PREFACE

We have clear concepts of finance as a subject but did not know the practical applications of
its concepts. This project help me to understand finance properly the project focuses on
economic analysis ,GDP growth rate, interest rate, analyze government policies, political
system, industry position and capital structure of the company. We found this project very
helpful for us to clearly understand the trends of the industry. The security analysis course
is a good step in mastering the skills of finance. It gives a good exposure about different
investment and financing decisions and provides a strong base for further finance course.
We faced somewhat difficulty while calculating the three year projections for the company.
This project is part of our course titled security analysis and portfolio management. We are
assigned a company which is listed on Karachi stock exchange and asked to do a complete
ratio analysis, horizontal and vertical analysis, economic analysis, find out the beta,
expected rate of return, CAPM and future forecasting from 2009-11.
We are assigned Attok Refinery Company limited for project. We have done economic
analysis of the country in which we are going to invest to check out whether the country is
politically stable and government policies regarding particular industry are appropriate
and workable. We have done ratio analysis which determines the solvency, liquidity and
profitability of the company and makes it easy for the investor to judge whether to invest in
a particular security or not. We have also done future forecasting through which investor
can judge the future earnings of the company and determine expected returns on
investment. We find out beta of the company in project to determine the risk factor in
security.

Date: 20-06-09 Group Signs:

pg. 1
 Acknowledgment

First of all we would like to capitalize on this opportunity and thank ALLAH the Almighty
for his guidance that he bestowed upon our skimpy souls to help us carry through the
endeavors of this report as well as our lives.
We would like to express our heartiest gratitude to security analysis teacher Prof. Hafiz
Tauseef Ahmed for his suggestions and help whenever we needed. We as a group have a
Synonymous feeling that this report really is the summation of all the work that has come
up during the class and we really had a thorough understanding of the mechanics of our
project.
We owe a lot to our parents who made untiring efforts in providing us all the support and
mental help that we needed. They are a constant source of motivation and love for us!

pg. 2
 Contents

Sr.# Description

1 Executive Summary

2 Introduction

3 Economic Analysis (Objective Approach)

3.1 Main Cities and Their Population (2009 estimation)

4 Economic Analysis (Subjective Approach)

4.1 Political System

5 Income Statement (Vertical Analysis)

6 Income Statement (Horizontal Analysis)

7 Balance Sheet (Vertical Analysis)

8 Balance Sheet (Horizontal Analysis)

9 Projections (Income Statement)

10 Projections (Balance Sheet)

11 Ratio Analysis

12 Notes

13 Beta, CAPM, Required & Expected Return

14 Bibliography

pg. 3
 TABLE OF CONTENTS

Sr# Description Page#

pg. 4
 1 Executive Summary

2 Introduction

3 Economic Analysis (Objective Approach)

4 Economic Analysis (Subjective Approach)

5 Income Statement (Vertical Analysis)

6 Income Statement (Horizontal Analysis)

7 Balance Sheet (Vertical Analysis)

8 Balance Sheet (Horizontal Analysis)

9 Projections (Income Statement)

10 Projections (Balance Sheet)

11 Ratio Analysis

12 Notes

13 Beta, CAPM, Required & Expected Return

14 Bibliography

Executive summary

We have chosen a project of Attock Refinery Limited and threw light on the financial
analysis of the company. Found out its CAMP, Beta, capital structure, growth rate and
return. Financially company is doing fair and the market value and the book value is

pg. 5
consistently improving with a good rate, for investors we think that it is good opportunity
to trade in ARL.From the company’s prospective its financially well and earning profit as
we can se a rise in company’s net income. the rise in the net income is a very healthy sign
for the company as well as for the investors. From this analysis we think that trend in
change in net income is positive, the firm is performing well in order to maintain its level of
net income. The comparison between the rate of returns shows that the actual rate of return
is greater than the required rate, so there is a chance or investors. The company is paying a
reasonable tax. The trend of the retention rate is much better if we compare it with the
previous years so the company is investing back for further improvements. by viewing
capital gain yield and dividend yield it is obvious that the company is paying a reasonable
rate of dividend and also have extraordinary capital gain yield in the stock. Thus the
current situation of the company is extremely attractive for the long term investment. We
also analyzed that the company is emphasizing on more debt as compared to equity. It
should make some necessary financial actions to change the picture. There are few
refineries in the country so thee is still a room for company to further improve its
operations and to capture the portion of the market. Finally the costs are high which should
b lowered down to increase the performance of the company so it will appear as a worth
investing in it.

Introduction

Energy is so essential to the development process that without proper energy sources
country's development will be a pipe dream. “Oil makes and breaks nations." That is
common shorthand for 20th century history in the petroleum industry.The installed oil
refining capacity in Pakistan has remained stagnant for many years in spite of increase in
consumption of energy products. To meet the increasing domestic demand of energy

pg. 6
products the country is dependent on imports. Pakistan enjoying very cordial relationship
with the Middle Eastern countries continues to import bulk of its requirements from
Kuwait and Saudi Arabia. The scale of operation of refineries in Pakistan is very small and
units are old. These units were established at relatively low capital expenditure and have
nominal depreciation expense and are therefore able to survive. The government has
guaranteed a minimum rate of return on equity. However, in order to attract fresh
investment in the refining sector it is necessary that ROE of the new refineries should be
comparable to that being earned in other countries of the region.
Attock Refinery Limited (ARL) was incorporated as a Private Limited Company in
November, 1978 to take over the business of the Attock Oil Company Limited (AOC)
relating to refining of crude oil and supplying of refined petroleum products. It was
subsequently converted into a Public Limited Company in June, 1979 and is listed on the
three Stock Exchanges of the country. The Company is also registered with Central
Depository Company of Pakistan Limited (CDC). ARL is the pioneer of crude oil refining in
the country with its operations dating back to 1922. Backed by a rich experience of more
than 85 years of successful operations, ARL’s plants have been gradually upgraded/replaced
with state-of-the-art hardware to remain competitive and meet new challenges and
requirements. Original paid-up capital of the Company was Rs 80 million which was
subscribed by the holding company i.e. AOC, Government of Pakistan, investment
companies and general public. The present paid-up capital of the Company is Rs 454.896
million.
As a result of getting cheap and guaranteed supply from the Middle East Pakistan was
contended with the small refineries operating in the country. At present there are three
competitors of Attock refineries (ARL) operating in the country. These are Dhodak Refinery,
National Refinery (NRL) and Pakistan Refinery (PRL) with a total capacity to refine over 6.5
million tonnes of crude per annum. While ARL is wholly dependent on indigenous crude,
NRL and PRL use both locally produced and imported crude and condensate. Dhodak only
uses the condensate produced at Dhodak oil field. ARL is more than fifty years old and both
NRL and PRL are over thirty years old whereas Dhodak has started operation in December
1994.

Pakistan’s Economy at a Glance

pg. 7
Official Name Islamic Republic of Pakistan

Date of Establishment: 14 August 1947 (27 Ramadan 1366)

Founders Name: Quid-e-Azam Muhammad Ali Jinnah

Head of the State: Asif Ali Zardari President of Pakistan

Head of Government: Yousaf Raza Gilani Prime Minister of Pakistan

Number of Provinces:
• Balochistan
• North West Frontier Province (NWFP)
• Punjab
• Sindh

Disputed Territory: Kashmir

Capital of the Country Islamabad

Major Spoken Language:

• Punjabi (44.15%)
• Pashto (15.42%)
• Sindhi (14.1%)
• Seraiki (10.53%)
• Urdu (7.57%)
• Balochi (3.57%)
• Others (4.66%)

GDP and growth rate: $170 Billion (5.88 %.)

GNP: $30.99 Billion

GDP Per capita income: $1085

Poverty rate: 28%

Unemployment Rate: 8%

Inflation Rate 24.4%

pg. 8
Literacy Rate: 49.9%

Member of the International Organizations:

• United Nations (UN)

• Organization of the Islamic Conference (OIC)
• South Asian Association for Regional Cooperation (SAARC)
• Economic Cooperation Organization (ECO).
• Central Treaty Organization (CENTO
• Southeast Asia Treaty Organization (SEATO).

