Reformist budget; implementation is the key

Macro economic Overview & Targets
Acceleration in GDP growth at a time of fiscal adjustment!
 24% jump in total budgetary outlay: With total outlay of PKR3.9trn (+24%), Budget FY14 represents a realistic response to challenges to macro stability and the need for self-driven reforms. The govt. has set out a plan to achieve divergent objectives of accelerating growth and undertaking fiscal adjustment via belt-tightening and new tax measures. Unsurprisingly, we see risk to govt. targets of achieving 4.4% GDP growth, 8% inflation and 6.3% FD. Implementation of reforms has proved difficult in the past.  Broad based GDP growth targeted: FY14 GDP growth of 4.4% is projected to be broad-based with all three key engines. i.e. agriculture, industrial and service expected to deliver improved performance. With major tax incidence of new measures concentrated in service sector, a 4.5% growth in FY14 looks ambitious. On the same count, industrial sector growth has the potential to negatively surprise. With new tax measures and anticipated fiscal adjustment, govt. may emerge as a key contributor to overall GDP growth.  How the budget numbers appear? Total budgetary outlay builds in 22% jump in total tax collection to PKR2.6trn. Government’s focus is on increased direct tax collection (+25%) via new tax measures and removing tax exemptions. New tax slabs have been introduced for personal income tax while property withholding tax has been imposed on retailers/wholesalers. Non-tax collection targets of 15% looks reasonable though 3G licenses fee (PKR120bn projected) has proved to be elusive in the past two years.
Fig 1: Unimpressive GDP growth
5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2009 2010 2011 2012 2013 0
May-13 Mar-13 Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 Sep-10 Jul-10 May-10 Mar-10 Jan-10

Fig 2: Inflation trend
20 15 10 5

Source: MoF, Foundation Research, June 2013

Source: Bloomberg, Foundation Research, June 2013


3 . Govt. however. Budget document shows the govt.6trn or 6. has not announced the much-anticipated increase in electricity tariff though pre-budget news flow had highlighted the possibility of tariff hike of as much as PKR0. Discipline in disbursement of power subsidy may. Govt.  Energy received its due importance: Energy remains one of the four reform areas the new govt.  Fiscal deficit target of 6. expenditure appears to be understated with just 10% jump projected for FY14. We think the govt. provide sustainability. govt. has decided not to raise salaries of government employees in FY14. In absence of tariff hike. especially on power and aggressive revenue collection targets. estimate total circular debt of ~PKR500bn which we think is over-stated and may have incorporated double counting.3% of GDP vs projected deficit of 8. however. has allocated PKR169bn as investment for clearing circular debt and reduction in tariff subsidy by 38% to PKR165bn. A major chunk of fiscal adjustment is projected to come from reduction in subsidy (from 1. has reiterated its aim to eliminate long-standing circular debt issue within 60 days. We see high possibility of slippage in govt. the govt. vague.3%: Government has set an ambitious target of reducing fiscal deficit by 18% to PKR1.2% of GDP). the expected fund injection in energy sector will equate to yet another ad-hoc payment mechanism to energy companies to reduce over-due receivables backlog. Salaries constitute almost 10% of total expenditure (1. In a bold move. The govt. Absence of pay rise has already invited criticism from different unions and a section of employees have already announced plans to go on strike.Macro economic Overview & Targets Energy received its due share  No increase in salaries of govt.75/kwh. employees: Interestingly.6% of GDP to 1% of GDP). fiscal deficit target. Details on the government plan are. will be forced to change its course and announce at least 8-10% increase in salaries.8% in FY13. has set its eye on to provide relief to masses.

Historically.000 1.Macro economic Overview & Targets …a step closer to re-entry into IMF program  Highest ever development expenditure planned : A key highlight of FY14 budget is government’s ambitious plan to lift development spending by 36% to PKR1. leading to ultimate shelving of plans.000 2. actual spending has undershot targets in the past (average 75% materialization).500 1. Agriculture is still a sacred cow and largely remain untaxed. power generation and transportation. June 2013 4 . We see two risks (1) low capacity to deliver higher spending. Most of the macro targets are closely aligned with the numbers IMF/World banks have reportedly pushed forward to the past governments.  Reforms require strong political will: Other important areas include increased documentation.1trn.000 3.500 3. budget 2014 appears to make much-needed change in policy direction which prepare grounds for Pakistan’s potential re-entry into program. Fig 3: Rising fiscal indiscipline (PKR bn) 4. Foundation Research. and (2) lower revenue collection dragging down overall spending.500 2. details on BoP financing and action plan on meeting growing IMF’s repayment burden are sketchy. has set a target to lift SBP FX reserves to US$20bn by 2016 (from US$6. the govt. we hasten to highlight documentation efforts in the past have triggered protest. While the initial response from trade bodies is largely positive. Interestingly.6bn in FY13) under the medium-term plan. primarily focused on water. broadening the tax net and plugging the loophole in tax collection.000 500 FY10 FY11 FY12 FY13 FY14E Fiscal Deficit (% of GDP) 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Net Revenue Receipts Total Expenditures Source: MoF.  A step closer to re-entry into IMF program: Broadly speaking.

