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!

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Contents
Sr.#
1 2 3 3.1 4 4.1 5 6 7 8 9 10 11 12 13 14

Description
Executive Summary Introduction Economic Analysis (Objective Approach) Main Cities and Their Population (2009 estimation) Economic Analysis (Subjective Approach) Political System Income Statement (Vertical Analysis) Income Statement (Horizontal Analysis) Balance Sheet (Vertical Analysis) Balance Sheet (Horizontal Analysis) Projections (Income Statement) Projections (Balance Sheet) Ratio Analysis Notes Beta, CAPM, Required & Expected Return Bibliography

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TABLE OF CONTENTS
Sr#
pg. 4

Description

Page#

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Executive Summary Introduction Economic Analysis (Objective Approach) Economic Analysis (Subjective Approach) Income Statement (Vertical Analysis) Income Statement (Horizontal Analysis) Balance Sheet (Vertical Analysis) Balance Sheet (Horizontal Analysis) Projections (Income Statement) Projections (Balance Sheet) Ratio Analysis Notes Beta, CAPM, Required & Expected Return 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

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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

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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 Date of Establishment: Founders Name: Head of the State: Head of Government: Number of Provinces:

Islamic Republic of Pakistan 14 August 1947 (27 Ramadan 1366) Quid-e-Azam Muhammad Ali Jinnah Asif Ali Zardari President of Pakistan Yousaf Raza Gilani Prime Minister of Pakistan

• • • •
Disputed Territory: Capital of the Country Major Spoken Language:

Balochistan North West Frontier Province (NWFP) Punjab Sindh

Kashmir Islamabad

• • • • • • •
GDP and growth rate: GNP: GDP Per capita income: Poverty rate: Unemployment Rate: Inflation Rate

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

$170 Billion (5.88 %.) $30.99 Billion $1085 28% 8% 24.4%

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Literacy Rate:

49.9%

Member of the International Organizations:

• • • • • • Exports: Imports: Foreign Reserves:

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). $19.22 Billion $30.99 Billion $10 Billion $5.19 Billion Pakistani Rupee (Rs) PKR 49.9% 803,940km2 8%

Foreign Direct Investment: Currency: Literacy Rate: Area: Unemployment Rate:

Population of the Main Cities of Pakistan
Rank City Province Population Rank City Province Population

pg. 9

1 2 3 4 5 6 7 8 9 10

Karachi Lahore Faisalabad Rawalpindi Multan Hyderabad

Sindh Punjab Punjab Punjab Punjab Sindh

12,827,927 6,936,563 2,793,721 1,933,933 1,566,932 1 536 398 1,526,168 1,390,874 859,973 673,766

11 12 13 14 15 16 17 18 19 20

Gujranwala Punjab Peshawar NWFP Quetta Balochistan Islamabad Islamabad

Sargodha Bahawalpur Sialkot Sukkur Larkana Shekhupur a Jhang Mardan Rahim Yar Khan Gujarat

Punjab Punjab Punjab Sindh Sindh Punjab Punjab NWFP Punjab Punjab

586,922 530,438 502,721 476,776 435,817 411,834 365,198 340,898 340,810 328,512

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

involving the given resources costs and

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
Agriculture

2006-7
1.1

2007-8
0.3

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Industry  Manufacturing  Other industry

1.8
1.6 1.2

1.2
1.0 0.2

Services REAL GDP

4.2 7.0

4.2 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.

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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 2008 6.5 8

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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 mid1990s, 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

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

Year
2007-08 2008-09

GNP In Amounts
10172048 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

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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. Doubledigit 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 Pakistan

and

Supply

of

POL

Products

in

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

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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 Capital work-in-progress Stores and spares held for capital expenditure NON CURRENT ASSETS LONG TERM INVESTMENTS LONG TERM LOANS AND DEPOSITS DEFERRED TAXATION CURRENT ASSETS Stores, spares and loose tools Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances TOTAL ASSETS no of shares FIXED ASSETS PROPERTY, PLANT AND EQUIPMENT Operating assets Capital work-in-progress Stores and spares held for capital expenditure NON CURRENT ASSETS LONG TERM INVESTMENTS LONG TERM LOANS AND DEPOSITS DEFERRED TAXATION CURRENT ASSETS Stores, spares and loose tools Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances TOTAL ASSETS no of shares