Exports: $19.22 Billion

Imports: $30.99 Billion

Foreign Reserves: $10 Billion

Foreign Direct Investment: $5.19 Billion

Currency: Pakistani Rupee (Rs) PKR

Literacy Rate: 49.9%

Area: 803,940km2

Unemployment Rate: 8%

Population of the Main Cities of Pakistan

Rank City Province Population Rank City Province Population

pg. 9
 1 Karachi Sindh 12,827,927 11 Sargodha Punjab 586,922
2 Lahore Punjab 6,936,563 12 Bahawalpur Punjab 530,438
3 Faisalabad Punjab 2,793,721 13 Sialkot Punjab 502,721
4 Rawalpindi Punjab 1,933,933 14 Sukkur Sindh 476,776
5 Multan Punjab 1,566,932 15 Larkana Sindh 435,817
6 Hyderabad Sindh 1 536 398 16 Shekhupur Punjab 411,834
a
7 Gujranwala Punjab 1,526,168 17 Jhang Punjab 365,198
8 Peshawar NWFP 1,390,874 18 Mardan NWFP 340,898
9 Quetta Balochistan 859,973 19 Rahim Yar Punjab 340,810
Khan
10 Islamabad Islamabad 673,766 20 Gujarat Punjab 328,512

Economic Analysis

1.OBJECTIVE APPROACH
pg. 10
It is Systematic approach to determining the optimum use of scarce resources, involving
comparison of two or more alternatives in achieving a specific objective under the given
assumptions and constraints. It takes into account the opportunity costs of resources
employed and attempts to measure in monetary terms the private and social costs and
benefits of a project to the community or economy.

1.1.Gross Domestic Product (GDP)

Pakistan GDP growth in fiscal year of 2008 has been estimated to be 5.8 percent.GDP is the
monetary value of all the finished goods and services produced within a country's borders
in a year. The Gross Domestic Product (GDP) is the total market value of all goods and
services produced, including total consumer, investment, and government spending, plus
the value of exports, minus the value of imports. The Finance Ministry has projected 5.8
percent growth in GDP in 2007-08, with 5.4 percent in manufacturing, 4.8 percent in large
scale manufacturing (LSM), and only 1.5 percent in the agriculture sector.A decline in the
GDP is the best indicator of recession. A large component of this decline was due to a
significant decline in automobile production. We also exported fewer products and built
fewer structures, both residential and non-residential. Imports decreased as well. The
difficulties in the automobile industry are really affecting our economic output.

According to the economic survey highlights the Debt burden rises to 56 percent,Agri
growth declines to 1.5 percent, Budget deficit to be 4.7 percent of GDP, Inflation at 10.5
percent, External inflows decline to 82.2 percent, Subsidy on fuel to cost Rs 175 billion, Per
capita income shows a rise of 18.4 percent, Finance and insurance show 17 percent growth,
Investment decreases to 21.6 percent of GDP, National savings rate declines to 13.9
percent,Forex reserves show depletion of $4.1 billion, Assets of banking system registers net
expansion of Rs 203.1b, to Rs 5155 billion, There has been reduction in poverty headcount,
Credit to private sector grows while portfolio investment shows deceleration.Public debt
burden increased from 55.2 percent of GDP to 56 percent during 2007-08 due to huge
burden of deficits.

Sector 2006-7 2007-8

Agriculture 1.1 0.3

pg. 11
 Industry 1.8 1.2
 Manufacturing 1.6 1.0
 Other industry 1.2 0.2

Services 4.2 4.2

REAL GDP 7.0 5.8

In addition, public debt, as percentage of GDP, rose for the first time in 10 years as
borrowing requirements for the budget deficit rose to Rs 683.4 billion during the outgoing
financial year.At the end of the current fiscal year, budget deficit is expected to be 4.7
percent of GDP, whereas average inflation has been projected at 10.5 percent. The country's
budget deficit is expected to be Rs 683.4 billion, or 6.5 percent of the GDP highest in the past
10years.

1.2 Growth Rate

Economic growth accelerated to 7.0 percent in 2006-08 on the back of robust growth in
agriculture, manufacturing and services. Economic growth has been notably stable and
resilient.With economic growth at 7.0 percent in 2006-07, Pakistan's real GDP grew at an
average rate of 7.0 percent per annum during the past five years (2003-08), and over 7.5
percent in four years running (2004-08).Compared with other emerging economies in
Asia, this put.This year's economic growth was mainly driven by strong domestic
demand, with investment taking lead over consumption for the first time in last three
years. This year's economic growth benefited from higher consumption and investment
demand owing to a growing middle class and favourable demographics. Increased
contribution of investment to growth was a healthy development as it engendered
employment growth, which supported consumption demand and together they played
an important role in sustaining strong growth momentum in the medium term.

Achievement in fiscal year 2006-08:

A strong economic growth of 7.0 percent. The economy grew at an average rate of 7.5
percent per annum during last five years (2004-08). It grew at an average rate 7 percent per
annum during the last 6 years (2003-08).The real per capita GDP grew by 5.2 percent and
maintained an average growth of 5.5 percent per annum over last four years; Per capita

pg. 12
income in current dollar-term was up by 11.0 percent, to $925 from $833 of last year. A
strong recovery in overall agricultural growth at 5.0 percent and major crops at 7.6 percent.

Sector wise performance growth and

investment

Real GDP growth accelerated to 7.0 percent in 2007-08 as against the revised estimates of 6.6
percent of last year and the 7.0 percent target for the year. The final estimate for 2005-06 had
also been revised upward to 9.0 percent as against the revised estimate of 8.6 percent for the
year. Thus, over the last four years the real GDP grew at an average rate of 7.5 percent per
annum.

Agriculture:

Agriculture is still the single largest sector of the national economy It made a modest
recovery this year. Overall agriculture grew by 5.0 percent in 2007-08 from 1.6 percent of
last year. Within agriculture, the major crops witnessed strong recovery by growing at 7.6
percent against a negative growth of 4.1 percent of last year.

Manufacturing:

Manufacturing is the second largest sector of the economy, accounting for 19.1

percent of GDP. Overall manufacturing grew by 8.4 percent this year against 10

percent of last year. Large-scale manufacturing (LSM), accounting for nearly 70

percent of overall manufacturing, grew by 8.8 percent against the target of 12.5

percent and last year's achievement of 10.7 percent.

pg. 13
Construction:

Construction continued its strong showing, partly helped by activity in private housing
market, spending on physical infrastructure, and reconstruction activities in earthquake
affected areas. The construction sector is estimated to have grown by 17.2 percent in 2006-07
as against 5.7 percent of last year.

Services sector:

The services sector continued to perform strongly for third year in a row and grew by 8.0
percent in 2006-07 as against 9.6 percent of last year. Services sector grew at an average rate
of 8.7 percent per annum during the last three years.

Employment

Pakistan, with a population of 160.9 million in mid-2008, is the 6th most populous country
in the world. In absolute numbers; almost 128 million persons have been added to the
population during the last 58 years (1951-2008).This has put enormous pressure on
available infrastructure like housing, transportation, electricity, water, sewerage, sanitation,
health and educational facilities and as well as on employment.

Year Unemployment rate (%)

2007 6.5
2008 8

pg. 14
Sector wise employment rate:

Agriculture employs 43.61 percent work force in Pakistan followed by trade (14.43%),
services sector (14.41%) and manufacturing (13.54%). In other words, over 86 percent of
work force is employed in these four sectors. As against 2005-06 the shares of agriculture
and services in employed workforce marginally increased in 2007-08 while those in
manufacturing and trade registered a marginal decline.
There has occurred a shift in employment in major sectors of the economy; however,
agriculture still remains the dominant source of employment in Pakistan. In 1999-00, the
share of agriculture in employment was 48.4 percent, while in 2007-08 this has reduced to
43.6 percent. Targeting of labour intensive livestock and dairy sectors can be an important
strategy for employment augmentation in rural areas. These are complemented by public
sector funded small area development schemes. These strategies have successfully
expanded rural employment, particularly at the local level.
Agriculture is followed by wholesale and retail trade, community and social services and
manufacturing sector. These sectors employ 14.4 percent, 14.4 percent and 13.5 percent
workforce, respectively. An increase in the share of manufacturing sector (2.1%), over the
last seven years, is an indication that employment opportunities are being created in both
rural and urban regions of the country.
Trade (0.9%), construction (0.8%) and transport (0.4%) are supplementing employment
generation as well. The policy of deregulation, privatization and liberalization helped in
increasing the participation of private sector in the economy. As a result, a significant
number of employment opportunities are being generated in urban areas. The capital
intensity of the industrial sector, however, limits its employment generating capacity.

GNP

The GDP of a nation together with any money earned from investment abroad, less the
income earned within the nation by non-nationals. compare with GDP. GNP per capita is
calculated as GNP/population. It may be used as an indicator of development. In the mid-
1990s, a per capita GNP figure of $10000 would indicate a more developed country, while
for a least developed nation, the figure would be around $600. GNP is an imperfect

pg. 15
measurement of a nation's economy because certain forms of production, especially
subsistence production, are not recorded.