June 2013 5 .8 4.9 15.7 3.8 FY11 2 4.4 8 6.2 3.4 14.5 3.4 10.6 7.9 FY13P 3.4 1.1 FY12 3.8 14.3 3.7 3.Macro economic Overview & Targets Growth Rate (%) Agricultural Sector Industrial Sector Services Sectors GDP CPI Inflation Fiscal Deficit (% of GDP) Tax Revenue (% of GDP) Investments (% of GDP) FY10 0.5 8.6 10.8 9.8 6.5 2.8 8.7 13.1 Source: MoF.1 4.3 3.8 8.2 8. Foundation Research.7 6.5 15.3 9.5 14.7 4.8 2.2 FY14E 3.1 6.4 3.5 4.

0 18.3 -1.2 12.1 18.1 29.9 10.0 11.2 59.4 8. Foundation Research.  Medium-term targets unveiled: The government has also unveiled medium term targets for various macro indicators though detail calculations supporting the targets are not available.4 18.6% in 2013.9 8.0 8.0 10. Among key commodities.3 63.2 9.0 16.2 5.2 -8. Decline in commodity prices may offer the largest upside to Pakistan which is 2/3 reliant on imported energy needs and has to import 1/5th of urea demand despite having surplus production capacity. containing inflation at 8% and bringing down fiscal deficit to 4%.0 0.6 7.3 -4.3 26.2 61.0 14. CRB index has slipped 12% since Sep’12.2 12.9 5.3 56. crude prices have slipped 15% from the peak (in 1Q) and urea by 41% (May’12 high).6 9.3 15. Following is a brief snapshot of government targets.5 8.3 10.Budget FY14 Medium term framework defined  Decline in commodity price is a key upside: Commodity prices are exhibiting heightened volatility in the past few weeks.0 11.5 14.8 -3.4 10.2 -5.3 55.9 13.1 -6.0 1.6 4.0 14.2 34. June 2013 Forecast Budget 2013-14 2014-15 4.7 3. government is targeting ramping of GDP growth to 7% by 2017 from 3.6 23.9 14.5 22.0 14.5 13.7 2015-16 7.5 4.3 9.6 -0.9 6 .8 22. Revised Budget Forecast 2012-13 2012-13 Real GDP Growth (%) Inflation (%) Total Revenue -Tax Revenue -FBR Tax Revenue Total Expenditure -Current -Development Fiscal Balance Revenue Balance Total Public Debt GDP at market prices (Rstrn) Source: MoF.0 5.8 5.5 20.6 4. Overall.4 -4.

we think issuance of Euro Bond of US$500mn and program loans may require Pakistan to first re-enter into program in order to provide comfort to international investor/donors. targets of external funding faces risks.576 430 - FY14BE 59 109 975 507 - Δ% N/A 275% -38% -1% NA Source: MoF. has laid claims of many such disputed property making transfer of titles a difficult proposition. June 2013 7 . Euro bond. provincial govt.  Payment from Etisalat still encumbered to transfer of titles of disputed properties.  On the same count. The government has set a target of PKR354bn under these heads.Budget FY14 Deficit financing plans  Finance Minister has expressed government’s plan to focus on international capital raising via divestment. Govt. Financing of fiscal deficit PKR bn External loans External grants Local bank Local non-bank Privatization FY13BE 22 109 484 487 - FY13RBE (19) 29 1. recovery of backlog of PTCL privatization proceeds and potential privatization deals. Foundation Research. Since passage of 18th amendments.

