
Earning growth (%) P/E
40.74
DPS (PkR/sh)
4.00
DY (%)
1%
Book value (PkR/sh)85.88
P/Bv (x)
5.83
ROE (%)
14%

Page 29 of 51
D.G Khan Cement (DGKC)

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
DGKC
DGKC PA
110.53
48,425.30
481.13
438
112.65
75.96
112.65
71.71

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.20
0.17
0.65
5,438.05
4,298.88
512.84
5.10
55%
1.07
12M
0.29
0.02
6M
0.26
0.17
Strong portfolio:DGKC is a major player in North with two plants operating at almost 95% capacity
producing 4mn tons of cement. We believe the market sentiments have kept the stock under
pressure with regards to news of expansion. The company has a diversified portfolio with
investments in MCB, AICL, NCL and NML providing stable stream of dividend income.
Cost efficiency project:With DGKC operating at 95% capacity and time period required of
approximately 3 years till its new capacity comes into operation, its volumes can grow at an average
of 3% till it reaches the cap. With this bottleneck DGKC is looking to cut its power costs and minimize
its exposure to the fluctuating electricity tariffs. In this regard, DGKC has invested in 30MW coal
power plant which is expected to come into operation by FY18. We believe this project would add
PkR2.6 to its EPS.
Coal price and DR:Favorable changes in coal prices are expected to bode well for the sector. With
FY15TD coal prices trading at an average of US$68/ton we have taken conservative estimate of
US$70/ton in our valuation. Consequently, every US$5/ton decrease in coal price is expected to add
PkR0.44/sh to EPS.Furthermore, with improving economic fundamentals (reduced inflation,
increasing reserves) cut in discount rates is likely to occur in next MPS (Jan15) which could prove
beneficial for the company having debt of PkR6bn in its books. We believe a rate cut by 50bps is
likely to improve FY15E earnings by 0.3%.
Valuation:Currently, DGKC is trading at a forward P/E of 7.7x against the Shajars Cement Universe
P/E of 10x. Further, the stock is trading at EV/ton of US$124. We reiterate our Buy stance with
target price of PkR138/sh providing total return of 28%.
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
DGKC
Jul-14
Jun-14
KSE100
May-14
2015E KSE Vs DGKC

14.27 215%
5% 190%
7.75 165%
4.50 140%
4% 115%
150.18
90%
0.74
10%
Apr-14
2014
13.62
8%
8.12
3.50
3%
140.41
0.79
10%
Mar-14
2013
12.56
34%
8.80
3.00
3%
109.46
1.01
11%
Jan-14
2012
9.38
2305%
11.78
1.50
1%
75.09
1.47
12%
Dec-13
DGKC
2011
EPS (PkR/sh)
0.39
283.41
DPS (PkR/sh)
DY (%)
0%
P/Bv (x)
1.60
ROE (%)
1%

Page 30 of 51
Fauji Cement Company Limited (FCCL)

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
FCCL
FCCL PA
25.84
34,396.03
341.74
1,331
25.84
23.74
25.84
15.63

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.13
0.10
0.46
5,089.74
7,207.58
116.11
1.15
55%
1.02
12M
0.62
0.35
6M
0.34
0.26
A Fauji group company:FCCL is a major player in North with 70% capacity utilization having ample
capacity to cater to the rallying local sales. FY15TD growth in local sales for the company has already
jumped to 10%YoY and are more than compensating for the decline in exports to Afghanistan (90%
export to Afghanistan).FCCLs market share in the local dispatches is estimated to jump up to over
8% from only 3% in FY11.
WHR project to reduce dependence on grid:The company is installing WHR project expected to
come online by 1HFY15.Faujis Waste Heat Recovery (WHR) plant of 10MW is to be completed in
Apr15; we believe this would have EPS impact of PkR0.33/sh. With entire dependence on grid as of
now, we believe investment in power could be the way forward amid fluctuating energy prices. We
believe each 1MW generated through WHR plant would add PkR0.05/sh. Henceforth, FY15-FY18
EBITDA margin is expected to improve to 35% as compared to last 5-years average of 30%.
Discount rate cut to augment earnings:Additionally, with declining oil prices in the reducing
discount rate cut environment FCCL, being a highly leveraged company, is expected to be one of the
major beneficiaries. Consequently, we believe with rate cut of 50bps FCCLs earnings are to improve
by 0.3%.
High dividend yield:FCCL has exhibited strong payout history since FY13 after enhancement of its
capacity and technology upgradation. We expect this trend to continue resulting in high dividend
yield of 8%. With sectors dividend yield of 3% FCCL provides good value with its FY15E yield of 8%.
From a valuation perspective: FCCL is trading at forward PER of 11.28x and EV/ton of US$121.We
Dec-14
Oct-14
Nov-14
Aug-14
Sep-14
FCCL
Jul-14
KSE100
Jun-14
2015E KSE Vs FCCL

2.29 160%
27% 150%
140%
11.28 130%
2.00 120%
110%
8% 100%
12.15 90%
80%
2.13
19%
May-14
2014
1.80
27%
14.36
1.50
6%
11.86
2.18
15%
Apr-14
2013
1.42
238%
18.20
1.25
5%
11.97
2.16
12%
Mar-14
2012
0.42
31%
61.52
0%
10.45
2.47
4%
Dec-13
FCCL
2011
EPS (PkR/sh)
0.32
80.75
DPS (PkR/sh)
DY (%)
0%
Book value (PkR/sh) 8.27
P/Bv (x)
3.12
ROE (%)
4%
Jan-14
believe with Dec15 TP of PkR30/sh the scrip offers upside of 8% alongwith high dividend yield of 7%
culminating into total return of 23%. Key upside risk remains further decrease in coal prices from our
assumption of US$70/ton. To highlight, every 1% further decrease in coal price would add
PkR0.02/sh to the EPS.

Page 31 of 51
Maple Leaf Cement Company Limited (MLCF)

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
MLCF
MLCF PA
44.25
23,352.23
232.01
528
44.25
27.25
44.25
25.47

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.21
0.18
0.32
9,785.09
8,508.65
348.64
3.46
45%
1.25
12M
0.61
0.34
6M
0.47
0.39
Attractive multiples:MLCF is attracting a lot of investor interest and rightly so owing to its fast
deleveraging and compelling valuations.The company is trading at attractive multiples with FY15 P/E
of 7.15x against peers P/E of 8.6x Furthermore, MLCF is trading at a significant discount of 11% in
terms of EV/ton as it is currently trading at US$102/ton vs. the sectors EV/ton of US$115/ton.
Improved dispatches:Currently the company is operating at 76% capacity utilization with

significant cushion available to meet the growing demand without the need to expand.
Consequently, we believe MLCF is well placed in the North to absorb the increased demand which is
evident by the companys dispatches growth of 13%YoY in 5MFY15 vs. industry growth of 6.37%.
Attractive multiples:MLCF has been operating at cheaper multiples due to heavy debt on its
balance sheet and absence of dividend payments, which we believe is overplayed as the company is
on a fast track to deleverage its balance sheet with timely payment of debt. Furthermore, with
discount rate cut on the cards further reduction in finance costs is expected going forward. To note,
the debt to equity ratio has fallen to 35% from 69% since FY12 and has significantly reduced its
financial costs (avg of 21%YoY since FY12) having a positive impact on its net income.
Strongest core performer in 1QFY15:During 1QFY15 MLCFs core performance remained strong
with 17%YoY growth in gross profitability and 3% improvement in gross margins to 35% as opposed
to sectors decline in margins by 1% to 34%. Subsequently, the company posted robust growth of in
its pretax earnings by 31%YoY. However, application of ACT (Alternate Corporate Tax) resulted in
higher effective tax rate of 31% which eroded the net earnings by 2%YoY. Going forward, we believe,
after incorporating the higher effective tax rate, earnings in FY15 to post 8%YoY growth to FY15E EPS
of PkR6.19. Henceforth, we believe with FY15 earnings the company is trading at a significant
discount with target price of PkR56/sh providing upside of 27% from current levels.
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
MLCF
Jul-14
KSE100
Jun-14
2015E KSE Vs MLCF