Year GNP In Amounts

2007-08 10172048

2008-09 12867411

Interest rate:

State Bank of Pakistan increases interest rate Karachi: “Given the persisting demand
pressures, the State Bank is raising policy rate from 13 per cent to 15 per cent. This will not
only help in aligning aggregate demand with supply but also provide room to
accommodate government’s financing requirements from commercial banks.” said the
Governor of State Bank of Pakistan in a press conference held to announce the immediate
measures taken by the central bank.

pg. 16
 SUBJECTIVE APPROACH

Analysis of Government Policies

Government Policies for Agriculture Sector

Agriculture has an important direct and indirect role in generating economic growth. Policy
measures over the previous years were positive for the agricultural sector. Undue benefits
were provided to the industrial sector over the years, were reviewed and modified. The
agricultural sector as a result responded with new buoyancy. Export taxes on agricultural
commodities were reduced or eliminated, which benefited the agricultural sector. In the
policy reforms package, better support prices, better tillage and soil preparation practices
and adequate and timely availability of fertilizer and certified seed have added to the
positive response from the farming community.The government policies for Agriculture
provide a tax relief in the shape of Initial Depreciation Allowance @ 50 % of machinery cost
is allowed to set off provincial AIT. As the labor laws were not be presently applicable to
corporate agriculture companies due to special circumstances of the agriculture sector
however appropriate labor laws will be developed for this sector within five year. And the
import of agriculture machinery and equipment is exempted from custom duty and sales
tax. In the policy the machinery items for wheat/ grain storage and cool chain will be
imported at Import duty @ 0 %.

Government Policies for Health Sector

Health is priority area of the Government activities.In Pakistan, the coverage of health
facilities has improved over the years. The existing network of medical services consists of
906 hospitals, 4,554 dispensaries, 5,290 basic health units (BHU’s), 552 rural health centers
(RHC’s) and the availability of 98,684 hospital beds. Besides, there are 93,843 doctors, 5,530
dentists and 46,331 nurses in the country.The Government in recent years has started giving
due priority to health planning by increasing the health allocation.The figures available
about the medical facilities clearly indicate that the government needs to emphasize on the

pg. 17
further expansion in health facilities. The low level of life expectancy (64 Years), high child
mortality rate under 5 year age (105/1000) and high population growth rate at 2.2 percent
points out to increasing needs for better health care and preventive services in the country.
The above scenario clearly indicates the need for further expansion in health facilities and
more investments in health sector.

Government Policies for National Housing

The policy measures of housing and construction sector has also been declared that the
local and foreign companies involve in real estate projects will not market these projects
unless the title of the property is transferred in the name of a locally incorporated company
and the “Commencement of Business” certificate is issued by the Securities and Exchange
Commission of Pakistan (SECP) to that company. Property tax on rented property shall be
reduced from the current high rate of 25% to 5%. An exemption for the alll news
construction of houses on plots, measuring up to 150 sq. yards and flats/apartments have an
area of 1000 sq. ft. is announced from all types of taxes for a period of 5 years. Government
has also announced the enhanced credit facilities as well in new policy which includes the
enhancement of the annual disbursement of HBFC loans from the present Rs of 1.2 billion
to Rs 7.00 billion over the next 5 years, the exposure of the Banks to House Finance
enhanced from 5% to 10% of their net advances.

Government Policies for Textile Sector

The share of textile industry in the economy along with its contribution to exports,
employment, foreign exchange earnings, investment and value added makes it the single
largest manufacturing sector for Pakistan. It contributes around 8.5 percent to GDP,
employs 38 percent of the total manufacturing labor force, and contributes between 60-70
percent to total merchandise exports. Indeed, with exports reaching about $9.7 billion in
2009-19, Pakistan is one of the largest textile exporters in the world.According to the policy
Incentives 100% foreign equity is allowed and the custom duty of 5% will be imposed on
the import of PME (Plant, Machinery and Equipment) .Government has announced a tax
relief and also announced a depreciation allowance of 50% on the machinery & equipment
cost related to the textile sector.

pg. 18
 Government Policies for IT & Telecom industry

The previous years were crucial years for the telecom sector in Pakistan in which the
government of Pakistan decided to liberalize telecommunication sector and provide access
to foreign investors and also announced telecom deregulation policy, mobile policy and
broadband policy. Government has decided an exemption from the Pakistan income on the
export of the software, imposed a Custom duty on the import of Plant, Machinery, and
Equipment in the area of IT, exempted the import of computer parts, imposed 5% taxes on
imported computers (excluding two laptop computers), allowed 100% on foreign Equity in
IT Sector, exempted the import of PME. According to the policy, all telecom services will be
deregulated and the processing period for license applications has been reduced
considerably.

Government Policies for Education Sector

The Salient Features of National Education Policy are to enable the citizens of Pakistan to
lead their lives according to the teachings of Islam as laid down in the Qur'an and Sunnah
So the Nazira Qur'an will be introduced as a compulsory component from grade I-VIII
while at secondary level translation of the selected verses from the Holy Qur'an will be
offered. Due to the good government policies the literacy in Pakistan rose from 45 to 54
percent between 2002 and 2006, and net primary enrollment rates increased from 42 to 52
percent. The literacy rate in Pakistan is 49.9%.According to the new policy the functional
literacy and income generation skills will be provided to rural women of 15 to 25 age group
and basic educational facilities will be provided to working children. The existing
disparities in basic education will be reduced to half by year 2010. Access to higher
education will be expanded to at least 5% of the age group 17-23 by the year 2010.

Government Policies Oil and gas Sector

The oil and gas sector has a considerable impact on the economy of the Pakistan the sector
attracts by far the highest level of foreign direct investments in the country, and raised the
significant tax incomes for the government. Pakistan is among the most gas dependent
economies of the world. The salient features of the policy are Foreign Equity 100 %,
Investment No Minimum Limit, Custom Duty 5% PME (not manufactured locally) , 5%
PME (not manufactured locally) 40% Onshore: Royalty treated as expense 40% &
Onshore: Royalty treated as expense, Royalty 12.5% Onshore 12.5% & Offshore: (with
holiday for four years and reduced rate for next two years), Pre-commercial Discovery :

pg. 19
Onshore: No obligatory “carry” for GoP or government holding company. Post-commercial
Discovery : Offshore: Sliding scale production sharing arrangements (shallow, deep, and
ultra-deep grid), Deep Drilling: Offshore divided into shallow, deep and ultra-deep grid;
GoP share based on a sliding scale for each of the three zones and Pipeline Construction
and Operation: E&P entities allowed to construct/operate pipelines to uplift production.

Political system
The election in the country was commenced by the resignation of President Pervez

. Zardari was elected in a secret ballot of a 702-member electoral college, comprising a joint
session of the country’s 342-seat National Assembly (lower house), 100-seat Senate (upper
house), and four provincial assemblies, with each accounting for 65 votes. The new
government had to face many issues, like the issue of repealing the 17th amendment to the
constitution, which was passed by Musharraf and the issue of the reinstatement of the
judges, who were ousted by Musharraf. Musharraf ousted 13 of the 17 Supreme Court
judges, including Chief Justice Iftikhar Muhammad Chaudhry, as well as 60 of the 97 judges
in the four provincial high courts for failing to pledge allegiance to his Provincial
Constitutional Order (PCO). Due to the delay in reinstating the judges, the PML-N
withdrew from the ruling four-party coalition. The government subsequently reappointed 6
of 60 high court judges although this action was failed to quell the opposition from the
PML-N and the country’s legal community, who had the demand of the reinstatement of all
the judges. Finally, after a huge pressure by the political parties and the common people
lawyers and media the judges were reappointed in------------
The present government is under pressure to revive Pakistan’s economy. The general
populous had many expectations from the government, but the government was unable to

pg. 20
fulfill its manifesto ‘’bread, clothing and shelter"’. Government appeared to be scrawny in
handling the country’s chronic power shortages, and high prices of food and fuel. Double-
digit inflationary pressures fuelled by the declining value of the Pakistani rupee, which was
fallen by approximately 26% against the U.S. dollar, coupled with strong domestic
consumer spending, supported by record workers’ remittances, and a surge in international
oil and commodity prices, haf also fuelled the country’s current-account deficit, which
reached a record of US$20.7 billion in July 2008. The country’s foreign-exchange reserves fell
to just US$6.2 billion in August. Declining investor confidence had also resulted in the
country’s stock market falling by 40% from the start of the year, which imposed further
pressure on liquidity. More than 1,200 people were killed since the military stormed the Red
Mosque (Lal Masjid) in the capital Islamabad in July 2007, this incident followed a surge in
the sucide attacks across the country. The suspected amalgamation of Taleban forces in
Afghanistan and Pakistan at the border areas was continue to present a significant drain on
military resources. The obvious concern of the US government regarding the increase in
offensive activity also reflected the spooked investors to withdraw portfolio flows from
Pakistan.
All these events had badly affected the macroeconomic fundamentals of Pakistan during
the fiscal year 2007-08. The most important aspect, however was the non approachable
posture in relative to political pragmatism, in addressing domestic and external challenges
during the most part of the fiscal year which further emphasized on the macroeconomic
problems.
Pakistan is at a major crossroads now, if monetary and particularly fiscal policy makers are
able to divert attention from political provocations and take aggressive action to combat
future challenges, we may see the country revert to the path of dynamic sustainable growth
once more but If policy measures come too little, tool late it will be particularly difficult for
the economy to bounce back in the near term. So the government needs to divert its
attention from defensive politics and need to focus on economic challenges.