182 80 1.918 Δ% 25% 22% 23% 4% 19% 22% 15% 21% 23% 19% 926 545 209 716 2.029 570 367 753 2.125 712 2.228 2.381 120 3 2. June 2013 FY13BE 932 1.778 FY13RBE 779 1.Budget FY14 PKR bn REVENUE RECEIPTS Direct Taxes Indirect Taxes FBR Taxes Petroleum Levy Other Taxes Tax Revenues Non-Tax Revenues Gross Revenue Receipts Less: Provincial share Net Revenue Receipts EXPENDITURES Debt Servicing Defense Subsidies Others Current Expenditure PSDP Est.237 1.102 4.499 2.007 115 3 2.7% 23.8% 22.616 FY14BE 976 1.720 851 (463) 388 107 354 3.475 120 3 2.155 (615) 540 172 50 3.650 6.570 1.459 1.001 12% 10% -35% 7% 4% 36% NA 33% 39% 60% NA 1% -14% -137% -18% -28% 13% 8 .221 1. operational shortfall Provincial PSDP Federal PSDP Other development expenditure Others Total Expenditures Federal Fiscal Deficit Change in provincial cash balances Consolidated budget deficit as % of GDP GDP Source: MoF.829 1.420 1. Foundation Research.598 822 3.3% 26.591 1.673 23 1.502 1.960 1.154 627 240 808 2.504 733 3.396 873 (513) 360 154 50 2.954 (62) 2.909 1.837 1.016 8.449 2.655 1.

 An adjustable withholding tax to be levied on renewal of license fee on cable operators and other electronic media. Tax on dividends received by banks from money market funds and income funds to be 25% from year 2014 onwards. All manufacturers are liable to collect adjustable WHT from distributors.3% (previously 0.000 per episode of TV plays. collected by Pakistan Electronic Media Regulatory Authority (PEMRA).  An adjustable withholding tax is being introduced which shall be collected by hotels/marriage halls from persons arranging functions.   Rate of withholding tax on cash withdrawals from banks has been raised to 0. Adjustable WHT has been levied on imported movies at the rate of PKR1mn per film and PKR100. 9 .2% in FY13) Builders and developers to pay minimum tax of PKR25 per sq ft if the constructed area is sold and PKR50 per sq yd of the area sold of developed land.Key taxation measures Not much of a populist budget   General sales tax to be raised by 1% from 16% to 17%.   Rates of tax on motor vehicle registration to be raised in line with inflation. dealers and wholesalers (the WHT is restricted to certain items).

10 . Three tier structure of FED on cigarette chargeability to be replaced by two tier structure. Exemption of FED on hydraulic cement and services provided by AMCs is being withdrawn. FED 10% (Ad valorem) on motor vehicle of cylinder capacity of 1800cc or above is being charged. Transaction of margin financing. trade financing and lending shall be subject to WHT of 10% of profit/markup/interest earned (collected by NCCPL). The FED chargeability on all financial services falling in PCT 98.   Sale of any item by auction would be subject to adjustable advance tax of 10% instead of 5%. The rate of FED on aerated beverages to be raised from 6% to 9%.13 is 16%. An adjustable advance tax of 5% is levied on fee of all educational institutions where annual fee is above PKR200.5% to 1% of turnover.Key taxation measures   The minimum tax in case of losses has been raised from 0.000. Initial depreciation rate to be reduced from 50% to 25% for plant and machinery to rationalize taxation.        WHT on payments of prize bond to be increased to 15% from 10%.

0 4.1 7.0 4.0 6.2 1.6 FY12-13R 265.4 Δ% -38% -35% N/A 45% 129% 0% -69% -35% 11 .0 1.2 367.0 84.5 FY13-14B 165. June 2013 FY12-13B 135.3 0.0 5. Foundation Research.3 6.0 4.0 50.8 6.0 9.3 240.1 55.5 208.Subsidies are proposed to see a sharp decline Budget Subsidies (PKRbn) WAPDA KESC TCP PASSCO Oil refineries USC Others Total Source: MoF.7 6.

