CROSBY

SECURITIES
OCTOBER 23, 2009 Madeeha Akhtar Sui Northern Gas Pipelines Limited Valuation We initiate coverage on SNGPL with a BUY recommendation and a target price of PKR 36.34 per share, reflecting an upside potential of 33%. The stock is trading at a PE multiple of 6x for FY10F. SNGPL has underperformed the benchmark index, yielding a return of 27% as compared to the KSE-100’s healthy return of 66%YTD. Profitability Analysis SNGPL has posted a net Profit After Tax (PAT) of PKR 931mn for FY09 (EPS: PKR 1.69) as compared to PAT of PKR 2,497mn (EPS: PKR 4.55) over the corresponding period last year registering a significant decline of 60%. Unaccounted For Gas (UFG) and huge exchange losses led to this dismal performance . In FY10, we expect the profitability to improve considerably because of the drop in Weighted Average Cost Of Gas (WACOG) over the first half of the year. UFG Losses … A Drain on Earnings Adjustments are made to the guaranteed return by the OGRA on account of UFG losses in excess of the allowed targets. In FY09, the benefit of higher sales and an increase in asset base was dented by excessive UFG losses which amounted to PKR 6,283mn. The hit on account of the UFG losses was exacerbated by the enormous hike in WACOG. Higher UFG losses together with stringent OGRA targets have undermined the bottom line for FY09. In our future estimates, we assume that UFG losses will display a gradually declining trend. Exchange Losses Exchange losses on gas purchases increased by an exorbitant amount in FY09. However, going forward the rupee is expected to remain relatively stable against the USD. Hence, exchange losses are expected to fall sharply in FY10. Liquidity Concerns … Deferred Credit & Circular Debt Other income declined by 16% to PKR 1,210mn in FY09. This is due to drop in interest income on large cash deposits as a result of a change in the deferred credit mechanism. This together with the circular debt issue has adversely impacted the liquidity position of the company. Wellhead Gas Prices A rise in the wellhead gas prices increases WACOG and adds on to the losses on account of UFG, as was the case in FY09. Going forward, the reduction in wellhead prices is expected to clip the cost of UFG losses for SNGPL and will improve profitability. Expansion Plans OGRA has restricted the addition of fixed assets to PKR 11.4bn in FY10 as against the requested amount of PKR 18.5bn. This is quite low as compared to the record addition of over PKR 22bn that the company made to its operating fixed assets in FY09. Future Outlook It is expected that the benefit of the reduction in WACOG translating into lower UFG cost will be dampened by lower levels of other income, liquidity shortage (as a result of a change in the deferred credit mechanism) and lower asset additions approved by OGRA.

GAS DISTRIBUTION
INITIATING COVERAGE

KATS Code Reuters Code Current Price PKR Target Price PKR Upside Potential Shares Outstanding mn Paid Up Capital PKR mn Market Capitalization PKR mn Free Float

SNGP SUIN.KA 27.29 36.34 33.00% 549.11 5,491.10 14,985.21 15.00%

SNGPL - Relative Price Performance PKR / Share
SNGPL
40

KSE-100

35

30

25

20

15
Feb-09 Jul-09 Apr-09 May-09 Aug-09 Mar-09 Sep-09 Oct-09 Jun-09 Jan-09

Disclaimer: All reports and recommendations have been prepared for your information only. Summary and Analysis are not recommendation to Buy or Sell. This information should only be used by investors who are aware of the risk inherent in securities trading. The facts, information, data, indicators and charts presented have been obtained from sources believed to be reliable, but their accuracy and completeness cannot be guaranteed. Crosby Securities Pakistan Pvt. Limited and its employees are not responsible for any loss arising from use of these reports and recommendations.

.Comprehensive Analysis Profitability Analysis UFG Losses… A Drain on Earnings Exchange Losses Liquidity Concerns… Deferred Credit & Circular Debt Wellhead Gas Prices Expansion Plans Future Outlook Company Background Sector Overview Natural Gas.Initiating Coverage Table of Contents SNGPL . Leading the Way Mismatch… Growing Demand & Lagging Supply Demand Supply Plan for FY10 Help on the Way… Natural Gas Sourcing Plans Will the Benefit Trickle? Gas Distribution… The Key Players Tariff Regime… The Safety Net Required Return Calculation Key Financials of SNGPL ……………………………………… ……………………………………… 3 3 ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… 4 5 5 5 6 6 7 8 ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… ……………………………………… 9 9 11 11 11 12 12 13 14 Page 2 . 2009 GAS DISTRIBUTION Sui Northern Gas Pipelines Limited ..Investment Perspective Valuation Risks to Valuation SNGPL .CROSBY OCTOBER 23.