Industry and company analysis

In Pakistan there are only 4 firms which are refining the crude oil and providing to the oil
companies. The country’s oil sector is regulated by the Ministry of Petroleum and Natural
Resources. The Ministry grants oil concessions by open tender and by private negotiation.

pg. 21
BP is currently the largest oil producer in Pakistan. Industry is very small because not too
much companies the problem is the high investment in opening a refinery. Kuwait is now
setting oil refinery on Port Qasim. Sector is controlled by the Ministry of petroleum. The
firms earns much as the high prices of oil in 2008 and so the earnings per share was high.
Pakistan is hoping to increase the refining capacity to 31.0 million tones through an
investment of $3.50 billion. The Federal Government has allowed relaxation in 10 to 40 per
cent profitability limit for existing oil refineries. The action was taken in view of high capital
cost and relatively small differential between international prices of crude and POL
products and between fuel oil and middle distillates.
The sustained availability of energy at affordable price is critical in present day and age in
view of rapid industrialization, expansion in trade activities, and mounting pressure of
energy shortages. Pakistan, like many other developing countries, is deficient in supply of
energy vis-à-vis demand.1 Its energy strategy (2008) envisages adequate and affordable
energy supplies through optimum utilization of indigenous resources, promoting
renewable energy, providing energy security, and achieving balanced energy mix to fulfill
energy demand of an expanding economy. As part of this strategy, the petroleum policy of
Government of Pakistan (GOP) has assumed the central position. The main thrust of
petroleum policy is to accelerate exploration and production (E&P) activities for greater
degree of self-reliance by ensuring protection and continuity of rights granted to oil and gas
sectors.
Petroleum products constitute around 30% of demand for energy despite the availability of
natural gas as substitute. As a result, the petroleum industry has made significant strides to
fulfill the demand requirements in Pakistan by attracting bulk of the foreign direct
investment. Currently, the industry is an important source of economic activity in the
country. It not only promotes employment but also generates significant revenues for the
Government.

Demand and Supply of POL Products in

Pakistan

Pakistan imported 8.23 million tonnes of crude oil in 2006-08 while its indigenous
production was only 3.1 million tonnes. There are seven oil refineries to process crude to
produce different products of petroleum like MS Ron 87 motor spirit, HSD, Light Speed
Diesel Oil (LDO), furnace oil, aviation fuel, High Octane Blending Component (HOBC), and
kerosene. These are: National (NRL), Pakistan (PRL), Attock (ARL), Pak-Arab (PARCO),
Dhodhak (DRL), Bosicor, and ENAR Petrotech Refinery. Whereas ARL, DRL & ENAR refine
only local crude, Bosicor and PARCO refine only imported crude, and PRL, and NRL refine
both imported and locally available crude. Nonetheless, due to insufficient production
1

pg. 22
capacity, the country has to import three processed petroleum products namely, HSD,
furnace oils and aviation fuel (100/LL). Table 1 depicts the overall production, import and
demand for 2006-08.

Government’s Attitude Towards Industry

Khalifa refinery

The governments of Pakistan and the UAE on Tuesday signed a Memorandum of

Understanding (MoU) worth $5 billion for establishment of an oil refinery at Khalifa Point
in the coastal area near Hub Balochistan.The MoU was signed in presence of the Prime
Minister Shaukat Aziz, Secretary of Petroleum and Natural Resources Farrukh Qayyum and
Managing Director of International Petroleum Investment Company (IPIC) signed the
implementation agreement of Khalifa Coastal Refinery.

Pak-Iran Refinery Project

As refinery products are not fulfilling the countries demand so Government of Pakistan is
planning new Refinery projects one of them is Pak-Iran Refinery project. The governments
of both countries are discussing over possible construction of six million tons coking
refinery close to Hub near Karachi. It will be able to process the Iranian crude oil and 60
percent of its production will be HSD. But still there are discussions going on and it is
hoped that it will finalized till the end of 2008. This shows that the government is
supporting this sector and it helps more in the foreign reserves as it bring foreign
investment.

Recent Petroleum policies:

The most recent Petroleum Policy includes some of the following attractive features:
a) FDI to be promoted by increasing the competitiveness of its terms of investment in
the upstream sector;
b) Strengthening the involvement of Pakistani Oil and Gas companies in the upstream
industries;
c) Focus on HR – training of Pakistani professionals in E&P sector and creating
favorable conditions for their retention within the country;
d) Increasing E&P activities in the on- and off-shore areas; and
e) Enabling a more proactive management of resources through establishment of a
strengthened office of DG Petroleum Concessions.

pg. 23
Refining capacity:

The refining capacity has improved over the years. It was 11.28 million tonnes per year
in 2002 which grew by ACGR of 2.7% and reached 12.87 million tonnes per year in 2007.
This slow expansion of refining capacity has been one of the bottlenecks for heavy
dependence on the import of the refined products. This situation is further complicated
by the fact that refineries are not operating at their full capacity. It is evident from Table
2 that only 87.1% of the capacity has been utilized in crude oil processing. As per
available data in Pakistan Energy Year Book (2007) only two refineries, i.e., Attock and
National are operating at their full capacity. While Bosicor has started reporting its
output since 2004 but it is not immediately clear why its capacity utilization is only
47.3% in 2007. Furthermore, except for ENAR, which has started its operation only
recently, the rest are operating at more than 80% capacity.

Table 2: Capacity Utilization of Oil Refineries in 2007

(Capacity and crude oil in Million Tonnes and utilization in (%)
Categories Refining
Capacity Crude Oil Utilization
Processing
Attock Refinery 1.82 1.82 100.0
Besicor Refinery 1.50 0.71 47.3
Dhodak Refinery 0.12 0.10 83.3
ENAR Petrotech 0.12 0.09 75.0
Refinery
National Refinery 2.71 2.79 103.0
Pak Arab 4.5 3.70 82.2
Refinery
Pakistan Refinery 2.1 2.00 95.2
Total 12.87 11.21 87.1
Source: Pakistan Energy Yearbook, 2007

pg. 24
Refining/Downstream:

Pakistan's net oil imports are projected to rise substantially in coming years as demand
growth outpaces increases in production. Demand for refined petroleum products also
greatly exceeds domestic oil refining capacity, so nearly half of Pakistani imports are refined
products. Pakistan's Pak-Arab Refinery (PARCO) became operational in late 2000, adding to
the country's refining capacity and helping to alleviate refined product import dependence.
The PARCO Mid Country Refinery (MRC) at Mahmood Kot is Pakistan’s largest oil refinery.
It was formally commissioned in 2001 and has capacity of 100,000 bbl/d of throughput
(mostly crude oil from Abu Dhabi and Light Arabian Crude from Saudi Arabia), supplied
to the plant by pipeline from Karachi.
A small, 30,000-bbl/d refinery operated by private Bosicor Pakistan Limited (BPL) near
Karachi, began commercial operation in November 2003. The plant is supplied with
shipments of crude oil from Qatar. The Bosicor plant will allow Pakistan to become a new
supplier of naptha to Far Eastern markets. Naptha makes up approximately 9 percent of the
plant's output. The plant produces about 10,800 bbl/d of fuel oil, 6,980 bbl/d of diesel, and
4,350 bbl/d of kerosene, among other products. PSO has a supply contract to purchase the
entire output of the Bosicor refinery's products for the next 10 years.
Another major planned project is the "Iran-Pak" refinery, which would have a capacity of
130,000 bbl/d. The refinery would be located near the border with Iran in Baluchistan
province and would be a 50:50 partnership between Pakistan's Petroleum Refining and
Petrochemical Corporation (PERAC) and the National Iranian Oil Company (NIOC). Oil
processed at the Iran-Pak refinery would come almost exclusively by sea from Iran, and
would be unloaded at a terminal to be built for the refinery.