155bn (up by 36% YoY) which is 3.0 873.  The government has allocated PKR115bn to the new development initiatives (up by 100% YoY).400 increased to PKR1.0 615.0 1.0 Δ% 39% 33% 36% 12 .PSDP Highlights Key measures  The size of Public Sector Development Program (PSDP) has been 1.  The other development expenditure has been set at PKR172bn (rose by 12% YoY).0 851. June 2013 FY12-13B Federal PSDP Provincial PSDP Total 360.0 FY13-14B 540. 200 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Federal PSDP Provincial PSDP Source: Foundation Research.155.0 463. 1.200 Fig 4: Historical growth trends in PSDP (PKR bn)  The federal portion has augmented by 39% YoY to PKR540bn while provincial PSDP witnessed an increase of 33% to PKR615bn.0 FY12-13R 388.000 800  Physical infrastructure allocated 47% of federal PSDP (PKR256bn) 600 whereas social sector allocations stand at 19%of federal PSDP 400 (PKR100bn). 1.0 513.4% of GDP.

Ambitious development plan: PKR1. 13 . PSO) and other manufacturing companies via higher electricity generation. banks and E&Ps. Key measures Corporate tax rate reduced to 34%: In a surprisingly positive move. plans are lacking.1trn development plan target set for FY14. higher govt. the measure will benefit both energy companies. The reduction in tax rate will bring Pakistan’s corporate tax rate closer to levels prevailing in regional peers.Stock Market Positive Largely supportive to corporate earnings Impact Positive: Though two heavy-weight sectors i. the reduction in rate would still benefit a large number of companies. Positive: While details on govt. the government has decided to reduce corporate tax rate to 34% in FY14 and progressively reduce it to 30% within five years. spending will drive up economic activity and may create demand for other sectors. (direct earnings/cash payout impact on index-heavy weight OGDC. water and transportation sectors. Positive: Details suggest the outlay will be concentrated in energy. While cement and energy companies will emerge as direct beneficiaries. highest in Pakistan history. Circular debt resolution targeted within 60 days: Finance Minister has re-iterated government commitment to eliminate circular debt within two months.e. will not benefit from the proposed tax rate cut.

We understand OMCs and Refineries are required to pay only 0. Interestingly. Negative: Our discussion with tax expert suggests the levy is also applicable on shares. Given the very nature of levy being wealth tax. Negative: While large number of sectors are enjoying healthy margins which provide them the cushion from higher tax incidence. however.Stock Market Positive CGT ordinance incorporated in the Finance Act Impact Neutral : Applicability of tax being debated as final liability or adjustable towards normal tax rate. it remains to be seen if the levy would also be applicable on share trading. trade financing and lending to be taxed at 10% withholding tax. we think it is unlikely to be imposed on share trading. autos appear to be the sole sector which can face higher effective tax rate.5% levy on moveable property imposed: Finance Bill has proposed levy of 0. In case it is final liability . Key measures Margin Financing to attract 10% withholding tax: Income from margin financing. Neutral: The estimated increase in our prices is nominal and can easily be passed down to end-consumers hence leaving corporate earnings unharmed. Minimum turnover tax at 1%: Earlier turnover tax was set at 0.5% turnover tax.5% for income support program with collection target of PKR6bn 14 . dairy products are still outside he GST ambit.5% in Budget 2013 which has been lifted to 1% in Budget 2014. 0. we see increased funding for leveraging of stock purchase due to better tax incentive. GST hike to 17%: One of the easiest way to lift tax collection is via higher incidence of indirect taxes.

Sector wise Impact Sector Exploration & Production Banks & Insurance Companies Cement IPPs Autos Telecom Fertilizers Oil Marketing & Refining Companies Textiles FMCG Budget impact Positive Neutral Positive Positive Negative Positive Negative Positive Neutral Negative Gainers OGDC/PPL None All HUBC None PTCL None PSO None None 15 .

155bn (Federal component PKR540bn and Provincial component PKR615bn). however.Cement Positive Sector in limelight Impact Neutral: Maintaining current level of FED will provide support to those cement manufacturers who are relying more on local sales. Positive: Higher allocation of PSDP at both levels will boost the local cement demand.5%: Loss making companies or those companies whose tax payable on declared income is less than the minimum tax will bear 1% tax on turnover. 36% higher than revised FY13 budget allocation. Winners: ALL Key measures FED remained unchanged: Federal Excise Duty (FED) has been kept at the level of PKR400/ton. despite speculation/rumor of increase by PKR350/ton. actual PSDP utilization will remain a key challenge. Negative: Increase in GST will reduce the margins of the manufacturers initially as it can not be passed on immediately to the consumers. PSDP allocation: Public Sector Development Program (PSDP) fund size is PKR1. 16 . Negative: It will increase the tax liability of those cement companies who are already incurring losses. Increase in GST by 1%: General sales tax (GST) on local sales has augmented by 1% to 17%. Turnover tax restored to 1% from 0.