0% 6.0% 0. 2009 Valuation ..Investment Perspective We initiate coverage on SNGPL with a BUY recommendation and a target price of PKR 36. yielding a return of 27% as compared to the KSE-100’s healthy return of 66%YTD.. geographically tough terrains.67 16.46% 1. High pressure in the pipelines. UFG losses account for the major chunk of the drop in the company’s earnings below the required return. P/BV Valuation Growth Rate Risk Free Rate Risk Premium Beta Required Return Sustainable ROE P/BV Target Price/share 6.70 Dividend Discount Model Growth Rate 6. calculated using P/BV and Dividend Discount valuation models.Initiating Coverage SNGPL . Exchange rate risk Accelerated depreciation of the PKR can cause the company to register exchange losses on account of gas purchases as in FY09. Page 3 .98 Risks to Valuation UFG losses ...34 per share.CROSBY OCTOBER 23. Key risks to our valuation include inability to curtail UFG losses. unfavorable political conditions and the law and order situation continue to pose major challenges. higher financial charges and exchange rate risk .02% 16.. GAS DISTRIBUTION Sui Northern Gas Pipelines Limited .05 PKR 35. Financial charges SNGPL may encounter liquidity shortage as a result of a drop in the interest income on deferred credit...0x for FY10F. SNGPL has underperformed the benchmark index.34 per share.58% Required Return 18.0% Target Price/share PKR 36..58% 12. the key components of which are summarized below. Our valuation is based on an average of the target prices. reflecting an upside potential of 33% . reflecting an upside potential of 33%. varying tribal cultures. We initiate coverage on SNGPL with a BUY recommendation and a target price of PKR 36. The stock is trading at a PE multiple of 6.0% Payout Ratio 60. This would lead to greater dependence on short term borrowing and eventually disrupt profitability in the form of higher financial charges.

Comprehensive Analysis SNGPL enjoys a monopoly position in North Central Pakistan serving approximately 3. we expect the profitability to improve considerably because of the drop in Weighted Average Cost Of Gas (WACOG) over the first half of the year.000 1. In FY09. .000 500 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F FY12F Profit After Tax .PKRmn EPS and Dividend Payout EPS PKR (LHS) Dividend Payout % (RHS) Source: Company financials & CSPL Research 8. The finance costs however. The company made a record addition of over PKR 22 billion to its operating fixed assets but the benefit was masked by excessive UFG losses.. it may be noted that SNGPL has maintained a dividend payout in the range of 40%-70% over the past seven years. Also we envisage operating expenses to go down to almost half of their FY09 amounts because of the anticipated decline in exchange losses.00 40% 3.55) over the corresponding period last year registering a significant decline of 60%.. except for FY09. the company’s sales revenue increased by 36% to PKR 168.. The company is structured to earn a guaranteed rate of return of 17.5mn customers. Its profile is further enhanced by its strong. With respect to investor returns from the scrip in terms of dividend.500 3.CROSBY OCTOBER 23.000 2. 2009 GAS DISTRIBUTION Sui Northern Gas Pipelines Limited .00 1.00 0. Profitability Analysis SNGPL has posted a net Profit After Tax (PAT) of PKR 931mn for FY09 (EPS: PKR 1.00 6.500 2. Both these factors work together to reduce its business risk.00 FY04 FY05 FY06 FY07 FY08 FY09 FY10F 20% 10% 0% 90% 80% 70% 60% . In FY10. we expect the profitability to improve considerably because of the drop in WACOG over the first half of the year .33) and has not declared any final cash dividend for FY09.Initiating Coverage SNGPL .. low-leveraged balance sheet.155mn in FY08.08) against a 4QFY08 PAT of PKR 733mn (4QFY08 EPS: PKR 1. This was on the back of an increase in consumer gas prices which offset the impact of the drop in volumes. eased by 17% to PKR 653mn in FY09 due to lower levels of long term financing. Source: Company financials & CSPL Research 4.5%.00 7..00 5..934mn against PKR 124. controlling UFG losses is essential to keep its profitability afloat.69) as compared to PAT of PKR 2. which provides an inbuilt safety cushion. The company has posted a Loss After Tax (LAT) in the 4QFY09 of PKR 45mn (4QFY09 LPS: PKR 0..000 3.00 50% 4.500 1. Page 4 . In FY10..497mn (EPS: PKR 4. Healthy dividend payout in the range of 40%70% in the past .00 30% 2. However.