6.19 160%
15% 150%
140%
7.15 130%
- 120%
110%
0% 100%
33.93 90%
80%
1.30
18%
Apr-14
2014
5.36
-12%
8.26
0%
27.74
1.59
19%
May-14
2013
6.11
627%
7.24
0%
22.40
1.98
27%
Mar-14
2012
0.84
-122%
52.68
0%
17.29
2.56
5%
Jan-14
MLCF
2011
EPS (PkR/sh)
(3.74)
(11.83)
DPS (PkR/sh)
DY (%)
0%
P/Bv (x)
2.69
ROE (%)
-23%
Dec-13

Page 32 of 51
Exploration & Production
Yawar Uz Zaman
E&P
Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
9.00
1,375,633
13,667.49
4.51
8.07
2.21

12Months BETA
Sector Return
Absolute Return
Rel. Index Return
1M
(0.19)
(0.22)
20.40
2,037,596
248,306
1.02
6M 12M
(0.10) 0.15
(0.19) (0.12)
HigherOil production:Oil production in the country is growing with a rapid pace, during the
1QFY15, listed E&P companies (OGDCL, POL, PPL and MARI) produced 5.6mnbbl/day of crude oil
which is up 8%YoY. On the flip side, gas production decline with a constant pace amid natural decline
(3%YoY) in key fields including Sui. During the period under review, international crude oil prices has
fallen sharply with increase supply glut in the international market. With OPEC countries not willing
to bear any production cut, crude prices in the intl market are likely to be downward sticky which
would dent the net realized crude price of the listed companies, hence reduce profitability.
Profitability up 6% YoY:During the 1QFY15, our sample companies witnessed 6%YoY growth in
topline with crude volumes are rising with higher discovery rate during the year. Consequently,
exploration expenses are also on higher side with ODGC, PPL registered 92%, 29% higher
exploratioon and development expenses. To recall, last year, the government paid the residual
amount of circular debt resulted in higher other income of PkR12.3bn in 1QFY14. However, since the
absence of other income during the 1QFY15 reduced other income by 12% YOY, the sector
profitability remain subdued at PkR52bn vs. PkR54.8bn last year (down 5%YoY and 2% QoQ)
Oil price decline- A key threat:E&P companies future is highly dependent with intl crude prices
movement which as reported are likley to remain depressed in FY15, hence, our sensitivity suggests
that every US$10/bbl decline in crude prices would dent POL, OGDC and PPL earnings by PkR6.42/sh,
PkR2.66/sh and PkR2.41/sh respectively.
In our sample companies, we continue to reiterate our Buy call on PPL and OGDC owing to its
aggressive exploration program with TP of PkR220/sh and PkR235/sh respectively.
Arab Lite
120
100
80
60
40
20
Dec-14
Dec-14
Nov-14
Oct-14
Oct-14
Sep-14
Aug-14
Aug-14
Jul-14
Jun-14
May-14
May-14
Apr-14
Mar-14
Mar-14
Feb-14
Jan-14
Jan-14
Tel : +(92 21) 32469141 - 50 -Ext 542


Page 33 of 51
Pakistan PetroleumLimited (PPL)

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
PPL
PPL PA
176.52
348,047.24
3,458.00
1,972
235.24
176.52
245.61
176.52

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
(0.14)
(0.17)
4.70
1,749.47
1,612.19
373.15
3.71
24%
0.95
12M
(0.17)
(0.44)
6M
(0.20)
(0.28)
Growth in oil volumes:Pakistan Petroleum Limited (PPL) maintains its stance to maintain its
market positioning through an aggressive exploration strategy and via enhancing its hydrocarbon
reserves. PPL continued its efforts to acquire prospective areas locally and overseas through farm-in
application. Currently, PPLs portfolio consists of 47 exploration blocks out of which 27 are PPL
operated and remaining 20, including 3- offshore blocks in Pakistan and 2- onshore blocks in Yemen,
are operated by partners.
On the development front:In Hala, gambat south and at KInza X-1 3-4 exploratory well was drilled
which was successfully declared as a gas and condensate discovery. In Tal Block, drilling of
exploratory wells Malgin-1 and Mardan Khel-1 is in progress. Also exploratory well Nashpa X-5 was
spud in July 14 and drilling is in progress, as of now.
Balancing revenue profile:Historically, PPL has been a gas dominant company but the growth in oil
revenues has balanced its production profile. In this regard, PPLs current oil to gas sales revenue
ratio stands at 42:58, and is likely to increase to 45:55 over the projected period.
From a financial perspective:PPL registered NPAT of PkR13.7bn (EPS: PkR6.94/sh) vs. NPAT of
PkR12.4bn (EPS: PkR6.33/sh) in 1QFY15 which was led by an increase in oil volumes and a better
realized price. Though aggressive explotarion activities coupled with international footprint had a
impact on exploration expenses (already up to 29%YoY), we expect PPL to post profit after tax of
PkR47.6bn in FY15 culminating into an EPS of PkR24.15/sh (down 8%YoY) due to a bearish oil price
outlook.
Outlook: Buy with TP of PkR220/sh:Keeping an eye on the above potential triggers we continue
to reiterate our Buy call on PPL on the back of its aggressive exploration program leading to a
Dec15 TP of PkR220/sh. At the current level, PPL is trading at a forward PER of 6.92x and providing
an 20% discount to our price target.
KSE100
PPL
140%
130%
120%
110%
100%
90%
Dec-14
Nov-14
Oct-14
Sep-14
80%
Jul-14
26.08 25.50
23%
-2%
6.77
6.92
12.50 12.00
7%
7%
92.25 105.75
1.91
1.67
28%
24%
Aug-14
21.28
3%
8.30
10.50
6%
75.75
2.33
28%
Jun-14
20.76
30%
8.50
11.50
7%
64.10
2.75
32%
2015E KSE Vs PPL
Apr-14
15.95
11.07
12.00
7%
47.89
3.69
33%
2014
May-14
2013
Mar-14
2012
Jan-14
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
2011
Dec-13
PPL

Page 34 of 51
Oil and Gas Development Company (OGDC)

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
OGDC
OGDC PA
205.87
885,432.13
8,797.14
4,301
277.52
205.00
287.84
205.00

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
(0.10)
(0.13)
11.96
1,037.50
805.67
246.87
2.45
15%
1.01
12M
(0.24)
(0.51)
6M
(0.18)
(0.26)
E&P Giant:OGDC is the largest listed E&P Company in Pakistan with acreage of around 113k sq. km.
The increase in the exploration acreage is due to the addition of 29 new exploratory blocks awarded
to the Company during FY14. The Company's concession portfolio currently constitutes 62 owned
and operated joint venture (JV) exploration licenses besides holding working interest in 6 blocks
operated by other Exploration & Production companies.
Aggressive exploration to underpin growth:In line with OGDC's exploration led business strategy
during July-Sep14, OGDC marked twenty three well locations on the ground out of which four wells
were spud which include three exploratory/appraisal wells viz, Nashpa-X5, Jarwar-1 & Zin Pab-2 and
one development well Kunnar-9. Moreover, drilling and testing of six wells spud in the previous fiscal
year also continued during the reporting period. OGDC's exploratory efforts to locate new
hydrocarbon reserves during the period under review yielded significant new oil and gas discovery at
Soghri-1 exploratory well in district Attock in Punjab.
Strong financial prospects:From a financial perspective, OGDC registered NPAT of PkR28.3bn (EPS:
PkR6.58/sh) vs. NPAT of PkR33.5bn (EPS: PkR7.81/sh) in 1QFY15 which is down by 16%YoY amid
higher exploration expense (up 92%YoY) and lower other income (down 15%YoY). Going forward, we
expect OGDC to post profit after tax of PkR114bn in FY15 culminating into an EPS of PkR26.57/sh
(down 8.5%YoY) due to bearish oil price outlook and higher expenses.
Outlook:Keeping an eye on the above potential triggers, we continue to reiterate our Buy call on
OGDC with TP of PkR235/sh. At the current level, OGDC is trading at a forward PER of 7.42x and
providing an 15% discount to our target price.
Dec-14
Oct-14
Nov-14
OGDC
Sep-14
KSE100
Aug-14
28.81 27.75 130%