2,945,709 220,546 77,696 3,243,951 8,622,914 11,614 137,806 585,992 3,523,808 4,675,133 263,473 8,031,594 17,080,000 29,096,285 45,490

2,730,262 217,683 20,190 2,968,135 9,261,339 10,954 157,756 630,836 3,852,646 6,234,918 0 191,255 8,880,114 19,789,769 32,187,953 56,862

2,459,520 442,431 27,701 2,929,652 13,135,579 12,732 219,302 542,500 4,844,853 9,207,238 0 244,695 18,944,632 33,783,918 50,081,183 71,078

2,945,709 220,546 77,696 3,243,951 8,622,914 11,614 137,806 585,992 3,523,808 4,675,133 263,473 8,031,594 17,080,000 29,096,285 45,490

2,730,262 217,683 20,190 2,968,135 9,261,339 10,954 157,756 630,836 3,852,646 6,234,918 0 191,255 8,880,114 19,789,769 32,187,953 56,862

2,459,520 442,431 27,701 2,929,652 13,135,579 12,732 219,302 542,500 4,844,853 9,207,238 0 244,695 18,944,632 33,783,918 50,081,183 71,078

pg. 30

pg. 31

Profit & loss:

ATTOCK REFINERY
Sales Less: Discount 2005 2006 2007 2008 Rs '000 Rs '000 Rs '000 Rs '000 41,606,17 55,828,13 59,154,78 91,910,70 4 8 0 3 0 0 46,248 0 41,606,17 55,828,13 59,108,53 91,910,70 4 8 2 3 133,460 41,739,63 4 39,190,42 5 2,549,208 166,626 162,209 30,050 218,870 577,755 1,971,453 218,088 2,189,541 1,040,444 1,149,097 73,498 234,236 56,062,37 4 55,490,68 0 571,694 183,299 13,780 498,425 67,912 763,415 (191,721) 627,083 435,362 354,844 80,518 223,188 355,393 59,463,92 5 58,597,68 8 866,237 175,108 16,716 246,545 102,151 540,520 325,717 635,166 960,883 456,550 504,333 1,743,602 93,654,30 5 89,646,37 3 4,007,932 199,336 19,140 1,244,373 235,711 1,698,560 2,309,372 577,851 2,887,223 879,653 2,007,570

Reimbursement due from the Government under import parity pricing formula

Less: Cost of sales Gross profit Less: Administration expenses Distribution cost Finance cost Other charges

Other income Profit before taxation from refinery operations Provision for taxation Profit after taxation from refinery operations Profit after taxation from non-refinery operations Gain on sale of shares of an associated company Dividend income Profit for the year Earnings per share – Basic (Rs) Refinery operations Non-refinery operations

0 244,652 244,652 748,985

3,762,775 377,429 4,140,204 6,147,774

73,498 1,222,595

223,188 303,706

26.88 26.88

6.68 6.68

7.1 3.44 10.54

28.24 58.25 86.49

pg. 32

Horizontal Analysis

(Balance sheet)

HORIZANYAL ANALYSIS YEAR TO YEAR INDEX INDEX TREND ANALYSIS 2006 SHARE CAPITAL AND RESERVES Share capital Authorised Issued, subscribed and paid-up Reserves and surplus 1,000,000 30% 8% 11% SURPLUS ON REVALUATION OF FREEHOLD LAND SURPLUS ON REVALUATION OF PROPERTY PLANT AND EQUIPMENT DEFERRED LIABILITIES long term loans Provision for staff gratuity CURRENT LIABILITIES AND PROVISIONS current maturity of long term loans liability against asset subject to finance lease Trade and other payables Provision for taxation CONTINGENCIES AND COMMITMENTS TOTAL LIABILITIES 17% 5270% -100% 13% -98% 13% 13% 117% 5370% 132% 132% 149% 149% -100% 1,000,000 25% 25% 25% 0% 1,000,000 25% 180% 157% 0% 0% 0% 0% 1,000,000 130% 108% 111% 1,000,000 163% 135% 139% 1,000,000 203% 378% 356% 2007 2008 2006 2007 2008