.378bn from WAPDA. 2009 UFG Losses . coupled with the altered deferred credit mechanism has adversely impacted the liquidity position of the company. The circular debt issue. Unaccounted for Gas (UFG) 12% OGRA UFG Band Actual UFG Source: OGRA & CSPL Research 10% 8% 6% 4% 2% 0% FY06 FY07 FY08 FY09 FY10F FY11F . whereby the upper limit is 5. The hit on account of the UFG losses was exacerbated by the enormous hike in WACOG. Liquidity Concerns . going forward the rupee is expected to remain relatively stable against the USD. This rolls into higher UFG penalties and SNGPL suffered a significant hit in FY09 on account of the increase in the disallowance percentage alone.283mn. Furthermore SSGCL has entered into an agreement with SNGPL for uniform pricing of gas. As a consequence of this agreement. This deprives SNGPL of interest income and also creates liquidity issues. thus. Exchange Losses Other expenses increased by an exorbitant 210% to PKR 2.... extension of gas mains and laying of distribution lines are now kept in special project accounts rather than company accounts. This was predominantly due to a drop in the interest income on large cash deposits as a result of a change in the deferred credit mechanism.. the benefit of higher sales and an increase in asset base was dented by excessive UFG losses which amounted to PKR 6. A Drain on Earnings GAS DISTRIBUTION Sui Northern Gas Pipelines Limited .8%.. OGRA has revised the allowable limits of the UFG losses from FY09 onwards.08bn from the Government Page 5 .283mn. However. given the company’s planned efforts to curtail them. Under this agreement. As at the year end. we assume that the UFG losses will display a gradually declining trend.Initiating Coverage Adjustments are made to the guaranteed return by the OGRA on account of UFG losses in excess of the allowed targets. The circular debt issue. In FY09..321mn under this head during the current period. Higher UFG losses together with stringent OGRA targets have undermined the bottom line for FY09. exchange losses are expected to fall sharply in FY10. In our future estimates. the benefit of higher sales and an increase in asset base was dented by excessive UFG losses which amounted to PKR 6. . The hit on account of the UFG losses was exacerbated by the enormous hike in WACOG . reducing the actual return on assets for SNGPL. coupled with the altered deferred credit mechanism has adversely impacted the liquidity position of the company.210mn in FY09. PKR 1. It had to receive PKR 2. SNGPL will also be a beneficiary in the event of the resolution of the circular debt issue. SNGPL’s receivables against the circular debt amounted to PKR 17bn.. the company with a higher weighted average cost of gas raises a demand to the other company of the amount necessary to equalize the cost of gas for both companies....CROSBY OCTOBER 23. leaving it with negative working capital. SSGCL has raised a demand of PKR 28. Huge payables particularly to SSGCL as discussed above have aggravated the situation..5% and the lower limit is 4.975mn in FY09 versus PKR 957mn last year. This was mainly due to exchange losses on gas purchases. Other income declined by 16% to PKR 1. Deferred Credit & Circular debt The Government has changed the deferred credit mechanism from FY09 onwards whereby the government grants for providing service connections. In FY09. Hence.