Sector in limelight Impact Winners: ALL Positive: It will reduce the tax burden of the cement companies who will bear the cost.1%: Adjustable withholding tax applicable on dealers shrunk from 0. Negative: It will affect the profitability of the cement manufacturers as the cost will be borne by them.5% to 0. 2% tax on taxable supplies: Further 2% tax on taxable supplies will be imposed on unregistered persons. Positive: The housing scheme will bolster the local cement consumption.Cement…continued Positive Key measures Dealers’ margin reduced to 0.5bn. Housing scheme for low and lower-middle classes: At least 1000 colonies with 500 houses each will be developed for which the government has kept a provision of PKR3. 17 .1%.

Historically.6x (excluding earnings upside via circular debt).5% MTR as stipulated by relevant tax laws.Oil Marketing Companies & Refineries Positive Rerating via removal of overhang of circular debt Impact Circular debt has been the most important drag on both earnings and valuation of downstream companies. 18 . especially PSO. We see re-rating in the stock to continue for now. however no measures defined till now. has not provided details on plans. assuming circular debt is completely resolved . PSO stock price has seen healthy run-up of 51% in anticipation of govt. we see higher chances of government delivering on its commitment by providing near-term relief. Winners: PSO Key measures Circular debt settlement: Resolution of circular debt within 60days to be delivered. While the govt. plans and currently trades at FY14E P/E of 5. We understand both refining and oil marketing companies are not required to pay higher turnover tax and will only pay 0.5x since 2009. In terms of numbers. Minimum turnover tax increased to 1% but OMCs are not affected. PSO has traded at P/E band of 4-4. we see earnings upside of as much as of PKR15/sh or 27% of FY14E EPS.

19 . 24% lower than the revised estimate of FY13. However. it is impossible to bring the power sector on track without tariff rationalization. Tariff rationalization: The government is expected to increase the power tariffs in near future. and hence improve their liquidity position which in turn would reduce the demand for government support through subsidy.74/Kwh. no measures defined till now. Circular debt settlement: Resolution of circular debt within 60days to be delivered. Positive: Such methods would promote investment in the projects that utilize wind. As per the initial media reports the government is expected to raise the electricity tariff by PKR0. is based on the fact that the companies would charge a higher tariff in the coming days. Winners: HUBC Key measures Lower subsidy for power distribution companies: The government has significantly reduced the subsidy for power distribution companies in FY14. The total subsidies allocated for FY14 are around PKR220bn (PKR165bn for WAPDA/PEPCO and PKR55bn for KESC).Power Positive Higher tariffs & circular debt elimination the only way! Impact Neutral: The decision to reduce subsidy on the power distribution companies WAPDA and KESC. however. Promotion of alternate power generation: Emphasis on streamlining and deregulating the procedure for import of renewable energy resources. Positive: An increase in tariff as per the media reports is a bitter pill for the consumers. solar and other renewable energy resources to generate power. Hence policies geared towards reduction in line losses and increase in tariffs would have positive impact on the performance. Positive: Resolution of circular debt issue would result in smoother functioning of not only the power sector but the whole energy chain. It would reduce the liquidity problem and hence short term financing costs for the whole value chain.

Dividend payout expected to remain flat: Overall dividend expectation are flat from state-owned enterprises implying cash payout expectation from Oil & Gas companies is also flat. Winners: OGDC/PPL Key measures Government set to resolve the circular debt issue: Circular debt to be resolved in 60 days (however no concrete measures. The resolution of the circular debt issue would result in lower working capital expenditure and may enhance payout especially for OGDC Neutral: The government is expected to get lower dividend income from the state owned enterprises (SOEs). Neutral : Nominal impact on cost of drilling. that the government intends to take were mentioned in his speech).Exploration & Production Positive All eyes on circular debt Impact Positive: Piling up of receivables constrain liquidity and results in short term borrowing. 20 . primarily due to lower payout from Exploration and production companies which comprise a sizable chunk of the SOEs. FED exemption: Exemption of federal excise duty on hydraulic cement removed.