Major Refineries and Their Capacity:

Currently there are about five major refineries operating in Pakistan, which are
explained below:

Pak. Arab Refinery (PARCO) with refining capacity of 4.50 MTO (2005-06);
Attock Refinery (ARL) with refining capacity of 1.80 MTO (2005-06);

pg. 25
National Refinery (NRL) with refining capacity of 2.70 MTO (2005-06);
Bosicor Pakistan Limited (BPL) with refining capacity of 1.50 MTO (2005-06)
Pakistan Refinery Limited (PRL) with refining capacity of 2.20 MTO (2005-06)
Dhodak Refinery Limited (DRL) with refining capacity of 0.12 MTO (2005-06)

pg. 26
Analysis of financial statement:

Balance sheet:

pg. 27
 ATTOCK REFENIRY
Balance Sheet
`As on 2006 2007 2,008
Rs '000 Rs '000 Rs '000
SHARE CAPITAL AND RESERVES
Share capital
Authorized 1,000,000 1,000,000 1,000,000
Issued, subscribed and paid-up 454,896 568,620 710,775
Reserves and surplus 2,574,784 3,210,045 8,988,216
3,029,680 3,778,665 9,698,991
SURPLUS ON REVALUATION OF 1,923,340 1,923,339 1,923,339
FREEHOLD LAND
4,953,019 5,702,004 11,622,330
DEFERRED LIABILITIES
long term loans 3,410,250
Provision for staff gratuity 75,800 85,800 96,889
3,486,050 85,800 96,889
CURRENT LIABILITIES AND
PROVISIONS
current maturity of long term loans 1,136,750
Short term finance 0 0
Trade and other payables 18,772,870 25,393,520 36,688,922
Provision for taxation 747,596 1,006,629 1,673,042
20,657,216 26,400,149 38,361,964
CONTINGENCIES AND
COMMITMENTS
TOTAL LIABILITIES 24,143,266 26,485,949 38,458,853
TOTAL LIABILITIES & EQUITES 29,096,285 32,187,953 50,081,183

pg. 28
pg. 29
FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT
Operating assets 2,945,709 2,730,262 2,459,520
Capital work-in-progress 220,546 217,683 442,431
Stores and spares held for capital expenditure 77,696 20,190 27,701
3,243,951 2,968,135 2,929,652
NON CURRENT ASSETS
LONG TERM INVESTMENTS 8,622,914 9,261,339 13,135,579
LONG TERM LOANS AND DEPOSITS 11,614 10,954 12,732
DEFERRED TAXATION 137,806 157,756 219,302
CURRENT ASSETS
Stores, spares and loose tools 585,992 630,836 542,500
Stock-in-trade 3,523,808 3,852,646 4,844,853
Trade debts 4,675,133 6,234,918 9,207,238
Loans, advances, deposits, prepayments 263,473 0 0
and other receivables 8,031,594 191,255 244,695
Cash and bank balances 8,880,114 18,944,632
17,080,000 19,789,769 33,783,918
TOTAL ASSETS 29,096,285 32,187,953 50,081,183
no of shares 45,490 56,862 71,078

FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT
Operating assets 2,945,709 2,730,262 2,459,520
Capital work-in-progress 220,546 217,683 442,431
Stores and spares held for capital expenditure 77,696 20,190 27,701
3,243,951 2,968,135 2,929,652
NON CURRENT ASSETS
LONG TERM INVESTMENTS 8,622,914 9,261,339 13,135,579
LONG TERM LOANS AND DEPOSITS 11,614 10,954 12,732
DEFERRED TAXATION 137,806 157,756 219,302
CURRENT ASSETS
Stores, spares and loose tools 585,992 630,836 542,500
Stock-in-trade 3,523,808 3,852,646 4,844,853
Trade debts 4,675,133 6,234,918 9,207,238
Loans, advances, deposits, prepayments 263,473 0 0
and other receivables 8,031,594 191,255 244,695
Cash and bank balances 8,880,114 18,944,632
17,080,000 19,789,769 33,783,918
TOTAL ASSETS 29,096,285 32,187,953 50,081,183
no of shares 45,490 56,862 71,078

pg. 30
pg. 31
Profit & loss:

ATTOCK REFINERY
2005 2006 2007 2008
Rs '000 Rs '000 Rs '000 Rs '000
Sales 41,606,17 55,828,13 59,154,78 91,910,70
4 8 0 3
Less: Discount 0 0 46,248 0
41,606,17 55,828,13 59,108,53 91,910,70
4 8 2 3
Reimbursement due from the Government
under import parity pricing formula 133,460 234,236 355,393 1,743,602
41,739,63 56,062,37 59,463,92 93,654,30
4 4 5 5
Less: Cost of sales 39,190,42 55,490,68 58,597,68 89,646,37
5 0 8 3
Gross profit 2,549,208 571,694 866,237 4,007,932

Less: Administration expenses 166,626 183,299 175,108 199,336

Distribution cost 162,209 13,780 16,716 19,140
Finance cost 30,050 498,425 246,545 1,244,373
Other charges 218,870 67,912 102,151 235,711
577,755 763,415 540,520 1,698,560
1,971,453 (191,721) 325,717 2,309,372
Other income 218,088 627,083 635,166 577,851
Profit before taxation from refinery operations 2,189,541 435,362 960,883 2,887,223
Provision for taxation 1,040,444 354,844 456,550 879,653
Profit after taxation from refinery operations 1,149,097 80,518 504,333 2,007,570
Profit after taxation from non-refinery 73,498 223,188
operations
Gain on sale of shares of an associated 0 3,762,775
company
Dividend income 244,652 377,429
73,498 223,188 244,652 4,140,204
Profit for the year 1,222,595 303,706 748,985 6,147,774

Earnings per share – Basic (Rs)

Refinery operations 26.88 6.68 7.1 28.24
Non-refinery operations 3.44 58.25
26.88 6.68 10.54 86.49

pg. 32
 Horizontal Analysis (Balance sheet)

HORIZANYAL ANALYSIS
YEAR TO YEAR INDEX INDEX TREND ANALYSIS

2006 2007 2008 2006 2007 2008

SHARE CAPITAL AND
RESERVES
Share capital

Authorised 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

Issued, subscribed and paid-up 30% 25% 25% 130% 163% 203%
Reserves and surplus 8% 25% 180% 108% 135% 378%
11% 25% 157% 111% 139% 356%

SURPLUS ON REVALUATION OF - 0% 0%
FREEHOLD LAND
SURPLUS ON REVALUATION OF -100% 0% 0% 0%
PROPERTY PLANT AND
EQUIPMENT
7% 15% 104% 107% 123% 250%
DEFERRED LIABILITIES
long term loans - -100%
Provision for staff gratuity 17% 13% 13% 117% 132% 149%
5270% -98% 13% 5370% 132% 149%
CURRENT LIABILITIES AND
PROVISIONS
current maturity of long term loans - -100%
liability against asset subject to -100% 0% 0% 0%
finance lease
Trade and other payables 51% 35% 44% 151% 204% 294%
Provision for taxation -36% 35% 66% 64% 87% 144%
51% 28% 45% 151% 193% 281%
CONTINGENCIES AND
COMMITMENTS
TOTAL LIABILITIES 58% 11% 56% 158% 175% 273%

pg. 33
FIXED ASSETS

PROPERTY, PLANT AND

EQUIPMENT
Operating assets -7% -7% -10% 93% 86% 77%
Capital work-in-progress 81% -1% 103% 181% 179% 364%
Stores and spares held for capital 59% -74% 37% 159% 41% 57%
expenditure
-3% -9% -1% 97% 88% 87%
NON CURRENT ASSETS
LONG TERM INVESTMENTS 258% 7% 42% 358% 384% 545%
LONG TERM LOANS AND -4% -6% 16% 96% 91% 106%
DEPOSITS
DEFERRED TAXATION 49% 14% 39% 149% 170% 237%

CURRENT ASSETS
Stores, spares and loose tools 8% 8% -14% 108% 117% 100%
Stock-in-trade 68% 9% 26% 168% 183% 231%
Trade debts 12% 33% 48% 112% 149% 220%
Loans, advances, deposits,
prepayments
and other receivables 38% -27% 28% 138% 101% 129%
Cash and bank balances 47% 11% 113% 147% 162% 346%
37% 16% 71% 137% 158% 270%
TOTAL ASSETS 58% 11% 56% 158% 175% 273%

Horizontal analysis of balance sheet:

Year to year index

Issue capital declines from 30% to 25% while their reserves increased from 8% to 180%. This
is due to announcing low dividend as compare to their earnings. Provision for staff gratuity

pg. 34
fund decreased, while their total liabilities are so much increased from 11% in 2007 to 56%
this is due to the government policy to hold the payment to creditors for 90 days. On the
Asset side fix assets are decreasing from -9% to -1% and the current assets especially the
cash and bank balances increased on a high percentage.