7%

15%

104%

107%

123%

250%

-100% 51% -36% 51%

-100% 0% 35% 35% 28% 44% 66% 45% 151% 64% 151% 0% 204% 87% 193% 0% 294% 144% 281%

58%

11%

56%

158%

175%

273%

pg. 33

FIXED ASSETS PROPERTY, PLANT AND EQUIPMENT Operating assets Capital work-in-progress Stores and spares held for capital expenditure NON CURRENT ASSETS LONG TERM INVESTMENTS LONG TERM LOANS AND DEPOSITS DEFERRED TAXATION CURRENT ASSETS Stores, spares and loose tools Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances TOTAL ASSETS

-7% 81% 59% -3% 258% -4% 49%

-7% -1% -74% -9% 7% -6% 14%

-10% 103% 37% -1% 42% 16% 39%

93% 181% 159% 97% 358% 96% 149%

86% 179% 41% 88% 384% 91% 170%

77% 364% 57% 87% 545% 106% 237%

8% 68% 12%

8% 9% 33%

-14% 26% 48%

108% 168% 112%

117% 183% 149%

100% 231% 220%

38% 47% 37% 58%

-27% 11% 16% 11%

28% 113% 71% 56%

138% 147% 137% 158%

101% 162% 158% 175%

129% 346% 270% 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

2006 Base year Sales Less: Discount Reimbursement due from the Government under import parity pricing formula Less: Cost of sales Gross profit Less: Administration expenses Distribution cost Finance cost Other charges 134% 134%

HORIZANYAL ANALYSIS 2007 2008 2006 2007 Index trend 142% 142% 221% 221% 34% 34% 6% 6%

2008

55% -100% 55%

176% 134% 142% 22% 110% 8% 1659% 31% 132% -10% 288% 20% 34% 7% 304%

266% 142% 150% 34% 105% 10% 820% 47% 94% 17% 291% 44% 44% 44% 0%

1306% 224% 229% 157% 120% 12% 4141% 108% 294% 117% 265% 132% 85% 175% 0%

76% 34% 42% -78% 10% -92% 1559% -69% 32% -110% 188% -80% -66% -93% 204%

52% 6% 6% 52% -4% 21% -51% 50% -29% -270% 1% 121% 29% 526% -100%

391% 57% 53% 363% 14% 15% 405% 131% 214% 609% -9% 200% 93% 298%

Other income Profit before taxation from refinery operations Provision for taxation Profit after taxation from refinery operations Profit after taxation from non-refinery operations Gain on sale of shares of an associated company Dividend income Profit for the year Earnings per share – Basic (Rs) Refinery operations

304% 25% -75%

333% 61% 6%

5633% 503% 298%

204% -75% 25%

10% 147% 26%

54% 1592% 721% 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 SHARE CAPITAL AND RESERVES Share capital Authorized Issued, subscribed and paid-up Reserves and surplus 2006 IN % 1,000,00 0 1.6% 9% 10.4% 7% 0.000 7% 12% 0.3% 12% 4% 0.00 65% 3% 71% 100% 2007 2008

1,000,00 0 2% 13% 15% 0.00 10% 25%

1,000,00 1,000,000 0 2% 1% 10% 18% 12% 19% 6% 0.000 6% 0.000 0.3% 0.3% 0.000 0.000 79% 3% 82% 100% 4% 0.000 4% 0.000 0.2% 0.2% 0.000 0.000 73% 3% 77% 100%

SURPLUS ON REVALUATION OF FREEHOLD LAND SURPLUS ON REVALUATION OF PROPERTY PLANT AND EQUIPMENT

DEFERRED LIABILITIES long term loans Provision for staff gratuity CURRENT LIABILITIES AND PROVISIONS Current maturity of long term loans Liability against asset subject to finance lease Trade and other payables Provision for taxation
CONTINGENCIES AND COMMITMENTS