GAS DISTRIBUTION Sui Northern Gas Pipelines Limited . This is quite low as compared to the record addition of over PKR 22bn that the company made to its operating fixed assets in FY09. PKR 12.. reduction in wellhead prices is expected to reduce the cost of Unaccounted For Gas (UFG) losses for SNGPL and will improve profitability.. The company has also submitted a technical bid to SONATRECH (Algerian National Gas Company) for prequalification as contractor on EPC Basis for participation in tender covering 504km in 20”/24” diameter pipeline project in Algeria.Initiating Coverage of Pakistan. With oil prices showing a downward trend. The final segment of 20km Darra Adam Khel segment of 24-inch Gurgury-Kohat-Nowshera line is being completed... This is a difficult portion of the project given the rugged terrain and the volatile situation in the area.CROSBY OCTOBER 23. The wellhead gas prices are linked to international oil prices. Construction of 28-inch 12km water line for Fatima Fertilizers is also being carried out on a contract basis. OGRA has restricted the addition of fixed assets to PKR 11. 2009 Wellhead Gas Prices .4bn in FY10 as against the requested amount of PKR 18. Going forward.483bn from other government consumers *As of Oct 31-208 while it had net payables of PKR 20. it is expected that well head prices will decline. Page 6 FY12F FY11F FY03 FY04 FY05 FY06 FY07 FY08 FY09 . It is also laying 104km fiber optic cable for MOL Pakistan in the Karak area..5bn. SNGPL as a contractor is carrying out construction of 20-inch 38km line for Engro Fertilizers plant in Sindh. Project IX was initiated in 2006 to absorb additional gas supply from newly discovered gas fields.336bon GDS and PKR 1.5bn ..658bn.4bn in FY10 as against the requested amount of PKR 18. Asset Additions (PKRbn) Source: Company financials & CSPL Research 20 18 16 14 12 10 8 6 4 FY10F Currently construction activities of Project IX are underway.. Expansion Plans . OGRA has restricted the addition of fixed assets to PKR 11. A rise in the well head gas prices increases WACOG and adds on to the losses on account of UFG as was the case in FY09 .. A rise in the well head gas prices increases WACOG and adds on to the losses on account of UFG as was the case in FY09.

This will push up SNGPL’s profitability via lower UFG costs. We foresee that despite the active measures. The additional salaries will be a huge burden on SNGPL. Page 7 . it will give rise to human resource management issues as well. It is expected that the benefit of the reduction in WACOG translating into lower UFG cost will be dampened by lower levels of other income. Also the asset additions undertaken will be subject to approval by the OGRA. however. liquidity shortage (as a result of a change in the deferred credit mechanism) and lower asset additions approved by OGRA.. It is expected that the benefit of the reduction in WACOG translating into lower UFG cost will be dampened by lower levels of other income.. is not expected to impinge the profitability of the company due to the predefined return formula based on operating assets. the government has mandated SNGPL to reinstate a large number of employees who were inducted during the period between 1996 and 1998 and were relieved later on. However. the company needs to curb its UFG losses which offset the impact of any additions to the asset base. Furthermore. ... 2009 Future Outlook *As of Oct 31-208 GAS DISTRIBUTION Sui Northern Gas Pipelines Limited . Incremental costs will also arise from reimbursement of prior year payments to these employees.CROSBY OCTOBER 23.Initiating Coverage Going forward. Additionally. This is because of the average decline in oil prices during 2HFY09 by 37%.. This has the potential to create working capital management issues which may increase reliance on short term financing and inflate financial charges. This. Liquidity issues may restrict the management’s capacity expansion plans. the company will be unable to bring UFG losses in line with OGRA standards and the UFG woes will continue to be a drain on profitability. interest income will continue to be affected by the change in the deferred credit mechanism. WACOG is expected to decline during FY10. liquidity shortage and lower asset additions approved by OGRA.

.0% Others 4. private sector.CROSBY OCTOBER 23.000 million. SNGPL has an authorized capital of RS 15.6% General Public 4. designing and construction of pipelines. both for itself and other organizations. comprising over 7. DFIs NBFI. SNGPL’s transmission system extends from Sui in Balochistan to Peshawar in NWFP.4% NIT & ICP 3. Insurance Cos Modarbas & Mutual Funds 13.347km of transmission system and 59. Sui Northern Gas Pipelines Limited (SNGPL) is the largest integrated gas company involved in the operation and maintenance of high-pressure gas transmission and distribution systems . It also undertakes the planning. Shareholding Pattern of SNGPL Source: Company Reports President of Pakistan 36..951km of distribution pipelines.3% Banks. 2009 Company Background *As of Oct 31-208 GAS DISTRIBUTION Sui Northern Gas Pipelines Limited .7% Related parties 19..7% Page 8 .Initiating Coverage Sui Northern Gas Pipelines Limited (SNGPL) is the largest integrated gas company involved in the operation and maintenance of high-pressure gas transmission and distribution systems.. The Government and the Government controlled institutions and Dawood Hercules Chemicals Limited shareholdings are 36% and 20% respectively with the remaining 44.21% held by the . SNGPL operates in North Central Pakistan through an extensive network in Punjab and NWFP.9% Associated Companies & Dawood Hercules Chemicals Limited 18.