Base year index

This tool is not very popular among the analyst because it uses a base year which is far from
the current year. According to this analysis the company issued capital increased 130% in
2005 to 203% in 2008 while in year to year analysis it was decreased. In 2006 they used long
term loan so the company long term liabilities increased to 5370%. There assets increased
158 to 273%.

pg. 35
 HORIZANYAL ANALYSIS
2006 2007 2008 2006 2007 2008
Base Index
year trend

Sales 134% 142% 221% 34% 6% 55%

Less: Discount -100%
134% 142% 221% 34% 6% 55%
Reimbursement due from the
Government
under import parity pricing formula 176% 266% 1306% 76% 52% 391%
134% 142% 224% 34% 6% 57%
Less: Cost of sales 142% 150% 229% 42% 6% 53%
Gross profit 22% 34% 157% -78% 52% 363%

Less: Administration expenses 110% 105% 120% 10% -4% 14%

Distribution cost 8% 10% 12% -92% 21% 15%
Finance cost 1659% 820% 4141% 1559% -51% 405%
Other charges 31% 47% 108% -69% 50% 131%
132% 94% 294% 32% -29% 214%
-10% 17% 117% -110% -270% 609%

Other income 288% 291% 265% 188% 1% -9%

Profit before taxation from refinery 20% 44% 132% -80% 121% 200%
operations
Provision for taxation 34% 44% 85% -66% 29% 93%
Profit after taxation from refinery 7% 44% 175% -93% 526% 298%
operations
Profit after taxation from non-refinery 304% 0% 0% 204% -100%
operations
Gain on sale of shares of an associated
company
Dividend income 54%
304% 333% 5633% 204% 10% 1592%
Profit for the year 25% 61% 503% -75% 147% 721%
Earnings per share – Basic (Rs)
Refinery operations -75% 6% 298% 25% 26% 105%

pg. 36
Horizontal analysis of profit & loss:

Year to year index

Sales increased due to high demand in 2007 and 08 of oil and the firm is on 100%capacity
utilization. So their profit increased but in the finance cost increased that is due to the
exchange loss.

Base year index

So as same sale increased and profit increased from 25% to 503% in 2008. And earning per
share was only 6% in 2006 which increased to 300% in 2008.

Vertical analysis of Balance sheet

pg. 37
 VERTICAL ANALYSIS
COMMON SIZE ANALYSIS

2005 2006 2007 2008

SHARE CAPITAL AND RESERVES IN %
Share capital
Authorized 1,000,00 1,000,00 1,000,00 1,000,000
0 0 0
Issued, subscribed and paid-up 2% 1.6% 2% 1%
Reserves and surplus 13% 9% 10% 18%
15% 10.4% 12% 19%

SURPLUS ON REVALUATION OF FREEHOLD LAND 0.00 7% 6% 4%

SURPLUS ON REVALUATION OF PROPERTY PLANT 10% 0.000 0.000 0.000
AND EQUIPMENT
25% 7% 6% 4%
DEFERRED LIABILITIES
long term loans 0.00 12% 0.000 0.000
Provision for staff gratuity 0.35% 0.3% 0.3% 0.2%
0.35% 12% 0.3% 0.2%
CURRENT LIABILITIES AND PROVISIONS
Current maturity of long term loans 0.000 4% 0.000 0.000
Liability against asset subject to finance lease 0.16% 0.00 0.000 0.000
Trade and other payables 68% 65% 79% 73%
Provision for taxation 6% 3% 3% 3%
74% 71% 82% 77%
CONTINGENCIES AND COMMITMENTS
TOTAL LIABILITIES 100% 100% 100% 100%

pg. 38
FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT
Operating assets 17% 10% 8% 5%
Capital work-in-progress 1% 1% 1% 1%
Stores and spares held for capital expenditure 0% 0% 0% 0%
18% 11% 9% 6%
NON CURRENT ASSETS 0% 0% 0% 0%
LONG TERM INVESTMENTS 13% 30% 29% 26%
LONG TERM LOANS AND DEPOSITS 0% 0% 0% 0%
DEFERRED TAXATION 1% 0% 0% 0%
CURRENT ASSETS
Stores, spares and loose tools 3% 2% 2% 1%
Stock-in-trade 11% 12% 12% 10%
Trade debts 23% 16% 19% 18%
Loans, advances, deposits, prepayments 0% 0% 0% 0%
and other receivables 1% 1% 1% 0%
Cash and bank balances 30% 28% 28% 38%
68% 59% 61% 67%
TOTAL ASSETS 100% 100% 100% 100%

Vertical analysis of balance sheet:

pg. 39
In common size analysis the way of the calculation Is to set sales as 100% and then other
amounts are dived by the sale, in fact that how much an item is the proportion to sale.
In balance sheet totals of liabilities and assets are consider 100% for the liabilities and assets
simultaneously. Company equity I s 1.42 % of the total liabilities and equity. The provision
for staff gratuity fund decreased in accordance with the total as compared to 2005. Like in
Assets Company fixed assts are decreasing as compared to previous year and was 5% of its
total assets. In current assets the major is the cash and bank balance which is almost 38% of
totals and in NON current assts are of (long term investment) was increased from 13 to
26%.
Common size analysis shows that the company is investing in long term and holding cash
while in liabilities portion they are trading on credit.

pg. 40
 Profit & Loss

VERTICAL ANALYSIS
2005 2006 2007 2008
IN %

Sales 100.00 100.00 100.00 100.00

Less: Discount 0.00 0.00 0.08 0.00
100.00 100.00 99.92 100.00
Reimbursement due from the Government
under import parity pricing formula 0.32 0.42 0.60 1.90

Less: Cost of sales 94.19 99.40 99.06 97.54

Gross profit 6.13 1.02 1.46 4.36

Less: Administration expenses 0.40 0.33 0.30 0.22

Distribution cost 0.39 0.02 0.03 0.02
Finance cost 0.07 0.89 0.42 1.35
Other charges 0.53 0.12 0.17 0.26
1.39 1.37 0.91 1.85
4.74 (0.34) 0.55 2.51

Other income 0.52 1.12 1.07 0.63

Profit before taxation from refinery operations 5.26 0.78 1.62 3.14

pg. 41
Provision for taxation 2.50 0.64 0.77 0.96
Profit after taxation from refinery operations 2.76 0.14 0.85 2.18
Profit after taxation from non-refinery 3.73 (116.41) 0.00 0.00
operations
Gain on sale of shares of an associated company 0.00 0.00 0.00 4.09
Dividend income 0.00 0.00 0.41 0.41
0.18 0.40 0.41 4.50
Profit for the year 2.94 0.54 1.27 6.69

Vertical analysis of Profit & Loss:

In 2005 the cost was 94.2% of the sale which increased with the coming year and in 2008 it
was 97.5%,It shows that ARL gross profit is low as 4.5% in 2008 but after paying the
operating expenses the cover their cost by the other operations like income from bank
deposits and handling of service charges, finally net income rises from 2.94 to 6.69% of the
sale. Their earning per share was 26.88 per share then we saw fall in declaring the EPS as
low in Rs. 6.68 but in 2008 it was 28.24 as the company having only 26% equity in capital
structure and their finance cost is not much high because the company business is with
trade payables

pg. 42
Sr.# RATIOS FORMULA 2006 2007 2008
1 Current Ratio current asset/current liabilities 0.83 0.75 0.88
2 Quick Ratio current asset - inventory/current 0.66 0.60 0.75
liabilities
3 Inventory Turnover sales/average inventory 19.85 19.87 26.47 times
Ratio
4 Asset Turnover Ratio sales/average total assets 2.35 2.34 2.69
5 Fixed Turnover Ratio sales/average fixed assets 16.92 18.71 29.25
6 Days Sales Outstanding average inventory/cost of sales/360 18.24 18.29 13.95 days
7 Total Debt To Total current liabilities + long term 0.83 0.82 0.77
Asset Ratio liabilities/total asset
8 Time Interest Earned earning before interest and 16.92 18.71 29.25 times
Ratio expense/interest expense
9 Profit Margin On Sale net income/sales 0.005 0.012 0.066 %
4 7 9
10 Basic Earning Power earning before income tax/total 0.01 0.03 0.06 Per
Ratio assets share
11 Return On Equity net income/average shareholder's 0.06 0.13 0.53 %
equity
12 Return On Assets net income/total assets 0.01 0.02 0.12 %