36%
-4% 120%
110%
7.15
7.42 100%
9.25
8.50 90%
4%
4% 80%
92.00 111.25 70%
60%
2.24
1.85
31%
25%
Jul-14
21.22
-6%
9.70
8.25
4%
72.60
2.84
29%
Jun-14
22.53
53%
9.14
7.25
4%
61.24
3.36
37%
2015E KSE Vs OGDC
May-14
14.77
13.94
5.50
3%
46.87
4.39
32%
2014
Apr-14
2013
Mar-14
2012
Jan-14
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
2011
Dec-13
OGDC

Page 35 of 51
FERTILIZER
M. Taha Bin Yamin

Tel : +(92 21) 32469141 - 50 -Ext 542
taha.yamin@shajarcapital.com
Fertilizer
Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
35
658,173
6,539
12.08
12.93
3.52

12Months BETA
Sector Return
Absolute Return
Rel. Index Return
12.92
18,777
1,300
0.86
1M 6M
12M
0.00
0.16
0.44
(0.03) 0.08
0.17
CY14review:Fertilizer sector remained under pressure in CY14TD on account of GIDC imposition,

gas supply concerns and floods. Even so, domestic urea sales saw a marginal increase in 11MCY14 by
approximately 4%YoY to 4.53mn tons. Overall offtakes saw decline by approximately 5%YoY to
4.97mn tons with imports accounting for major decline (down 51%YoY) as they decreased to 444k
tons. The bottom line growth in 9MFY14 of the sector averaged 1%YoY, although they varied across
the companies with EFERT leading the growth charge (up 53%YoY) while FFBL lagging behind (46%YoY).
GIDC proving a drag:Imposition of GIDC in CY14 saw erosion in profitability as the sector was
unable to pass the GIDC hike completely due to falling international urea prices (CY14 saw decrease
in average international urea prices by 6%YoY to US$316). To recall, effective from Jan14 GIDC was
increased on feed stock to PkR300/mmbtu (up PkR103) and fuel increased to PkR100/mmbtu (up
PkR50). Subsequently, in FY15 the government in order to raise PkR145bn from GIDC raised the cess
for fuel stock to PkR300/mmbtu from PkR100/mmbtu but this increase is pending court decision.
Consequently, gross margins of the sector have declined to 40% from last 3 years average of 48%.
Improved local outlook:Going forward, we believe fertilizer sector to remain stable on the back of
governments focus on improving the local industry and reducing the import bill along with subsidy
disbursement, and possible commencement of feed stock gas at concessionary rate to Engro from
CY15 onwards. Furthermore, diversification of the companies into other businesses (FFC and FFBL
diversifying into Askari Bank Limited and Food Industry) having lend support to bottomline and
maintenance of high dividend yields is expected to keep the investors interested. Having said that,
we highlight key risk to be deteriorating gas supply scenario,inablity to pass GIDC costs (if imposed)
and upward revision in gas tariffs to the consumers,amid decreasing differential of local and
international urea prices. We believe every 10% rise in gas tariff (both fuel & feedstock) would
require urea price increase of PkR26/bag to enable the industry to pass on the gas price hike to the
consumer.
Prices (Rs/ton)
Offtakes (tons)
Urea
4,500
DAP
1,200,000
4,000
Urea - Offtakes
450,000
DAP Offtakes
400,000
1,000,000
3,500
350,000
800,000
3,000
300,000
250,000
600,000
2,500
2,000
200,000
400,000
150,000
1,500
100,000
200,000
Sep-
Jan-
May
Sep-
Jan-
May
Sep-
Jan-
May
50,000
Sep-
Jul-14
Oct-14
Jan-14
Apr-14
Jul-13
Oct-13
Jan-13
Apr-13
Jul-12
Oct-12
Jan-12
Apr-12
Jul-11
Oct-11
Jan-11
Apr-11
Jul-10
Oct-10
Jan-10
Apr-10
Jan-
500
May
1,000

Page 36 of 51
`
DAP sales to face heat: DAP showed diminished sales in CY14 as they decreased 1% YoY to
1.43mn tons with FFBL sales decreasing 10% to 637k tons and imports increasing 7% to 797k tons.
FFBL has been the major victim of gas curtailment with 41% curtailment faced in CY14 so far,
resulting in production cuts. Furthermore, high price of phosphoric acid has kept the margins muted
at 21% although the prices have remained steady for some time. Moreover, average local DAP
prices have decreased approximately 16%YoY in CYTD14 owing to lower International DAP prices,
putting pressure on FFBL. Going forward, with lower outlook for global commodity prices and lower
international DAP prices, we believe FFBL may find it difficult to pass any rising input costs (gas
tariff, GIDC and phosphoric acid). Thus we believe FFBLs move to diversify away from gas input to
coal power plant and into food business, is expected to bode well for the company.

Page 37 of 51
Fauji Fertilizer Company (FFC).

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
Fauji Fertilizer Company Limited
FFC
FFC PA
117.11
148,991.82
1,480.30
1,272
124.89
111.83
124.89
107.02

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
2.01
879,796.55
1,148,609.02
103,821,273.19
1,031,507.93
1M
(0.02)
(0.05)
0.62
12M
0.05
(0.23)
6M
0.04
(0.04)
A dividend play:FFC is considered a strong defensive stock with its attractions being primarily: i)
Regular dividend stream ii) Minimal gas curtailment iii) Diversified portfolio. The company has a rich
dividend payout history (last 5 years average of 97%) with CY15 as no exception. The scrip currently
trades at a high dividend yield of 11% vs market yield of 5%.
Minimal gas curtailment:The company is operating at a capacity utilization rate of 118% which is
evident of the fact that FFC doesnt face issue of gas curtailment unlike its peers. The companys
plants are located on the Mari gas network ensuring regular gas supply to the companys plants.
Company opting diversification strategy:The company has diversified into various sectors
including cement (Fauji Cement), financial services (AKBL), food (Al Hamd), power (FFC Energy
Limited) and FFBL. The investments (FCCL and FFBL) are strong dividend performers while
AKBL,contrary to its recent history announced dividend this year which could signal commencement
of further payouts going forward. Consequenlty, these investments are expected to inflate FFCs
other income going forward.
Key risks:Key risk comes from possible deterioration of FFCs market share (CY14TD 43%) as EFERTs
production rises. Until EFERTs long term gas supply scenario along with concessionary rates is
settled FFC is expected to continue to enjoy healthy market share.Another risk is gas price
rationalization which the sector could suffer from as IMFs pressure mounts. With non recovery of
GIDC funds gas price does seem to be the likely target. Every 10% gas tariff hike could result in
earnings erosion of PkR0.3/sh. Furthermore, although the GIDC cess is stalled for now but any
imposition in future could result in an increase of GIDC from PkR150/mmbtu to PkR300/mmbtu (as
stipulated in FY14 budget) on fuel stock which would decrease the earnings by PkR0.92/sh.
Valuations: We believe the companys earnings to remain flat mainly on account of urea prices
stability and steady volumes. But growth in dividend income is expected to provide support to its
bottomline.We belive, FFC is providing total return of 15% with target price of PkR121/sh.
2014 2015E KSE Vs FFC
KSE100
17.68 16.38 15.83 14.12 14.40 140%