0.00 0.35% 0.35% 0.000 0.16% 68% 6% 74% 100%

TOTAL LIABILITIES

pg. 38

FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT

Operating assets Capital work-in-progress Stores and spares held for capital expenditure NON CURRENT ASSETS LONG TERM INVESTMENTS LONG TERM LOANS AND DEPOSITS DEFERRED TAXATION CURRENT ASSETS Stores, spares and loose tools Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances TOTAL ASSETS

17% 1% 0% 18% 0% 13% 0% 1% 3% 11% 23% 0% 1% 30% 68% 100%

10% 1% 0% 11% 0% 30% 0% 0% 2% 12% 16% 0% 1% 28% 59% 100%

8% 1% 0% 9% 0% 29% 0% 0% 2% 12% 19% 0% 1% 28% 61% 100%

5% 1% 0% 6% 0% 26% 0% 0% 1% 10% 18% 0% 0% 38% 67% 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 IN % Sales Less: Discount Reimbursement due from the Government under import parity pricing formula Less: Cost of sales Gross profit Less: Administration expenses Distribution cost Finance cost Other charges 0.32 94.19 6.13 0.40 0.39 0.07 0.53 1.39 4.74 Other income Profit before taxation from refinery operations 0.52 5.26 0.42 99.40 1.02 0.33 0.02 0.89 0.12 1.37 (0.34) 1.12 0.78 0.60 99.06 1.46 0.30 0.03 0.42 0.17 0.91 0.55 1.07 1.62 1.90 97.54 4.36 0.22 0.02 1.35 0.26 1.85 2.51 0.63 3.14 100.00 0.00 100.00 100.00 0.00 100.00 100.00 0.08 99.92 100.00 0.00 100.00 2007 2008

pg. 41

Provision for taxation Profit after taxation from refinery operations Profit after taxation from non-refinery operations Gain on sale of shares of an associated company Dividend income Profit for the year

2.50 2.76 3.73 0.00 0.00 0.18 2.94

0.64 0.14 (116.41) 0.00 0.00 0.40 0.54

0.77 0.85 0.00 0.00 0.41 0.41 1.27

0.96 2.18 0.00 4.09 0.41 4.50 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.#
1 2 3 4 5 6 7 8 9 10 11 12

RATIOS
Current Ratio Quick Ratio Inventory Turnover Ratio Asset Turnover Ratio Fixed Turnover Ratio Days Sales Outstanding Total Debt To Total Asset Ratio Time Interest Earned Ratio Profit Margin On Sale Basic Earning Power Ratio Return On Equity Return On Assets

FORMULA
current asset/current liabilities current asset - inventory/current liabilities sales/average inventory sales/average total assets sales/average fixed assets average inventory/cost of sales/360 current liabilities + long term liabilities/total asset earning before interest and expense/interest expense net income/sales earning before income tax/total assets net income/average shareholder's equity net income/total assets

2006
0.83 0.66 19.85 2.35 16.92 18.24 0.83

2007
0.75 0.60 19.87 2.34 18.71 18.29 0.82

2008
0.88 0.75 26.47 2.69 29.25 13.95 0.77 times

days

16.92 18.71 29.25 times
0.005 4 0.01 0.06 0.01 0.012 7 0.03 0.13 0.02 0.066 9 0.06 0.53 0.12 % Per share % %

Ratio analysis:

pg. 43

Liquidity Ratios:

Years Current Ratio Quick Ratio

2008 0.88 0.75

2007 0.75 0.60

2006 0.83 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 Inventory turnover Total Asset Turnover Fixed Asset Turnover Days Sales Outstanding

2008 26.47 2.69 29.25 13.95

2007 19.87 2.34 18.71 18.29

2006 19.85 2.35 16.92 18.24

Interpretation:
Asset management ratio shows that companies is utilizing its assets in a very effective

Inventory sold by the company within 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.
manner and recover its receivables timely.