Ratio analysis:

pg. 43
Liquidity Ratios:

Years 2008 2007 2006

Current Ratio 0.88 0.75 0.83
Quick Ratio 0.75 0.60 0.66

Interpretation:

Attock Refinery shows not a good liquidity of the company. It shows more liabilities
portion as compare to Assets.The current ratio is less than 1 that means that
there assets are not enough to cover the firms liabilities.Quick Ratio of Firm
is less than 1 which is .66 in 2006 and was increased by .75 it shows the
increased there assets.

pg. 44
Asset management ratios:

Years 2008 2007 2006

Inventory turnover 26.47 19.87 19.85
Total Asset Turnover 2.69 2.34 2.35
Fixed Asset Turnover 29.25 18.71 16.92
Days Sales Outstanding 13.95 18.29 18.24

Interpretation:

Asset management ratio shows that companies is utilizing its assets in a very effective
Inventory sold by the company within
manner and recover its receivables timely.
26 days. This is good this is due to the high demand in the oil market. They
are generating sales more as compared to the assets which was 2.35in 2006
and is increasing. Fixed assets turnover ratio was 16 times to sale which is
increased to 30 times this was in 2008 when petrol prices was high and
demand was high so the utilized their assts 30 times as compared to sale.

pg. 45
The recovery system of the company is superb as the capacity of million
sales is recovered with in 13 days. This is why the have the capital structure
of 76% liabilities which was not hurting the firm.

Debt Management Ratio:

Years 2008 2007 2006

Total Debt to Total Assets 0.77 0.82 0.83

Interpretation:

The Debt management ratio shows company’s debts decrease as compare to its assets
each year.
They have capital structure of 88% debt in 2006 which was so high and the
company still has 76% debt. But the process of company is such type that
they it buy oil on credit and then within due date thy paid back. So interest
element is near to nil.

pg. 46
Profitability Ratio:

Years 2008 2007 2006

Profit Margin On Sales 7% 1% 1%
Basic Earning power Ratio 0.01 0.03 0.06

Interpretation:

The Profit margin on sales shows upward trend each year. Profit Margin on Sale Profit
margin on sale is very low means this is one type of firm that there turnover is high but
margin is low. Basic Earning Power Ratio is Earning power ratio is increasing that they
utilizing their assets well as already on the 100% capacity utilization.

DuPont Ratios:

Years 2008 2007 2006

Return on Equity 54% 13% 6%
Return on Assets 12% 2% 1%

Interpretation:

The Analysis shows that the return on equity and return on assets is rising each year
and it is positive sign for the future.Return on equity is increased from .06 to .53

pg. 47
which is very good as increased by 700% of its origin return on asset is also
increased because of the utilization of assets .

Balance sheet projections:

pg. 48
 Balance Sheet Growth 1.32
Rate
2,009 2010
as on 31 June 2,008 Pre After Pre After
adjustment adjustment adjustment adjustment
Rs '000 Rs '000 Rs '000

SHARE CAPITAL AND RESERVES

Share capital

Authorized 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

Issued, subscribed and paid-up 710,775 710,775 1,295,875 1,295,875 2,061,036

Reserves and surplus 8,988,216 8,988,216 11,979,830 11,979,830 15,892,099

9,698,991 9,698,991 13,275,705 13,275,705 17,953,135

SURPLUS ON REVALUATION OF 1,923,339 1,923,339 1,923,339 1,923,339 1,923,339

FREEHOLD LAND
11,622,330 11,622,330 15,199,044 15,199,044 19,876,474

DEFERRED LIABILITIES

long term loans 11,83 11,835, 27,47

5,520 520 7,286
Provision for staff gratuity 96,889 96,889 96,889 96,889 96,889

96,889 96,889 11,932,409 11,932,409 27,574,175

CURRENT LIABILITIES AND

PROVISIONS
current maturity of long term loans

Short term finance 0 0 0 0 0

Trade and other payables 36,688,922 36,688,922 36,688,922 36,688,922 36,688,922

Provision for taxation 1,673,042 2,205,707 2,205,707 2,907,962 2,907,962

38,361,964 38,894,629 38,894,629 39,596,884 39,596,884

CONTINGENCIES AND
COMMITMENTS
TOTAL LIABILITIES 38,458,853 38,991,518 50,827,038 51,529,293 67,171,060

TOTAL LIABILITIES & EQUITES 50,081,183 50,613,848 66,026,082 66,728,337 87,047,533

pg. 49
FIXED ASSETS
PROPERTY, PLANT AND
EQUIPMENT
Operating assets 2,459,520 3,242,585 3,242,585 4,274,962 4,274,962
Capital work-in-progress 442,431 583,293 583,293 769,002 769,002
Stores and spares held for capital 27,701 36,520 36,520 48,148 48,148
expenditure
2,929,652 3,862,398 3,862,398 5,092,112 5,092,112
NON CURRENT ASSETS
LONG TERM INVESTMENTS 13,135,579 17,317,698 17,317,698 22,831,325 22,831,325
LONG TERM LOANS AND 12,732 16,786 16,786 22,130 22,130
DEPOSITS
DEFERRED TAXATION 219,302 289,124 289,124 381,175 381,175
CURRENT ASSETS
Stores, spares and loose tools 542,500 715,222 715,222 942,935 942,935
Stock-in-trade 4,844,853 6,387,362 6,387,362 8,420,977 8,420,977
Trade debts 9,207,238 12,138,648 12,138,648 16,003,363 16,003,363
Loans, advances, deposits, 0 0 0 0 0
prepayments
and other receivables 244,695 322,601 322,601 425,311 425,311
Cash and bank balances 18,944,632 24,976,243 24,976,243 32,928,205 32,928,205
33,783,918 44,540,077 44,540,077 58,720,792 58,720,792
TOTAL ASSETS 50,081,183 66,026,082 66,026,082 87,047,533 87,047,533

2009 2010 2011

pg. 50
AFN 15,412,234 20,319,196 26,815,443

Capital Structure 0.767930202 0.769802423 0.771659541

=Total debt/(Total debt + Total equity)
finance cost
AFN*debt % 11835520 15641766 20692393
AFN Equity 3,576,714 4,677,430 6,123,051

Rate Of Debt
Finance Cost/Interest bearing fund

Finance cost
= Finance cost-Exchange losses 4,129 11,499 32,050
Interest bearing fund 6,630,615 8,752,412 11539014
Rate of debt 0.0623% 0.1314% 0.2778%
No of Shares 58,510 76,516 100,164
Financing cost 2008 7,370 20,551 57,473
capital reserve 585100 765161 1001644
Premium 2991614 3912269 5121407

Growth Rate:

Growth
rate
2006 2007 2008
RATE 0.34 0.06 0.55
Average 0.32
1+R
1+.3185
Growth 1.32
Rate

Profit & loss projections:

pg. 51
For the Year ended Pre After Pre adjustment After
Adjustment adjustment Adjustment
2008 2009 2009 2010 2010
Rs '000 Rs '000 Rs '000 Rs '000 Rs '000

Sales 91,910,703 121,322,128 121,322,128 160145208.9 160145208.9

Less: Discount 0 0 0
91,910,703 121,322,128 121,322,128 160,145,209 160,145,209
Reimbursement due from 0 0 0
the Government
under import parity pricing 1,743,602 2,301,555 2,301,555 3,038,052 3,038,052
formula
93,654,305 123,623,683 123,623,683 163,183,261 163,183,261
Less: Cost of sales 89,646,373 118,333,212 118,333,212 156,199,840 156,199,840
Gross profit 4,007,932 5,290,470 5,290,470 6,983,421 6,983,421

Less: Administration 199,336 263,124 263,124 347323.0464 347323.0464

expenses
Distribution cost 19,140 25,265 25,265 33349.536 33349.536
Finance cost 1,244,373 1,244,373 1,251,743 1,251,743 1,272,294
Other charges 235,711 311,139 311,139 410702.8 410702.8
1,698,560 1,843,900 1,851,270 2,043,118 2,063,669
2,309,372 3,446,570 3,439,200 4,940,302 4,919,752