130%
-7% -3% -11%
2% 120%
Dec-14
Nov-14
Oct-14
110%
21.50 15.50 15.35 12.79 12.90 100%

18% 13% 13% 11% 11% 90%
80%
18.13 20.51 19.77 18.99 21.10 70%
6.46 5.71 5.92 6.17 5.55
97% 80% 80% 80% 67%
Sep-14
8.13
Aug-14
8.29
FFC
Jul-14
7.40
Apr-14
7.15
Mar-14
6.62
Jun-14
2013
May-14
2012
Jan-14
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
2011
Dec-13
FFC

Page 38 of 51
Fatima Fertilizer Company Limited
Fatima Fertilizer Company Limited

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
FATIMA
FATIMA PA
35.77
15,671.52
155.70
438
35.77
28.42
35.77
25.90

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.13
0.10
6M
0.23
0.15
1.01
1,688,879.31
1,517,526.64
54,278,110.78
539,275.81
15%
0.60
12M
0.25
(0.02)
Positive developments:Fatima Fertilizer has come into limelight due to i) debottlenecking of

ammonia progressing at a fast pace which would enhance its capacity ii) high dividend yield iii)
continued supply of gas at subsidized rates along with GIDC exemption and iv) trading at cheap
multiple.
Capacity enhancement adding value:Fatima Fertilizer is in the process of debottlenecking of its

plant which will expand its ammonia production resulting in capacity enhancement of 7%. According
to the company, this process is well under way and is expected to be completed by end CY15. We
believe with better margins in Urea and CAN Fatima have the luxury to divert its production into
profitable products. Consequently, we believe this capacity enhancement to result in addition of
PkR0.53 to CY16 EPS onwards.Furthermore, the company plans to invest in a JV of 2.6mn tons plant
in USfor US$300mn with a 35% stake. We await clarity on this venture hence we have not considered
its valuation in our model.
High margins: Fatima is getting gas at subsidized rate of $0.7/mmbtu and it is exempted from GIDC
as per the fertilizer policy 2001 which has resulted in the company posting better margins than its
peers. Drilling deeper, average margins for urea lie at 40% (CY14TD) while Fatimas urea margins
stood at ~67%. CAN and NPs margins stood at 67% and 55% respectively, where prices of Phosphoric
rock has increased ~15% CY14TD thus keeping the margins of NP under pressure. Subsequently, the
company can divert its enhanced capacity towards higher margins product.
Reduced policy rate to improve profitability:Reduced inflation has made further easing of
monetary policy likely. In such case, Fatima with PkR27bn stands to gain with discount rate cut. We
believe 50bps cut in the upcoming MPS (Jan15) is likely to improve the companys earnings by 1%.
Valuation:The company is trading at cheaper multiples with CY15E P/E of 7x against peers CY15E
P/E of 8.4. Considering above factors we have revised our target price to PkR38.7/sh offering total
return of 16.4%.
FATIMA
2011
2012
2013
2014
2015E KSE Vs FATIMA
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
1.90
2.86
51%
3.82
34%
4.35
14%
5.11
17%
KSE100
FATIMA
140%
130%
120%
110%
100%
90%
80%
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Jan-14
Mar-14
70%
Dec-13
1.50 2.00 2.50 3.00 3.50

1%
2%
2%
3%
3%
22.05 22.75 25.75 29.64 27.98
5.31 5.15 4.55 3.95 4.19
9% 13% 13% 15% 16%

Page 39 of 51
Oil marketing Companies
Sidrah Azmat Khan

Tel : +(92 21) 32469141 - 50 -Ext 543
sidrah.azmat@shajarcapital.com
OMC
Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
4
185,515
1,843.17
2%
8.45
2.25

12Months BETA
Sector Return
Absolute Return
Rel. Index Return
2.43
2,037,596
248,306
1.19
1M 6M
12M
(0.01) (0.10) 0.14
0.04
0.19
0.13
Small players playing from the forefront:On a YoY basis, the results have shown fair promise. The
consumption of petroleum products has increased by meager 1.01% to 7.6mn MTs where consumption
for white oil has increased by 6.22% and that of black oil demonstrate a decrease by 4.41%. The market
shares for OMCs (both black oil and white oil) reflects an erratic change on a YoY basis where PSOs
share has plunged from 75.32% to 67.29%, Shells share shows a decline to 11.65% as opposed to
11.74% last fiscal year, Hascols share has increased to 6.12% from 3.19% (increased to 10.6% in
1QFY15), and Byco has also reported an increased share of 3.17% as opposed to 1.94% last year.
The direction of the blowing wind (1QFY15):The demand of fuel by the power sector has
augmented over the past few months owing to increasing demand by the power sector and incessant
curtailment of gas supply. 1QFY15 reflects positivity with a 1.85% increase in gross margins mainly
contributed by increasing margins for PSO as a result of declining inventory losses of 18.7% YoY.
However while the industrys net margin increased on a QoQ basis from 0.85% to 1.57%, they declined
on a YoY basis from 2.22% in 1QFY14. The industry reportedly experienced a 78% increase in gross
profitability YoY accompanied by a massive increase of 59% in other income. The other income
component (major contributor to gross profitability) is essentially a composition of penal income on
overdue payments which rose accompanied by an increase in interest income received from IPPs. It is
safe to assert that the overall sector profitability was greatly hindered by increasing circular debt which
greatly affected the profitability of PSO.
Predicting FY15:The industrys profitability in the long run is contingent upon PSOs reported income
which holds one-third of the industrys market share but is expected to be downplayed by i) mounting
circular debt, ii) plunge in oil prices (14-23%) leading to inventory losses. While improving EPS values
store positive futures for PSO, APL and Hascol, we believe earnings for the sector are likely to be pulled
down due to reasons mentioned above despite hike in margins announced in the past month.
OMC sales
HOBC
KERO
TOTAL (JP1/8)
HSD
LDO
FURNACE OIL
Total
5MFY15
4,764
67,157
271,652
2,405,259
7,134
3,519,671
5MFY14
3,879
57,816
247,037
2,367,169
5,798
3,683,561
7,601,363
7,525,469
Source: OCAC, Shajar Research
YoY
23%
16%
10%
2%
23%
-4%
1%
Nov-14
1,007
15,807
42,605
537,240
1,146
497,854
1,368,329
YoY
0%
4%
-23%
-14%
-36%
-21%
-13%
MoM
3%
20%
-40%
19%
-23%
-21%
(x)
PSO
P/E
5.28
APL
10.16
3.45
9%
SHELL
16.50
3.69
1%
8.89
2.26
3%
-6% HASCOL
P/Bv DY(%)
1.27
2%
Source: Bloomberg, Shajar Research

Page 40 of 51
Pakistan State Oil Limited (PSO)
Pakistan State Oil

KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
PSO
PSO PA
357.91
97,239.10
966.11
272
405.69
325.63
452.43
325.63