47.000 950 900 850 800 FY03 FY04 FY05 FY06 FY07 FY08 Natural Gas Consumption .00% FY03 -4..CROSBY OCTOBER 23.2% .Initiating Coverage Sector Overview Natural Gas…Leading The Way Pakistan’s primary energy supply stands at 62.67 trillion cubic feet. 30..250 1.200 1.7%.. Poor quality of coal reserves.00% 16. the country’s natural gas consumption is sourced domestically.5% Mismatch … Growing Demand and Lagging Supply .. the mounting burden of oil imports and unreliability of hydro sources has led to this unsustainably high dependence on natural gas. 9.275 billion cubic feet in FY08. The natural gas consumption on the other hand is on an uptrend and has increased rapidly during the last few years at a CAGR of 8. The supply mix is tilted toward natural gas which continues to be the largest energy source with a lion’s share of 48% in the total energy supply followed by other thermal sources at 39%.5% Hyrdro. At present.5% amounting to 1. The natural gas consumption is on an uptrend and has increased rapidly during the last few years .. Gas . 12.2% Coal. The recoverable reserves stand at 29. 0. 2009 *As of Oct 31-208 GAS DISTRIBUTION Sui Northern Gas Pipelines Limited .bcf Source: Energy Yearbook 2008 Annual Growth Rate in Natural Gas Consumption Source: Energy Yearbook 2008 21. Primary Energy Supplies By Source Source: Energy Yearbook 2008 Nuclear.150 1.9 million TOE (tons of oil equivalents) in FY08.100 1.300 1.00% 6.050 1. hydro at 13% and nuclear at a tiny 0.00% 1. 1...7% Oil.. The supply mix is tilted toward natural gas which continues to be the largest energy source with a lion’s share of 48% in the total energy supply .00% FY04 FY05 FY06 FY07 FY08 Page 9 .00% 11.

the number of consumers was 5.CROSBY OCTOBER 23.5 % annually during FY03FY08. However.bcf 2400 2200 2000 1800 1600 1400 1200 1000 800 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F FY12F FY13F FY14F FY15F FY16F Demand Source: CSPL Research Supply At the existing rate.0 FY03 FY04 FY05 FY06 FY07 FY08 The power sector accounts for the largest portion of the gas consumed followed by the industry..Initiating Coverage The jump in the natural gas demand was greatest in FY04 because of increasing availability *As of and of cheaper local gas Oct 31-208the government policy of attracting expansion in the power generation sector based on indigenous fuel..0% Transport 5.3% Cement 1. The jump in the natural gas demand was due to increasing availability of cheaper local gas and the government policy of attracting expansion in the power generation sector based on indigenous fuel . we project that demand will exceed supply in FY11 by approximately 32 billion cubic feet propelled by a recovering economy. the gap will increase to 540 billion cubic feet by FY16.5 3. The following figure shows Natural Gas consumption by sector. the country is walking headlong into a natural gas shortage.454 billion cubic feet.2 % higher than last year. Page 10 . 8.6% Fertilizer (Feedstock) 3.5 Number of Gas Consumers . The statistics indicate that supplies will rapidly start depleting after FY11FY12. fertilizer and other sectors.0 4.0% Fertilizer (Fuel) 12..3mn. 2009 . Natural Gas Demand Supply . Going forward.5 4. Natural Gas Consumption by Sector Source: Energy Yearbook 2008 Commercial 2.0 3..Million Source: Energy Yearbook 2008 5. The number of gas consumers has also increased at a growing rate since FY03.7% General Industry 25..1% Power 33. In FY08.7% Domestic 16.6% The net demand for natural gas has increased by almost 8.275 billion cubic feet in FY08 against the total production of 1. GAS DISTRIBUTION Sui Northern Gas Pipelines Limited . 5. reaching around 1.