Other income 577,851 762,763 762,763 1006847.582 1006847.582

Profit before taxation from 2,887,223 4,209,334 4,201,964 5,947,150 5,926,599
refinery operations
Provision for taxation 879,653 879,653 1,280,216 1,280,216 1,805,663
Profit after taxation from 2,007,570 3,329,681 2,921,747 4,666,934 4,120,937
refinery operations
Profit after taxation from
non-refinery operations
Gain on sale of shares of an 3,762,775 4,966,863 4,966,863 6556259.16 6556259.16
associated company
Dividend income 377,429 498,206 498,206 657632.2896 657632.2896
4,140,204 5,465,069 5,465,069 7,213,891 7,213,891
Profit for the year 6,147,774 8,794,750 8,386,817 11,880,825 11,334,828

Profit & loss projection for year 2011

pg. 52
 Pre After adjustment
For the Year ended adjustment
2011 2011
Rs. 000 Rs. 000
Sales 211,391,676 211,391,676
Less: Discount
211,391,676 211,391,676
Reimbursement due from the Government
under import parity pricing formula 4,010,229 4,010,229
215,401,905 215,401,905
Less: Cost of sales 206,183,789 206,183,789
Gross profit 9,218,115 9,218,115

Less: Administration expenses 458,466 458,466

Distribution cost 44,021 44,021
Finance cost 1,272,294 1,304,343
Other charges 542,128 542,128
2,316,909 2,348,959
6,901,206 6,869,157

Other income 1,329,039 1,329,039

Profit before taxation from refinery operations 8,230,245 8,198,195
Provision for taxation 1,805,663 2,497,752
Profit after taxation from refinery operations 6,424,582 5,700,443
Profit after taxation from non-refinery operations
Gain on sale of shares of an associated company 8,654,262 8,654,262
Dividend income 868,075 868,075
9,522,337 9,522,337
Profit for the year 15,946,919 15,222,780

Tax Rate

pg. 53
 2009 2010 2011
tax rate 30.5% 30.47% 30.47%

Calculation of AFN

BETA OF THE COMPANY (ARL):

pg. 54
 Stock Rates KSE 100 Index y x x*y y2 x2
stock market
SR DATE OPEN CLOSING OPEN CLOSING return return S.R*M.R S.R2 M.R2
1 5-Jan-09 55.04 57.79 5,793.57 5,917.90 5.00 2.15 10.72 24.96 4.61
6,143.8
2 12-Jan-09 60.27 58.34 1 6,041.44 (3.20) (1.67) 5.34 10.25 2.78
6,051.1
3 15-Jan-09 61.68 58.60 6 5,511.93 (4.99) (8.91) 44.50 24.94 79.41
5,020.7
4 23-Jan-09 45.36 43.10 1 4,929.55 (4.98) (1.82) 9.05 24.82 3.30
4,972.5
5 28-Jan-09 42.09 43.95 5 5,139.93 4.42 3.37 14.88 19.53 11.33
5,384.8
6 4-Feb-09 42.99 45.13 7 5,534.25 4.98 2.77 13.81 24.78 7.70
5,597.4
7 9-Feb-09 47.38 49.74 4 5,573.48 4.98 (0.43) (2.13) 24.81 0.18
5,399.3
8 13-Feb-09 46.07 48.37 6 5,625.90 4.99 4.20 20.95 24.92 17.60
5,880.1
9 19-Feb-09 55.89 58.68 4 6,022.44 4.99 2.42 12.08 24.92 5.86
6,022.4
10 20-Mar-09 58.68 56.82 4 5,969.09 (3.17) (0.89) 2.81 10.05 0.78
5,580.7
11 26-Feb-09 53.15 54.45 8 5,649.49 2.45 1.23 3.01 5.98 1.52
5,727.4
12 2-Mar-09 56.24 59.05 6 5,681.29 5.00 (0.81) (4.03) 24.96 0.65
5,748.1
13 9-Mar-09 71.71 75.11 0 5,662.02 4.74 (1.50) (7.10) 22.48 2.24
5,707.0
14 13-Mar-09 67.80 66.70 9 5,750.47 (1.62) 0.76 (1.23) 2.63 0.58
6,138.5
15 18-Mar-09 73.42 75.95 3 6,266.00 3.45 2.08 7.16 11.87 4.31
6,617.0
16 24-Mar-09 72.50 76.12 0 6,674.20 4.99 0.86 4.32 24.93 0.75
6,803.4
17 30-Mar-09 84.85 89.09 6 7,014.81 5.00 3.11 15.52 24.97 9.65
7,432.8
18 6-Apr-09 92.68 97.31 8 7,518.93 5.00 1.16 5.78 24.96 1.34

pg. 55
 105.0 7,340.3
19 9-Apr-09 3 110.28 0 7,295.98 5.00 (0.60) (3.02) 24.99 0.36
115.7 7,617.9
20 13-Apr-09 9 121.57 6 7,872.49 4.99 3.34 16.68 24.92 11.16
130.6 7,834.1
21 22-Apr-09 7 137.20 4 7,574.17 5.00 (3.32) (16.58) 24.97 11.01
133.6 7,620.8
22 27-Apr-09 5 126.97 7 7,344.94 (5.00) (3.62) 18.10 24.98 13.11
123.2 7,020.1
23 4-May-09 6 117.55 0 7,062.25 (4.63) 0.60 (2.78) 21.46 0.36
130.0 7,122.9
24 12-May-09 9 136.11 2 7,296.90 4.63 2.44 11.30 21.41 5.97
122.8 7,142.4
25 15-May-09 5 122.00 1 7,177.64 (0.69) 0.49 (0.34) 0.48 0.24
122.7 7,172.8
26 19-May-09 2 119.99 5 7,067.72 (2.22) (1.47) 3.26 4.95 2.15
122.4 7,146.2
27 25-May-09 2 127.12 4 7,173.57 3.84 0.38 1.47 14.74 0.15
126.4 7,288.1
28 29-May-09 8 127.18 3 7,276.61 0.55 (0.16) (0.09) 0.31 0.02

SUM 53.46 6.18 183.41 520 199

Averages 1.91 0.22

n xy - ( x)( y)
BETA =

n (x2 )-( x)2

BETA

4,805.1
BETA 0.87
3
Risk Free Rate = 12.5
5,537.0
Avg. Stock Return = 1.91
= 6
Stock Market Return = 0.22
= 0.87
CAPM 19.27
=

pg. 56
 Alpha 1.7
Expected return 19.3
expected>required TRUE
expected> rf TRUE

Company Rf Expected CAPM Alpha Decision Status

Return
ATTOCK 12.5 19.33 19.27 1.72 Acceptabl Accepted
REFINERY e

Expected return of security

Expected Return of security is 19.33 which is calculated by the following formula:

Expected return= α+β(rm)

Beta of the company

Beta of the ARL is .87 which shows that the investment in company is less risky than the
market and provides high return as compared to the market.

Investment management

Attock Refinery is one of the leading oil refineries in Pakistan and contributes a lot in
economy of Pakistan.Now we have one Million Rs. And as the expected return is higher
than the required return so we will invest the one Million in the company and this will

pg. 57
managed by the following way by looking the Beta of the company which is .87 means have
less risky.

Expected return 19.33

Net investment 1,000,000

Return 193,345
Income in 2009 8,386,817
New common shares 769,285
EPS 11

So according to the calculations this investment gives us return of 193,345 and our earnings
per share will be Rs 11. Which is good enough but if we compare this EPS to the last year it
was Rs 28 but if we look on the share price we are purchasing at Rs 61.13 and the total
shares will be 16395 and if we sell it now then our capital gain will be 1 Million as it is
trading near to 126 in the market but the market conditions predict that market will grow so
we will hold our investment will wait.

Bibliography

http://en.wikipedia.org/wiki/Pakistan
http://www.arl.com.pk/financials.php
http://en.wikipedia.org/wiki/History_of_Pakistan
http://en.wikipedia.org/wiki/Economy_of_Pakistan
http://www.economywatch.com/economic-analysis/pakistan.html
http://www.kse.com.pk/downloads/kseindexhistory.php?id=1&sid=1.17
http://www.kse.com.pk/market-
data/history_by_symbol_monthly.php?id=1&sid=1.20
http://www.brecorder.com/index.php?currExchange=K&currPageType=D&currSecto
r=27&stocks=stocks%2Fmframe.php&currDate=2009-06-15&scrType=1024%7C768
security analysis by Donald e fisher

pg. 58
pg. 59