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.02
(0.01)
1.31
1,684.23
2,011.05
600.59
5.97
47%
1.14
12M
0.08
(0.19)
6M
(0.08)
(0.16)
Investment Case:PSO, the national flag supplier operates as the industry leader with a combined
share of 67.29% (5MFY15). It is responsible for the supply of almost 76.18% of the black oil industry
and 59.6% of the industrys white oil. However, PSOs market share has been majorly dented by the
decreasing demand for furnace oil which gave a huge blow to the entire sector. In 5MFY15, sales for
furnace oil have declined by 14% (YoY) and 26% MoM in Nov 14. That said, the decreasing demand of
Furnace Oil bodes well for the sector as the raw material is the major contributor to circular debt with
52.41% of the total company sales generated through FO.
Predicting impacts - Inventory Losses and Revised Margins:OMC margins had an upward revision
of PkR0.12 and PkR0.49 in M.S and HSD respectively. On an annual premises, we expect a collective
upside in EPS of PkR 4.19/sh in profitability. Also, inventory losses for FY15 are in store and as per our
calculations EPS is likely to be negatively affected by PkR 16.71/sh collectively due to price slashes in
M.S. and HSD, respectively.
Profitability Review:On the profitability front, PSO has reported results for 1QFY15 with NPAT and
EBITDA declining by 27.91% and 31.88% YoY accompanied by a 5% decrease in net sales. On a YoY
basis, while the Companys finance cost has decreased by 15.09% in 1QFY15, the liquidity of the
company remains constrained by its increase by approximately 26% QoQ for the 1QFY15. This is mainly
due to increasing defaults from IPPs and PIA directing an increase in bank borrowings which have
increased to PkR 92.32bn YoY as of June 30, 2014 as opposed to PkR17.269bnin the same period last
year. The profitability has also been affected by the other income component which shows a decline of
66.74% YoY for the corresponding period.
What is in store remains to be seen:The upside risks for our estimate include: i) increased CNG
outages and economic recovery anticipated to expand share of HSD and MOGAS sales within the
country; ii) materiailization of interest income on overdue receivables; iii) increased dividend income
(PRL and Others); iv) diversifying into LNG import business by developing premises for LNG project in
discussion with all stakeholders.
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
PSO
Jul-14
Jun-14
KSE100
May-14
2015E KSE Vs PSO

56.00 160%
-30% 150%
140%
6.39 130%
5.58 120%
110%
2% 100%
353.40 90%
80%
1.01
16%
Apr-14
2014
80.31
57%
4.46
8.00
2%
285.21
1.25
28%
Mar-14
2013
51.17
-4%
6.99
5.00
1%
211.67
1.69
24%
Jan-14
2012
53.29
-39%
6.72
8.00
2%
176.26
2.03
30%
Dec-13
PSO
2011
EPS (PkR/sh)
86.77
4.12
DPS (PkR/sh)
10.00
DY (%)
3%
P/Bv (x)
2.45
ROE (%)
59%

Page 41 of 51
Energy Sector
M. Hassan Ilyas
Tel : +(92 21) 32469141 - 50 -Ext 469
hassan.ilyas@shajarcapital.com
Power
Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
17
285,672
2,838
8.97
11.19
2.53

12Months BETA
Sector Return (%)
Absolute Return
Rel. Index Return
8.86
16,418
296
0.80
1M 6M
12M
0.09
0.46
0.49
0.06
0.37
0.22
Energy shortages:The Power sector of Pakistan has been suffering severely since year 2007 which
further deteriorated in the year 2014, affecting the overall economic growth of the country. This
necessitates significant and result-oriented measures in the power sector. Cost of generation being
the primary and the major factor affecting the efficiency of the power generating units. Therefore, in
order to curtail the cost of generation, a84MW New Bong Hydropower Project has been
commissioned being the first hydro IPP in AJ&K,Pakistan. While 10.5 MW Gas Based Davis Energen
Project at Jhang have started producing electricity and is now contributing to FESCO's Network.
Circular debt: In June 2013, the newly formed government of PML (N) paid PkR480bn immediately
after taking oath which added 1,752MW of electricity into the system. However due to lack of any
structural reforms it has again climbed to over PkR500bn in till date (Dec14).
The outcome has shown a positive trend in the overall sectors performance mainly due to the
significant decline of oil prices in the international Market which has submerged and negates the
expected affect.
During the 1QFY15: The cumulative profit of four listed companies of the sector (i.e. HUBCO,
KAPCO, NPL & NCPL) have increased by 31% YoY to PkR6.01bn in 1QFY15 as against PkR4.59bn in
same period last year. The higher earnings of the sector were mainly due to increase in Project Cost
Equity (PCE), higher efficiency gains, surge in other income and lower repair & maintenance cost. Our
sample companies witnessed 15%YoY growth in topline during the year. Consequently, the increase
in operating costs by 12% compared to last year was due to the net effect of lower NEO, and RFO
prices with higher repairs, maintenance and increased load factor expenditure expenses. HUBCO and
KAPCO registered 45% and 18% YoY increase in operating expense respectively.
Other income:Contribution from Other Income chips in positively for the profitability of the sector
which increased by 125% to PkR1,647mn vs. PkR732mn in 1QFY14. Other income of Kot Addu Power
Company (KAPCO) that rises by 151% YoY to PkR1,629mn in 1QFY15 due to increase in panel income
on back of higher receivables was the major contributor. HUBCO recorded 15% YoY growth in
bottomline to PKR1.81/sh, followed by KAPCO (PkR3.74/sh, up 40%YoY) and NPL with (PkR2.23/sh,
up 45% YoY) in 1QFY15.

Page 42 of 51
Hub Power CompanyLimited
HUBCO
KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
HUBC
HUBC PA
78.36
90,674.62
900.89
1,157
79.88
63.41
79.88
52.01

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.09
0.06
1.22
1,692.72
1,571.14
120.50
1.20
75%
0.84
12M
0.29
0.02
6M
0.33
0.25
Attractive dividend yield:The Hub Power Company, the first private sector infrastructure project
and the second largest Independent Power Producer in Pakistan, commenced operations in 1991 as a
public limited company. The sponsors include UK based International Power, Xenel of Saudi Arabia,
IHI of Japan and K&M of USA. At current price level, HUBC is trading at an attractive dividend yield of
9% against market DY of 5.7%and trading at forward PER of 10.34. Therefore we recommend Buy
on HUBC with TP of 95.
On development front:HUBCO has undertaken a new project and has planned to replace/convert
its existing oil-based power generators to coal, but so far it has been put on hold as the company is
involved in fixing/overhauling of its existing boilers of its four power plants with nameplate capacity
of 325MW each. Resultantly, the profitability of the company is expected to improve in the year
ahead. Moreover, the declining trend of the raw material cost and the improvement on export sales
front is likely to benefit the overall financial growth of the company.
Coal Conversion:Coal conversion is likely to require at least 3 years after financial close for all four
plants of Hubco to be operational for which the management expects a 3 year pay-back period. To
meet financing requirements for the project, dividends might be curtailed, but not eliminated going
forward. From a financial perspective, HUBCO registered NPAT of PkR1.5bn (EPS: PkR1.34/sh) vs.
NPAT of PkR2.09bn (EPS: PkR1.81/sh) in 1QFY15.
2015E KSE Vs HUBC
KSE100
HUBC
140%
130%
120%
110%
100%
90%
80%
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
70%
Jun-14
4.69 7.08 8.11 5.66 7.24

51% 15% -30% 28%
16.71 11.07 9.66 13.84 10.82
5.50 6.00 8.00 6.50 6.50
7%
8% 10%
8%
8%
25.51 26.59 28.20 26.83 27.57
3.07 2.95 2.78 2.92 2.84
18% 27% 29%
21% 26%
Apr-14
2014
May-14
2013
Mar-14
2012
Jan-14
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
2011
Dec-13
HUBC

Page 43 of 51
KotAddu Power Company Limited (KAPCO)
Kapco
KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
KAPCO
KAPCO PA
78.94
69,487.19
690.38
880
79.55
62.28
79.55
56.85