We assign high probability to this event in this government tenure. Although cautious approach is recommended in the light of expected backlash by government officials and probable reversal of the proposal. the government did not announce any increase in salaries of government employees. the licensing process had been delayed and it is yet to be seen if the new government has the conviction to proceed with the auction process. 21 . Contrary to the pre budget expectations. Tentative repayment of USD800mn from the Etisalat that is due for more than 5 years. Neutral-Positive: Previously it was widely anticipated that the government would increase government officers’ salaries by 15-20%. Positive: The government has made clear its intentions to go forward with the collection of PKR80bn from Etisalat Group which have been due for over five years now. The government has estimated revenue generation of PKR120bn. Winners: PTCL Key measures The government has announced the initiation of licensing process for 3G technology. We believe it provides upside since wages take up a hefty portion of PTCL’s cost structure.Telecommunication Positive Old plans with renewed commitment Impact Positive: Although the proposal has been afloat in the last government’s tenure.

FED 16% to be charged on all financial services: To broaden tax base. Withholding tax on cash withdrawals to 0. Negative: The cost to be borne by the customers.000 (50.2%. increasing the rate to 0.000PKR2.000 loans in first year) along with Microfinance scheme (Qarz-e-hasana) of PKR5bn.Banks & Insurance Companies Neutral Focus on credit growth Impact Positive: A shift in focal point for the banking sector as govt. Neutral: The cost will be passed on to the customers.000. No decrease in corporate tax rate: Corporate tax will not be reduced for the banking sector. Promoting public saving schemes to finance deficit: Enhancing the public access to invest in government securities rather than banks. however. Neutral: No change in earnings for the banks. Dividends from AMCs to be taxed at 25%: Contrary to the widespread expectation. banking.3% from 0.3%: Keeping the limit constant at PKR50. wants to revive private sector lending and reduce reliance on investments through such schemes. 22 . taxation from AMCs remain at 25%. Negative: Deposit base of the banks to hurt along with constraining on NIMs. asset management companies etc will charge 16% FED on all financial services rendered. Winners: None Key measures Improving private sector lending: Small business loans scheme with an amount of PKR100.000 for cash withdrawals. Positive: A major relief for the banking sector as benefit of tax arbitrage still exist for banks with higher dividend from AMCs.

due to the provisioning of funds for GDS. the government has not announced an increase in GIDC.2bn in revenues.Fertilizers Neutral Status quo prevails Impact Negative: Government allocation of PKR30bn for tentative import of urea fertilizer indicates the lack of government’s conviction to improve gas allocation to the sector. Neutral: The imposition will increase the final retail price of fertilizer urea by PKR 295/ton. DAP and NP would be PKR 226. Winners: None Key measures Allocation of PKR30bn subsidy for Urea imports: This translates into ~1. According to our estimates domestic demandsupply deficit stands at 1. Neutral-Negative: Contrary to our pre-budget expectation and government’s manifesto to rationalize gas prices. The government would pocket additional ~PKR 2. The subsequent impact on CAN.34bn for Gas Development Surcharge: An increase of more than 2x from the last year’s revised estimates.5 million tons for FY14 which is in line with government subsidy set aside for fertilizer urea imports. Allocation of PKR35. Increase in imposition of GST from 16% to 17% for FY14 is although applicable across the board yet it has a moderate impact on fertilizer sector considering 1/5th share of agriculture in GDP constitution.2-1.36 million tons of Urea. we believe that the government will increase feed gas tariff for the sector going forward leading to a hike in domestic fertilizer prices. However. 23 . PKR 670 and PKR 430 on per ton basis respectively.

Caught in tax measures Impact Winners: None Negative: A marginal increase in prices will be observed however strong brand equity would dilute any consumption decrease scare. Negative: Milk producers to see a hike in prices.FMCG Neutral Key measures Federal Excise Duty on aerated beverages to increase: Rate of FED is increased to 9% from 6% on aerated beverages amid introduction of capacity based taxation. 24 . Sales tax exemption withdrawn on milk preparations: Sales tax of 17% to apply on milk preparations from replacing one or more constituent of milk by another substance. however. EFOODS to remain exempted until further clarity emerges.

50% reduction in duty for 1201cc to 1800cc and 25% reduction in duty for 1801cc-2500cc hybrid cars. Negative: Sales of used hybrid cars will outweigh the brand new hybrid cars imported by the local manufacturers. Duty reduction for hybrid cars: Complete elimination of duty of up to 1200cc. Rise in tax of purchase of motor cars and jeeps: Higher imposed rate of payment of tax for different engine capacity. as Fortuner and Hilux fall under this category. Winners: None Key measures Tax on 1800cc+ vehicles: 10% ad valorem tax on vehicles of 1800cc or above with immediate effect. Neutral: The cost will be borne by the end consumer. 25 .Automobiles Negative Policies yet again unfavorable Impact Negative: INDU to be the sole loser.