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 Total Debt to Total Assets

2008 0.77

2007 0.82

2006 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 Profit Margin On Sales Basic Earning power Ratio

2008 7% 0.01

2007 1% 0.03

2006 1% 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 Return on Equity Return on Assets 2008 54% 12% 2007 13% 2% 2006 6% 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 Rate
2,008 Rs '000

1.32 2,009 2010
Pre adjustment After adjustment

as on 31 June

Pre adjustment Rs '000

After adjustment Rs '000

SHARE CAPITAL AND RESERVES Share capital Authorized Issued, subscribed and paid-up Reserves and surplus 1,000,000 710,775 8,988,216 9,698,991 SURPLUS ON REVALUATION OF FREEHOLD LAND DEFERRED LIABILITIES long term loans 5,520 Provision for staff gratuity 96,889 96,889 CURRENT LIABILITIES AND PROVISIONS current maturity of long term loans Short term finance Trade and other payables Provision for taxation 0 36,688,922 1,673,042 38,361,964 CONTINGENCIES AND COMMITMENTS TOTAL LIABILITIES TOTAL LIABILITIES & EQUITES 0 36,688,922 2,205,707 38,894,629 0 36,688,922 2,205,707 38,894,629 0 36,688,922 2,907,962 39,596,884 0 36,688,922 2,907,962 39,596,884 96,889 96,889 96,889 11,932,409 11,83 520 96,889 11,932,409 11,835, 7,286 96,889 27,574,175 27,47 1,923,339 11,622,330 1,000,000 710,775 8,988,216 9,698,991 1,923,339 11,622,330 1,000,000 1,295,875 11,979,830 13,275,705 1,923,339 15,199,044 1,000,000 1,295,875 11,979,830 13,275,705 1,923,339 15,199,044 1,000,000 2,061,036 15,892,099 17,953,135 1,923,339 19,876,474

38,458,853 50,081,183

38,991,518 50,613,848

50,827,038 66,026,082

51,529,293 66,728,337

67,171,060 87,047,533

pg. 49

FIXED ASSETS PROPERTY, PLANT AND EQUIPMENT Operating assets Capital work-in-progress Stores and spares held for capital expenditure NON CURRENT ASSETS LONG TERM INVESTMENTS LONG TERM LOANS AND DEPOSITS DEFERRED TAXATION CURRENT ASSETS Stores, spares and loose tools Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Cash and bank balances TOTAL ASSETS 542,500 4,844,853 0 244,695 715,222 6,387,362 0 322,601 715,222 6,387,362 0 322,601 942,935 8,420,977 0 425,311 942,935 8,420,977 16,003,363 0 425,311 32,928,205 58,720,792 87,047,533 13,135,579 17,317,698 12,732 219,302 16,786 289,124 17,317,698 22,831,325 16,786 289,124 22,130 381,175 22,831,325 22,130 381,175

2,459,520 442,431 27,701 2,929,652

3,242,585 583,293 36,520 3,862,398

3,242,585 583,293 36,520 3,862,398

4,274,962 769,002 48,148 5,092,112

4,274,962 769,002 48,148 5,092,112

9,207,238 12,138,648

12,138,648 16,003,363

18,944,632 24,976,243 33,783,918 44,540,077 50,081,183 66,026,082

24,976,243 32,928,205 44,540,077 58,720,792 66,026,082 87,047,533

2009

2010

2011

pg. 50

AFN Capital Structure =Total debt/(Total debt + Total equity) finance cost AFN*debt % AFN Equity Rate Of Debt Finance Cost/Interest bearing fund Finance cost = Finance cost-Exchange losses Interest bearing fund Rate of debt No of Shares Financing cost 2008 capital reserve Premium

15,412,234

20,319,196

26,815,443 0.771659541

0.767930202 0.769802423

11835520 3,576,714

15641766 4,677,430

20692393 6,123,051

4,129 6,630,615 0.0623% 58,510 7,370 585100 2991614

11,499 8,752,412 0.1314% 76,516 20,551 765161 3912269

32,050 11539014 0.2778% 100,164 57,473 1001644 5121407

Growth Rate:

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

Growth Rate

Profit & loss projections:
pg. 51

For the Year ended 2008 Rs '000 Sales Less: Discount Reimbursement due from the Government under import parity pricing formula Less: Cost of sales Gross profit Less: Administration expenses Distribution cost Finance cost Other charges 91,910,703 0 91,910,703

Pre Adjustment 2009 Rs '000 121,322,128 0 121,322,128 0 2,301,555 123,623,683 118,333,212 5,290,470 263,124 25,265 1,244,373 311,139 1,843,900 3,446,570 762,763 4,209,334 879,653 3,329,681

After adjustment 2009 Rs '000 121,322,128 0 121,322,128 0 2,301,555 123,623,683 118,333,212 5,290,470 263,124 25,265 1,251,743 311,139 1,851,270 3,439,200 762,763 4,201,964 1,280,216 2,921,747

Pre adjustment 2010 Rs '000 160145208.9 160,145,209

After Adjustment 2010 Rs '000 160145208.9 160,145,209 0 3,038,052 163,183,261 156,199,840 6,983,421 347323.0464 33349.536 1,272,294 410702.8 2,063,669 4,919,752 1006847.582 5,926,599 1,805,663 4,120,937

1,743,602 93,654,305 89,646,373 4,007,932 199,336 19,140 1,244,373 235,711 1,698,560 2,309,372 577,851 2,887,223 879,653 2,007,570

3,038,052 163,183,261 156,199,840 6,983,421 347323.0464 33349.536 1,251,743 410702.8 2,043,118 4,940,302 1006847.582 5,947,150 1,280,216 4,666,934

Other income Profit before taxation from refinery operations Provision for taxation Profit after taxation from refinery operations Profit after taxation from non-refinery operations Gain on sale of shares of an associated company Dividend income Profit for the year

3,762,775 377,429 4,140,204 6,147,774

4,966,863 498,206 5,465,069 8,794,750

4,966,863 498,206 5,465,069 8,386,817

6556259.16 657632.2896 7,213,891 11,880,825

6556259.16 657632.2896 7,213,891 11,334,828

Profit & loss projection for year 2011
pg. 52

For the Year ended

Sales Less: Discount Reimbursement due from the Government under import parity pricing formula Less: Cost of sales Gross profit Less: Administration expenses Distribution cost Finance cost Other charges

Pre After adjustment adjustment 2011 2011 Rs. 000 Rs. 000 211,391,676 211,391,676 211,391,676 4,010,229 215,401,905 206,183,789 9,218,115 458,466 44,021 1,272,294 542,128 2,316,909 6,901,206 1,329,039 8,230,245 1,805,663 6,424,582 8,654,262 868,075 9,522,337 15,946,919 211,391,676 4,010,229 215,401,905 206,183,789 9,218,115 458,466 44,021 1,304,343 542,128 2,348,959 6,869,157 1,329,039 8,198,195 2,497,752 5,700,443 8,654,262 868,075 9,522,337 15,222,780

Other income Profit before taxation from refinery operations Provision for taxation Profit after taxation from refinery operations Profit after taxation from non-refinery operations Gain on sale of shares of an associated company Dividend income Profit for the year

Tax Rate

pg. 53

tax rate

2009 30.5%

2010 30.47%

2011 30.47%

Calculation of AFN

BETA OF THE COMPANY (ARL):
pg. 54

Stock Rates
SR DATE OPEN
CLOSING

KSE 100 Index
OPEN
5,793.57

y
stock return

x
market return

x*y
S.R*M.R

y2
S.R2

x2
M.R2

CLOSING

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

5-Jan-09 12-Jan-09 15-Jan-09 23-Jan-09 28-Jan-09 4-Feb-09 9-Feb-09 13-Feb-09 19-Feb-09 20-Mar-09 26-Feb-09 2-Mar-09 9-Mar-09 13-Mar-09 18-Mar-09 24-Mar-09 30-Mar-09 6-Apr-09

55.04 60.27 61.68 45.36 42.09 42.99 47.38 46.07 55.89 58.68 53.15 56.24 71.71 67.80 73.42 72.50 84.85 92.68