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.11
0.08
0.94
605.66
468.80
42.83
0.43
52%
0.88
12M
0.28
0.01
6M
0.34
0.25
A 1600 MW company:Kot Addu Power Plant was built by the Pakistan Water and Power
Development Authority ("WAPDA") in five phases between 1985 and 1996 at its present location in
Kot Addu, The principal activities of the company are to own, operate and maintain a multi-fuel fired
power station with fifteen generating units with a nameplate capacity of 1,600 MW in Kot Addu,
District Muzaffargarh.
Profitability up 40%YoY 1Q:Kot Addu Power Company witnessed profit after tax of PkR2,409mn
(EPS: PkR2.74) as compared to PkR1,725mn (EPS: Rs1.96) posted for the corresponding period last
year, up 40%YoY.Turnover for the period under review is PKR35,215mn witnessed an increase of
18% YoY as compared to the last yearled by increase in sale of electricity to WAPDA.
The plant operated at a 77% load factor:The plant operated at a 77% load factorduring JulyAugust as against an average load factor of 54% achieved during 1QFY14. As a result, KAPCOs gross
profit was augmented by 51%YoY. Furthermore, other income supplemented earnings to keep the
bottom-line afloat, with a stark 151%YoY increase to PkR1,630mn. In FY15, we expect KAPCO to
register NPAT of PkR91,628mn (EPS: PkR10.41/sh) against NPAT of PkR77,281(EPS: PkR8.78/sh) with
payout ratio to stand at 74% (DPSPkR6.50/sh).
Buy with TP of PkR96/sh:We continue to reiterate our Buy call on KAPCO on the back of its short
and long term strategies for expansion and investments. At current price level, KAPCO is trading at an
attractive dividend yield of 8% against market DY of 5.7% and trading at forward PER of 7.6x.
Therefore we recommend Buy on KAPCO with TP of PkR96.
2015E KSE Vs KAPCO
KSE100
KAPCO
140%
130%
120%
110%
100%
90%
80%
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
70%
Jun-14
7.41 6.93 8.35

8.78 10.41
-6% 20%
5% 19%
10.65 11.39 9.45
8.99 7.58
6.50 6.90 7.50
6.50 7.71
8%
9% 10%
8% 10%
27.22 26.90 28.94 30.43 33.14
2.90 2.93 2.73
2.59 2.38
2%
2%
3%
3%
3%
Apr-14
2014
May-14
2013
Mar-14
2012
Jan-14
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
2011
Dec-13
KAPCO

Page 44 of 51
Telecommunication
M. Saeed Khalid
Tel : +(92 21) 32469141 - 50 -Ext 469
saeed.khalid@shajarcapital.com
Telecommunication
Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
4
90,133
896
2%
8.99
1.00

12Months BETA
Sector Return
Absolute Return
Rel. Index Return
0.79
6,927
116
0.98
1M 6M
12M
(0.02) (0.11) (0.22)
(0.05) (0.20) (0.49)
Investment case:Pakistan Telecom Industry acquired 3G and 4G mobile networks with a download
speed of 3.49Mbps to reach 95th position in a global index that composes 115 countries. Since the
inception of 3G and 4G services its subscribers have reached to ~5mn in just seven months and are
expected to reach 10mn mark in a very short span of time. Teledensity for cellular subscribers went
as high as 73.5% in the beginning of the year. As per PTA sources, broadband segment has registered
a 14.4% increase YoY in 4MCY14. It may be noted that it is one of the most heavily taxed sectors in
comparison to regional economies.
At 3G front:After the arrival of 3G technology, the industry is planning to shift its technology
towards 4G which will surely lead to increased revenues along with increased subscribers. The
government had announced a policy directive of ICH which underlined minimum charge (400%
higher than the original rate) for international incoming calls. However, the cessation of ICH was
undertaken after significant remonstration only to decline by 22% per month due to the decrease in
grey traffic where business did not sustain viability to continue illegal channels.
Enhancing FDI in communication sector: FDAs per the latest figures, major change in FDI
appeared in the communications sector where the inflows increased to US$110mn as compared to
US$96mn net outflows in the corresponding period last year. The future for the industry seems
bright as the industry has zero taxes on IT exports till 2016, warrants a 100% repatriation of profits
and its pools of professionals expands every year.

Page 45 of 51
Pakistan Telecommunication Limited (PTC)
PTCL
KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
PTC
PTC PA
23.03
86,915.22
863.54
3,774
27.32
20.72
33.15
20.72

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
0.05
0.02
1.17
3,351.51
3,821.30
75.38
0.75
45%
1.48
12M
(0.19)
(0.46)
6M
(0.10)
(0.18)
Investment case:PTC is the market leader in both wireless and fixed line services. Its performance
reflects a growth trajectory with its broadband base expanding by twice the original amount. Its
subscriptions increased to 3mn customers from 2.9mn in Sep last year (both wireless and wire line)
and 24.6mn for mobile phone (as of May, 2014).
PTCs profitability:Companys profitability is contingent upon the growth of the broadband

segment. The broadband segment of the industry has grown by ~14.4% in 4MCY14. The subsidiary
has an estimated market share of ~20% with approximate subscribers of 29mn for CY14. PTC is
currently looking forward to increasing the speed of its broadband service from 4Mbps to 8Mbps for
its customers which is likely to translate into increased revenues.
Increasing competition: The company is threatened by broadband service providers who provide
similar services on competitive prices. The advancement in the phone applications for android users
has also affected the revenue from fixed and local line services of the company. However, 3G
segment and the continuation of revenue from the broadband segment will likely be a key driver for
the company as well as industry.
Dismal results: In 9MCY14, the company managed to post an EPS of PkR1.71 with a PAT of
PkR8.74bn in 9MCY14 showing a decline of 5.84%YoY. The loss was primarily incurred in September
2014 when a fire destroyed certain network assets at one of PTCLs exchanges. It was also
contributed by an increase in selling and marketing expenses of 11.98% YoY. In 3QCY14, the company
has posted an LPS of PkR0.08 in 3QCY14 vs. EPS of PkR0.67 in the previous year.
CY15 outlook:As far as CY15 performance is expected, we see the revenue side of the company to
be supported by the strong subscriber base of the broadband segment and as well as by the 3G
subscribers base of the subsidiary.Based on current valuations for CY14 with a P/E of 9.76x and a
dividend yield of 4%, we recommend a Buy call on the scrip with TP of PkR28/sh for CY15.
KSE100
140%
PTC
130%
120%
110%
100%
90%
80%
Dec-14
Nov-14
70%
Oct-14
2.21
-6%
10.42
1.00
4%
33.69
0.68
7%
Sep-14
2.36
-24%
9.76
1.00
4%
32.48
0.71
7%
Aug-14
3.09
1305%
7.45
2.00
9%
31.63
0.73
10%
Jul-14
0.22
-87%
104.68
0%
29.72
0.77
1%
Jun-14
1.65
13.96
1.75
8%
28.51
0.81
6%
2015E KSE Vs PTC
May-14
2014
Apr-14
2013
Jan-14
2012
Mar-14
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
2011
Dec-13
PTC

Page 46 of 51
TextileIndustry
M. Saeed Khalid
Tel : +(92 21) 32469141 - 50 -Ext 469
Textile
Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
141
393,409
3,909
19.05
3.46

12Months BETA
Sector Return
Absolute Return
Rel. Index Return
3.12
15,523
617
1.10
1M 6M
12M
0.05
0.12
0.12
0.02
0.04 (0.15)
Major driver of the economy: Textile Industry contributes 8% to GDP and generates about
USS12.36bn in exports. The sector is also the employer of 40% of the industrial sector workforce and
fourth largest cotton producer globally with cotton fabric being the major export commodity
followed by bedwear and hosiery.
GSP+ Status:The granting of GSP status translated into bright prospects for the industry. However
the current political steps to resume death penalty for the terrorists might go in other direction as EU
showed their concerns on the preceeding development. On the other hand, Industry can fetch up to
US$1bn every year if they get the proper gas supply through out the year..
Declining cotton prices: The prices of cotton per 37kgs/mound have plummeted locally by 26.5%
YoY from 1HFY15. The continuous decline raises concern for the government to procure 1mn bales of
cotton to stabilize prices. The unfavorable climatic conditions also forced the government to revise
downward the production target to 13.48mn bales (down 10.7%). This coupled with a decline in
cotton prices is to affect the profitability of the sector. On the other hand, declining crude oil prices
provide the much needed respite to the sector, increasing their gross margins.
Risk to our analysis:The key triggers include: i) unrestricted supply of gas to textiles ii) increase in
volumetric exports primarily due to GSP+ status. The downside risk include: i) Indias easing export
rules indicates a trigger for further decrease in prices, ii) PkRappreciation against US$.