6 1.77 - - - 54.93 2.50 71.2% 7.3 7.5 9.4 7.4 3.2 6.10 11.0% 249.4 PBV (x) 2013F 1.6 8.3 5.3 2.3 6.6 4.7 6.2 14.3 1.9 5.0 1.8 6.2 7.00 6.45 12.1 0.51 6.4% 12.4 3.7% #DIV/0! 11.0% 0.6% 22.52 5.1 28.4 0.48 1.5 3.2 9.9 1.6 4.8% 27.83 13.8 32.00 2012F 6.00 2.50 9.78 15.50 8.2% 23.50 14.2 PE (x) 2013F 5.92 43.6 3.50 16.1 6.3 2.2 3.4 4.1% 26.3 2.00 22.00 15.6 5.2 5.2 2012F NA NA NA NA EV/EBITDA 2013F NA NA NA NA 2014F NA NA NA NA 2012F 7.4 4.4 5.4 5.8% 12.2% 9.5% 12.6 7.70 29.7% 6.8 4.71 53.5 2.5% 17.9% 10.8% 11.41 72.00 6.29 17.0% 4.37 509.8% 7.9 7.50 17.4 2.9 1.59 113.7 5.56 8.4 14.8% 16.8% 14.1 9.25 5.4% 3.2% 11.8% 4.9 8.7% 34.28 1.00 3.00 14.00 15.5 6.6 6.69 18.5 0.FSL Universe Snapshot Company Name MKT Price 2012F Commercial Banks Habib Bank MCB Bank National Bank United Bank Cement Attock DG Khan Lucky Fauji Cement Power Generation Hubco Kapco Oil & Gas Marketing PSO APL Oil & Gas Exploration OGDCL Pakistan Oilfields Pakistan Petroleum Automobile Assembler Indus Motor Pak Suzuki Motors Food Producers EFOODS Telecom PTCL Textile Nishat Mills Fertilizer Engro Corporation Fatima Fertilizer Fauji Fertilizer Bin Qasim Fauji Fertilizer 103.5 4.5% 2.3 6.8% 145.2% 8.4 1.00 7.0% 0.6 9.38 20.01 23.6 4.25 5.50 DPS (Diluted) 2013F 9.5 11.49 3.50 6.0 8.5 5.21 63.50 2014F 10.9 4.00 15.4 2.4 2012F 1.99 149.35 EPS (Diluted) 2013F 19.21 15.00 1.2 2.50 3.4 1.2% 4.50 7.0% 3.0% 6.1% 17.5 2.21 11.6% 16.2 4.1 1.0% 3.6 9.25 52.8% 5.44 9.0 7.59 13.7 10.9% 3.6 0.0 4.96 22.6% 9.96 2.5% 10.1 1.4 5.5% 12-Jun-13 114.00 56.5% 10.1 3.00 3.00 0.6 8.4 3.8 7.7 1.88 24.49 191.0% 9.5 1.50 7.24 8.00 7.6 3.08 4.6% 6.3 6.10 4.8 6.00 8.2 4.0% 50.88 4.1% 6.2% 3.6 2.8% 339.5 6.11 32.2 7.00 15.7 1.5 1.4 2.3 2014F 0.38 34.00 4.2 6.74 1.07 9.0 2.9% 45.0 1.6% 13.4% 5. Yld.2 6.67 16.9 9.0 2.1 3.8% 11.63 1.00 4.22 36.1% 97.4 10.2 1.9 2.3 2014F 4.9 8.42 23.2 8.0% 7.1 7.4 6.94 56.50 5.6 1.2% 4.9 12.00 3.47 1.54 15.5% 4.9 3.0% 314.9 6.1 2.0 13.9% 4.0 6.2 22.0% 20.6 5.3 21.20 2.5 9.5% 19.03 80.78 24.5 3.2 1.3 7.9 6.4 2.90 7.50 14.70 110.50 9.99 39.97 0.7 1.1% 2007A 16.79 7.9 0.0% 11.3% 6.5% 2.6 6.3% 0.9 3.00 16.00 1.50 6.00 61.1% 0.0% 2.93 3.7 1.14 15.50 6.4 5.9% 11.90 8.0 2.6 5.8 5.4 6.3 0.7 13.74 24.03 33.9% 14.5 3.6% 0.5 1.8 1.8 4.1% 19.00 - 5.33 2014F 23.3 2.0 4.8 4.82 50.8% 3.98 22.00 59.2 7.00 6.0% 5.59 9.7 6.99 8.4% 29.3 1.00 8.75 2.31 10.6 5.7% Div.9% 3.90 10.3% 4.3 5.0% 7.7 7.67 59.1 2.5 1.88 24.5 1.8 0.8 2.50 50.25 8.69 45.3 7.2 1.7 3.36 25.66 4.5 6.29 10.2% 0.1 3.8 1.52 1.9% 28.50 2.1% 1.1 10.1 5.28 1.53 50.00 0.4 6.52 17.00 7.6 3.79 7.2 3.0 2. 2013F 7.32 218.4% 32.6% 131.5 5.6% 6.87 5.1 1.89 24.3% 2.5 7.8 1.9 0.8 2.10 310.4 2.69 557.1% 63.48 1.78 16.2% 4.0% 141.0 1.3 7.00 7.9 2.97 20.0 3.6 0.00 20.3% 4.00 8.87 12.1 4.1 3.7% 2014F 8.90 9.5 7.1 11.9 0.53 33.1 2.6 7.4% 41.1% 11.61 47.1 3.1 1.5% 42.76 16.0% 0.1 1.5 15.0 1.23 15.2 1.5 5.4 0.7 0.6 4.8 4.2 2.13 25.3 4.5 0.0% 4.4% 4.1 4.9 3.53 19.83 29.1% 26 .35 7.03 2012F 8.54 28.46 54.47 10.6 4.70 66.27 5.1 4.08 6.