The pipeline will be supplied from the South Pars field. these projects cannot be taken as a positive trigger for the gas distribution companies as they earn a fixed return according to the return formula. According to this plan gas supply will be curtailed to low priority segments of the economy. Will the benefit trickle? However. The 1680km pipeline will have a design capacity of 3. Trans-Afghanistan Pipeline The second project is the Trans-Afghanistan Pipeline (TAP or TAPI) which will transport natural gas from Turkmenistan through Afghanistan into Pakistan. Gas Imports Interstate Gas Systems (ISGS) is a private limited Company incorporated in Pakistan and is a joint venture between SSGCL and SNGPL. SNGPL has already served notices of gas load shedding from November 2009 to March 2010. under the Companies Ordinance 1984. .. traversing along the Makran Coastal Highway to connect with Pakistan’s existing gas transmission network at Nawabshah. The gas will be supplied from Douletabad and other fields in Turkmenistan. SNGPL has already served notices of gas load shedding from November 2009 to March 2010 . The pipeline is proposed to start from Asalouyeh and stretch over 1100km through Iran. This would mainly include cement and the non committed power sector. is a subsidiary of SSGC. ISGS has been mandated by the Government to explore and make arrangements for import of natural gas from neighboring countries.. equivalent to 500mmcfd of gas.. The controlling interest of the two major gas utilities is 51% and 49% respectively. LNG SSGC is acting as the facilitator for the Pakistan Mashal LNG Project. LNG import project with a re-gasification facility which will be located in Karachi. 2009 Demand Supply Plan for FY10 *As of Oct 31-208 GAS DISTRIBUTION Sui Northern Gas Pipelines Limited . the Government has engaged in projects for importing piped natural gas and LNG from neighboring countries. The project will support around 4.6bn. Pakistan will construct a 1000km pipeline from the border.CROSBY OCTOBER 23. Help on the Way…Natural Gas Sourcing Plans In order to diversify sources of natural gas supplies. Page 11 .000MW power generation capacity. It is a 3. which will help in overcoming the power crisis. The diameter of the pipeline will be 42 inches which is estimated to cost USD 3. and will take around four years to complete. Iran Pakistan Pipeline The first major upcoming project is the Iran Pakistan Gas Pipeline which is expected to come online by FY14.. ISGS.5bn.5mtpa (million tons per annum). Also both companies earn a return only on those assets that become operational which is not expected for the above mentioned projects for another four to five years.2bcfd and will cost USD 7.Initiating Coverage With the winter season coming up the Sui twins are anticipating a potential gas shortfall of over 1000mmcfd. The first supply of LNG is expected in the year 2011. SNGPL would thus be able to save up to 530 mmcfd of gas in January and divert to other priority areas. The project envisions the import of 750mmcfd of natural gas.. In view of its current shareholding.

The Safety Net . dividends and other non operating income.000 50. Page 12 ..Kms 70. These are Sui Southern Gas Company Limited (SSGC) operating in Sindh and Baluchistan and Sui Northern Gas Pipelines (SNGPL) in Punjab.187 KM spread across Pakistan. before corporate income taxes.. both SSGC and SNGPL are required to earn an annual return of not less than 17% and 17. Under the tariff regime governed by the OGRA. both SSGC and SNGPL are required to earn an annual return of not less than 17% and 17. Any deficit or surplus on account of this is recoverable from or payable to the Government as differential margin or gas development surcharge.000 40.Initiating Coverage The Gas Distribution sector comprises of two public-sector companies operating in different regions across Pakistan.000 65.000 55.. These gas distribution companies operate through a transmission and distribution network of over 102..000 25. Transmission and Distribution System ...000 FY03 FY04 FY05 FY06 FY07 FY08 SNGP SSGC Source: Company Financials Tariff Regime .000 30.000 60.000 45.5% respectively per annum on the value of its average fixed assets in operation (net of deferred credit on jobs completed). other operating expenses and a pre-defined operating margin (as per the return formula).000 35. The Key Players *As of Oct 31-208 GAS DISTRIBUTION Sui Northern Gas Pipelines Limited .5% respectively per annum on the value of its average fixed assets in operation.000 20. interest and other charges on debt and after excluding interest.. 2009 Gas Distribution . NWFP and Azad Kashmir region. Under the tariff regime governed by the OGRA. As per the regulations...CROSBY OCTOBER 23. OGRA determines the consumer prices while distribution companies are entitled to claim any shortfalls in their revenue that includes the gas purchase prices from E&P companies.