Page 47 of 51
Nishat Mills Limited (NML)
Mills
KATS Code
Bloomberg Code
Price PkR
Market Cap (PkRmn)
Market Cap (US$mn)
Shares (mn)
3M High (PkR)
3M Low (PkR)
12M High (PkR)
12M Low (PkR)
NML
NML PA
120.99
42,540.06
422.65
352
136.52
109.94
140.79
98.57

Free Float (%)
Beta
Stock Performance
Absolute (%)
Rel. Index (%)
1M
(0.01)
(0.04)
0.57
1,801.24
2,176.56
220.43
2.19
50%
1.27
12M
(0.05)
(0.32)
6M
0.08
(0.00)
Textile exports a key contributor:NML earns majority of its revenue (above 70%) through
exports.The declining cotton prices dampened the companys revenues during the year. The net
decline in cotton prices of 33.1% YoY also led to inventory loss in FY15.
On the profitability front:Nishat Mills Limited (NML) has posted an EPS of PkR1.14 with a PAT of
PkR 400mn vs. PkR 1.57bn showing a decline of 75%YoY in 1QFY15. This is primarily contributed by
an increase in the finance cost to PkR472mn in 1QFY15 (up by 23%YoY) due to borrowings by the
company for financing its projects and procurement of cotton. The profitability was also negatively
affected by a decline in sales revenue by 6%YoY in 1QFY15 YoY due to subdued demand locally and
internationally and squeezed margins to 11% against 18% past year.
Spindles expansion:Though, NMLs bottom-line is to be affected favorably due to increased

spindles capacity last year. Also, cost of sales is expected to decline by 20% due to decrease in prices
of raw material (cotton, in this case).
Buy with TP of PkR 145/sh:Based on our valuations, we have a Buy call on NML with target price
of PkR145/sh.
2015E KSE Vs NML
NML
130%
120%
110%
100%
90%
80%
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
70%
KSE100
140%
PTC
130%
120%
110%
100%
90%
80%
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
70%
Apr-14
KSE100
140%
Mar-14
2014
Mar-14
2013
Jan-14
2012
Jan-14
2011
13.78 10.04 16.63 15.68 15.60

-27%
66%
-6%
-1%
8.78 12.05
7.28
7.72 7.76
3.30
3.50
4.00
4.00 4.00
3%
3%
3%
3%
3%
100.67 107.40 167.57 195.08 206.68
1.20
1.13
0.72
0.62 0.59
14%
9%
10%
8%
8%
Dec-13
EPS (PkR/sh)
Earning growth (%)
P/E
DPS (PkR/sh)
DY (%)
Book value (PkR/sh)
P/Bv (x)
ROE (%)
Dec-13
NML

Page 48 of 51
PHARMACEUTICAL
M. Saeed Khalid
Tel : +(92 21) 32469141 - 50 -Ext 469
Pharmacutical
Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
9
200,006
1,987
33.03
6.34

12Months BETA
Sector Return
Absolute Return
Rel. Index Return
2.07
1,360
317
1.39
1M 6M
12M
(0.14) 0.33
0.80
(0.17) 0.24
0.53
Industry Outlook:The pharma sector has outperformed the KSE-100 index by culminating 80%
return with listed companies market capitalization crossingUS$1.9bn. Sector operates with net
revenue of US$2.2bn through 700 companies with over 400 registered units (24 of which are
multinationals). The industry generates a steady output which caters to almost 90% of the countrys
demand. The market size has increased by 57.1% over the last seven years.
Profitability:The profitability of the industry is severely constrained by political uncertainty in the

environment which is heavily regulated, inflationary pressures, and continued power crisis. The
industry envisions an increase in its product line through development of its HIV solution division.
The sectors profitability is likely to be affected by development of the new drug policy which will set
prices for essential medicines with an accounting for inflation and other factors. The absence of this
policy has translated into minimal expansion in the industry since years so we can expect the same
following the announcement of the new policy.
CY14 Review:Considering the performance for CY14, we see that the performance of the companies
remained largely positive with Abbot and GSK posting a 15% and 40% YoY increase respectively in
PAT over the 9M period. Similarly, Otsuka and Searle posted an increase in PAT of 46% and 57% YoY
in the 1QFY15. Sales of all major companies increased by a considerable percentage: Abbot posted
an increase in sales of 13%, and sales for Ferozsons, GSK, Otsuka, and Searle posted an increase of
11%, 10%, 18%, and 33%, respectively.
The highlight at the years end was approval of registration and price of oral drug Sovaldi granted to
Ferozsons for the treatment of patients with Hepatitis C. The drug is a breakthrough in the industry
and warrant the company to sell the drug at subsidized rates.
Future Prospects:The industrys profitability is to be affected by an uptick in demand of medicines

which increased after the floods. The industry is also to benefit from the declining input cost as a
result of a decrease in inflation (5% expected in December).
Back of Table of content

Page 49 of 51
AUTOMOBILE INDUSTRY
M. Saeed Khalid
Tel : +(92 21) 32469141 - 50 -Ext 469
Automobile
Market Cap (PkRMn)
Market Cap (US$Mn)
Dividend Yield %
P/E
P/bv
13
213,516
2,121
1.80
16.86
3.26

12Months BETA
Sector Return
Absolute Return
Rel. Index Return
2.03
5,742
342
1.06
1M 6M
12M
0.00
0.71
1.37
(0.03) 0.62
1.10
Higher autos sales:The sale of locally manufactured vehicles scaled up to 11,789 units showing an
increase of 23%YoY in Nov-14 when compared with the sales units of the same months in the
previous year. This is mainly caused by the arrival of the new corolla model. During 5MFY15, the
sales of the locally manufactured vehicles expanded by ~8% to 56,339 units when compared to same
period last year. During the 1QFY15, government announced to purchase 50,000 suzuki vehicles for
the Apna Rozgar Scheme which will likely to play a key role for the PSMC increasing its sales
revenue in the year ahead. However, sociopolitical condition has also dampened the demand for the
vehicles as overall industry sales declined by 3%YoY to 31,889 units in the 1QFY15 when compared
with the year earlier levels.
INDU improved performance:During the 5MFY15, the performance of INDU has remarkably
increased by 42%YoY to 18,786 units when compared with the year earlier levels. This is mainly
attributed due to the launch of the new corolla model which independently increased the sales units
by 3%MoM to 4,202 units in Nov14 when compared with the numbers of the same period in the
previous year. PSMC has shown a slight decline in the sales units by 0.2%YoY to 29,456 units in the
period of 5MFY15 when compared with the year earlier levels. This is mainly due to a MoM decline
reported by cultus segment and mehran segment in the month of Nov-14 by 7% and 12%
respectively. Moreover, HCAR reported a decline of 15%YoY to 7,888 units in 5MFY15 when
compared with the year earlier levels. This is mainly due to an increase in demand of corolla segment
in its various variants by the INDU.
Outlook: Weakinng US$/JPY parity to support margins:Going forward, we consider the

following factors to pose upward risk for the sector: i) yellow cab scheme to be implemented by
government of Punjab, ii) removal of 10% Federal Excise Duty on 1800cc plus cars in FY15 budget, iii)
governments decision to grant allowance to local car manufacturers to import and fit Compressed
Natural Gas (CNG) kits in their cars.Moreover, upcoming auto policy will likely to play an important
role in leading the industry towards new horizon.Further, US$/JPY parity will play an important role
in the development of the overall industry. In addition to this, revival in gas and power outages will
be key factor in the development of the Large Scale Manufacturing (LSM). This will dominantly be a
major factor for the overall growth of the industry.