57.79 58.34 58.60 43.10 43.95 45.13 49.74 48.37 58.68 56.82 54.45 59.05 75.11 66.70 75.95 76.12 89.09 97.31

5,917.90 6,041.44 5,511.93 4,929.55 5,139.93 5,534.25 5,573.48 5,625.90 6,022.44 5,969.09 5,649.49 5,681.29 5,662.02 5,750.47 6,266.00 6,674.20 7,014.81 7,518.93

5.00 (3.20) (4.99) (4.98) 4.42 4.98 4.98 4.99 4.99 (3.17) 2.45 5.00 4.74 (1.62) 3.45 4.99 5.00 5.00

2.15 (1.67) (8.91) (1.82) 3.37 2.77 (0.43) 4.20 2.42 (0.89) 1.23 (0.81) (1.50) 0.76 2.08 0.86 3.11 1.16

10.72 5.34 44.50 9.05 14.88 13.81

24.96 10.25

4.61 2.78

6,143.8 1 6,051.1 6 5,020.7 1 4,972.5 5 5,384.8 7 5,597.4 4 5,399.3 6 5,880.1 4 6,022.4 4 5,580.7 8 5,727.4 6 5,748.1 0 5,707.0 9 6,138.5 3 6,617.0 0 6,803.4 6 7,432.8 8

24.94 79.41 24.82 3.30

19.53 11.33 24.78 7.70 0.18

(2.13) 24.81 20.95 12.08 2.81 3.01

24.92 17.60 24.92 10.05 5.98 5.86 0.78 1.52 0.65 2.24 0.58 4.31 0.75 9.65 1.34

(4.03) 24.96 (7.10) 22.48 (1.23) 7.16 4.32 15.52 5.78 2.63 11.87 24.93 24.97 24.96

pg. 55

19 20 21 22 23 24 25 26 27 28 SUM Averages

9-Apr-09 13-Apr-09 22-Apr-09 27-Apr-09 4-May-09 12-May-09 15-May-09 19-May-09 25-May-09 29-May-09

105.0 3 115.7 9 130.6 7 133.6 5 123.2 6 130.0 9 122.8 5 122.7 2 122.4 2 126.4 8

110.28 121.57 137.20 126.97 117.55 136.11 122.00 119.99 127.12 127.18

7,340.3 0 7,617.9 6 7,834.1 4 7,620.8 7 7,020.1 0 7,122.9 2 7,142.4 1 7,172.8 5 7,146.2 4 7,288.1 3

7,295.98 7,872.49 7,574.17 7,344.94 7,062.25 7,296.90 7,177.64 7,067.72 7,173.57 7,276.61

5.00 4.99 5.00 (5.00) (4.63) 4.63 (0.69) (2.22) 3.84 0.55 53.46 1.91

(0.60) 3.34 (3.32) (3.62) 0.60 2.44 0.49 (1.47) 0.38 (0.16) 6.18 0.22

(3.02) 24.99 16.68

0.36

24.92 11.16

(16.58) 24.97 11.01 18.10 24.98 13.11 0.36 5.97 0.24 2.15 0.15 0.02 199

(2.78) 21.46 11.30 (0.34) 3.26 1.47 (0.09) 183.41 21.41 0.48 4.95 14.74 0.31 520

n xy - ( x)( y) n (x2 )-( x)2

BETA

=

BETA

BETA Risk Free Rate = Avg. Stock Return = Stock Market Return =

0.87 12.5 1.91 = 0.22

=

4,805.1 3 5,537.0 6 0.87

CAPM =

19.27

pg. 56

Alpha Expected return expected>required expected> rf

1.7 19.3 TRUE TRUE

Company
ATTOCK REFINERY

Rf

Expected Return 12.5 19.33

CAPM 19.27

Alpha 1.72

Decision

Status

Acceptabl Accepted 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 Net investment Return Income in 2009 New common shares EPS 19.33 1,000,000 193,345 8,386,817 769,285 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/marketdata/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

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