FSL. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not. or offer to make a purchase and/or sale of any such securities or other financial instruments from time to time in the open market or otherwise. Autos.pk +92 42 3577 6821 arehman@fs.com.pk mrameez@fs. 27 .pk rehan@fs.com. use the above material.hussain@fs. This document is for information purposes only. conclusions. Energy Banks. CFA Syed Asad Ahmed Fahad Irfan Sonia Agarwal Syed Sanakhawan Shahzad Usman Sectors Strategy .pk +92 51 3289 5221 mirfan@fs. an offer.pk Disclaimer: This report has been prepared by FSL. or solicitation of an offer.pk mansoor.com.pk sanakhawan.com.pk faisal@fs.usman@fs.com.pk asad.pk +92 21 3561 2253 +92 21 3561 2256 +92 21 3561 2259 +92 21 3563 5166 +92 21 3561 2258 +92 21 3561 0887 +92 21 3561 0820 +92 21 3563 5013 atif@fs.agarwal@fs. to the extent permissible by applicable law or regulation.pk fahad.khan@fs.com. their respective directors. This document may not be reproduced.pk siraj@fs. FMCGs Textile.hussain@fs. completeness or correctness.com.pk zubair. Telecom Database Foundation Sales Traders Karachi Atif Muhammad Khan Siraj Ebrahim Kazi Syed Rehan Ali Zubair Ghulam Hussain Faisal Khan Adnan Ahmed Usmani Muhammad Rameez Mansoor Khanani Islamabad Mohammad Irfan Lahore Atta ur Rehman PABX Email PABX +92 21 3561 2290-94 x 338 +92 21 3561 2290-94 x 311 +92 21 3561 2290-94 x 339 +92 21 3561 2290-94 x 335 +92 21 3561 2290-94 x 339 +92 21 3561 2290-94 x 312 Email fawad.Foundation Research Analysts Muhammad Fawad Khan.com. employees.Economy. Not all customers will receive the material at the same time.pk sonia. either as principal or agent.com. FSL may make markets in securities or other financial instruments described in this publication. research or analysis before such material is disseminated to its customers.com.com.ahmed@fs. officers. related persons may have a long or short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale.irfan@fs.com.pk shahzad. FSL may have recently underwritten the securities of an issuer mentioned herein. IPPs Cements Fertilizers. All such information and opinions are subject to change without notice. FSL may.com. and should not be construed as. representation or warranty.pk adnan@fs. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. distributed or published for any purposes. representatives. express or implied is made as to its accuracy.com.com. Such information has not been independently verified and no guaranty. to buy or sell any securities or other financial instruments.com. in securities of issuers described herein or in securities underlying or related to such securities.khanani@fs.

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