Page 50 of 51
`
List of Abbreviations
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
3G
4G
ADR
AL
BN
BOP
BPD
BPS
BTU
BV
CAD
CAGR
CAR
CFY
CNG
CPI
CRR
CY
CYTD
DAP
DEP
DPS
DSC
DY
DHDS
E&P
EBIT
EBITDA
EM
EPS
EY
FDI
FIPI
FM
FO
FMCG
FSV
FX/Forex
FY
GDC
G2P
GDP
GDS
GENCO
GM
GoP
GRM
HOBC
HoH
HSD
IDR
IFEM
IFI
IMF
IPI
IPP
IPS
JUI
Kero
KIBOR
KPD
KSE
LDO
LIBOR
LIPI
LPG
LSM
LTE
3rd Generation
4th Generation
Advance to Deposit Ratio
Arab Light
Billion
Balance of Payments
Barrel per day
Basis Points
British Thermal Unit
Book Value
Current Account Deficit
Compound Average Growth Rate
Capital Adequacy Ratio
Cashflow Yield
Compressed Natural Gas
Consumer Price Index
Cash Reserve Requirement
Calendar Year
Caldendar Year till date
Diammonium Phosphate
Depreciation
Dividend per share
Defence Savings Certificates
Dividend Yield
Diesel Hydro Desulphurization
Exploration & Production
Earning before interests & taxes
Earning before interest, taxes, depreciation & amortization
Emerging Market
Earning per share
Earning Yield
Foreign Direct Investment
Foreign Investor Portfolio Investment
Frontier Market
Furnace Oil
Fast Moving Consumer Goods
Forced Sale Value
Foreign Exchange
Fiscal Year
Gas Distribution Companies
Government to Person
Gross Domestic Product
Gas Development Surcharge
Generation Companies
Gross Margin
Government of Pakistan
Gross Refinery Margin
High Octane Blended Component
Half on Half
High Speed Diesel
Investment to Deposit Ratio
Inland Freight Equalization Margin
International Financial Institutions
International Monetary Fund
Iran-Pakistan-India
Independent Power Producer
Investor Portfolio Securities
Jamiat Ulema Islam
Kerosene Oil
Karachi Interbank Offered Rate
Kunnar Pasaki Deep
Karachi Stock Exchange
Light Diesel Oil
London Interbank Offered Rate
Local Investor Portfolio Investment
Liquified Petroleum Gas
Large Scale Manufacturing
Long Term Evolution
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
M&A
MCR
MEG
MFN
MMCFD
MN
MOGAS
MoU
MPS
MQM
MSCI
MT
MTS
MS
MW
NDA
NFA
NFC
NII
NPL
NSS
NTB
OCAC
OGRA
OMC
PAT
PB
PCF
PEG
PEPCO
PER
PIB
PKR
PL
PML
POL
PP
PPIB
PPIS
PPP
PPS
PSDP
PSF
PTA
QoQ
RGST
ROA
RDF
ROE
RPPs
SBA
SBP
SCRA
SECP
SLR
SME
SR
STA
TBILL
TDF
TI
USD
WAPDA
WHR
WTI
YoY
YTD
Merger & Acquisition

Minimum Capital Requirement
Ethylene Glycole
Most Favoured Nation
Millions of cubic feet per day
Million
Motor Gasoline
Memorandum of Understanding
Monetary Policy Statement
Muttahida Quami Movement
Morgan Stanley Composite Index
Metric Ton
Margin Trading System
Motor Spirit
Mega Watt
Net Domestic Assets
Net Foreign Assets
National Finance Commission
Net Interest Income
Non Performing Loan
National Saving Scheme
Non-Tarriff Barriers
Oil Companies Advisory Committee
Oil and Gas Regulatory Authority
Oil Marketing Company
Profit After Tax
Price to Book
Price to Cash Flow
Price Earning to Growth
Pakistan Electric Power Company
Price to Earning Ratio
Pakistan Investment Bond
Pakistan Rupees
Petrroleum Levy
Pakistan Muslim League
Petroleum Oil Lubricants
Petroleum Policy
Private Power Infrastructure Board
Pakistan Petroleum Information Service
Pakistan People Party
Percentage Points
Public Sector Development Program
Polyester Staple Fibre
Purified Terephtalic Acid
Quarter on Quarter
Reformed General Sales Tax
Return on Assets
Refused Derive Fuel
Return on Equity
Rental Power Projects
Standby Agreement
State Bank of Pakistan
Special Convertible Rupee Account
Securities Exchange Commission of Pakistan
Statuary Liquidity Requirement
Small Medium Enterprises
Sharpe Ratio
Single Treasury Account
Treasury Bill
Tyre Derived Fuel
Transparency International
United States Dollar
Water and Power Development Authority
Waste Heat Recovery
West Texas Intermediaries
Year on Year
Year to date

Page 51 of 51

Pakistan Market Outlook CY15

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Pakistan Market Outlook CY15

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Friday, January 02, 2015

1 Yr. Return (US$)

Mkt Cap (PkRbn)

Mkt Cap (US$ bn)

Source: KSE & Shajar Research

Major sector performance relative to index- CY14TD

Non Life Ins.

Oil and Gas

Source: KSE, SCPL Research

Political Commitments:Apart from core fundamentals, political turmoil also

Source: SCPL Research

Shajar Capital Pakistan (Private) Limited.

PER (x) 2013

Market Cap / GDP

Tel : +(92 21) 32469141 - 50 -Ext 542

Source: Bloomberg, SCPL Research

Back to Table of content

Back to Table of content

Back to Table of content

Gross Buy (USD mn)

Gross Sell (USD mn)

Net Buy/Sell (USD mn)

Source: NCCPL & Shajar Research

Back to Table of content

Syed Faizan Ahmed

Economy: Recovering path

Source: Nepra & Shajar Research

Back to Table of content

Source: SBP & Shajar Research

Back to Table of content

Impact of Subsidies on the Economy

Source: M.O.F & Shajar Research

Back to Table of content

Oil and Gas Development Co. Ltd (OGDCL)

Back to Table of content

Source: SCPL Research

Back to Table of content

Back to Table of content

CA expected to remain under pressure

Trade Deficit (LHS)

CAB as % of GDP (RHS)

Source: Economic Survey & Shajar Research

Back to Table of content

Source: Shajar Research

MTB Auctions falling short of target

Source: SBP, Shajar Research

Back to Table of content

Remittances providng cushion to the trade deficit

Back to Table of content

SBP eying +ve real interest rate return

Real Interest Rate

Source: SBP, Shajar Research

Source: SBP, Shajar Research

Source: SBP, Shajar Research

Challenges remain firmly grounded:However, challenges and vulnerabilities remain. Absence of

Politics: Moving towards consensus

Source: Shajar Research

Zarb-e-Azb success stories painting a favorable picture on national securitys canvas:As

Back to Table of content

Source: SBP, Shajar Research

Foreign Investment MoM

Source: SBP, Shajar Research

India-Pakistan Relations - Conflicts continue to stifle development of warmth:Whereas in

Afghanistan-Pakistan Relations; Recovery on cards:The post-2014 gradual US exit presents