5%) V Amount of return required (III * IV) VI Shortfall over Return required (E-V) Page 13 .Initiating Coverage Following is a format of the calculation of the required return and differential margin/gas development surcharge:- A B C D Net revenue Less: Operating Expenses excluding financial charges Profit/(Loss) Add: Non admissible Expenditures Less: Non operating Income E Operating Profit / (Loss) Required Return on Net assets I II III Average Net Fixed Assets Less: Average Deferred Credit of completed jobs Average Net Fixed Assets after Average Deferred Credit IV Required Return on net assets (Avg.CROSBY OCTOBER 23. 2009 Required Return Calculation *As of Oct 31-208 GAS DISTRIBUTION Sui Northern Gas Pipelines Limited .17. ~17% .

632 (417) 8.0% .957 3.582 4.348 FY10F FY11F FY12F 939 118 (1.317 939 118 939 118 (1.8% 2.918 87.491 13.448) (2) (10) (17.8 3.4 5.491 5.3 6.086 1.981 1.706 783 2.2 15.957 5.901 10.5% 9.618) 2.484 25.4 3.105 5.616 355 5 235 122.068 31.mn EPS DPS Gross margin EBIT Margin Days in Payable Days in Receivable Total Asset Turnover Assets/Equity ROE ROA ROCE FY08 549.329 1.317 25.907 58.443) (22.6% 9.3 16.194 1.028 1.2% FY10F 549.3 6.511 132.554 613 577 606 2.000 32.237 8.107 15.625) (15.912 32.921) (1.PKRmn CF From Operating Activities Net Income Depreciation Working Capital Changes Deferred Credit Operating Cash Flows CF from Investing Activties Capex Investments Investing Cash Flows CF from Financing Activities Deferred Liabilities Net Debt Dividends Equity Injection / Other flows to Equity Financing Cash Flows Net Cash flow Opening Cash Balance Ending Cash Balance Short term borrowing Trade and other Payables Interest Accrued Current portion of Long term financing Current Liabilities Long Term Financing Deferred Liabilties Security Deposits Deferred Credit Total LT Liabilities Total Liabilities Paid-up Retained earnings Total Equity TOTAL EQUITY AND LIABILITIES 27.151 1.712 22.105 1.9% 3.5 3.485 2.800 6.873 3.549 157.048) (14.488 4.283 (2.442 4.460 10.7 15.971 45.636 5.134 80.657 16.370) 7.275 15.0% 2.416 396 1.869 6.38 FY12F 202.190) *As of Oct 31-208 Cash Flow Statement .211 26.4% 1.158 43.598 25.4% 1.190) 23.710 13.062 1.757 525 2.000 32.899 129.4% 93 44 1.582 2.648 FY09 1.105 4.509 5.103 52.CROSBY OCTOBER 23.195 364 5 225 97.240 14.058 22.100 539 164 125 43.881 7.530 22.517 2.172 13.266 42.648 17.709 4.383 653 1.596 990 1.2 15.267 18.276 982 1.137 8.337 17.321 19.899 129.69 FY10F 172.177 1.546 8.7 2.497 930 2.695 2.809 106.137 1.875 141.105 4.139 97.899 9.596 44.922) (2.625) (15.797 123.459 5.205 704 880 1.440 32.519 24.375 2.227 355 355 355 5 5 5 235 235 235 119.137 18.497 4.777 43.000 56.5 7.049 983 1.820) 13.1% 8.898 6.137 78.448) 848 671 (514) 1.7% 111 43 1.354 42.105 5.201 16.70 FY11F 187.491 10.637 2.735 1.8% FY11F 549.8 14.009 9.622 21.120 1.961 169.349 1.176 1.062 94.242 34.0% 8.287 5.491 5.447 957 4.3% 3.1% FY12F 549.310) (8.673 24.6% 3.647) (1.648 951 49.942 5.766 20.504 103.196) 959 733 3.81 Balance Sheet .5 16.898 11.234 122.1% 3.758 119.303 1.8% 84 44 1.737 2.200 5.320) (8.770 789 3.934 151.313) 632 (5.048) (14.777 (750) 124.453 22.481 8.387 51.2 6.Initiating Coverage GAS DISTRIBUTION Key Ratios Shares Outstanding .192 5.617 9.134 109.573 28.693 1.821 Sui Northern Gas Pipelines Limited .234 122.152 34.7 10.397 2.786 552 1.367 100.427 (2.241 .6 5.746 7.4 16.219) 168.155 109.182 21.5% 117 45 1.099 1.375 5.062 5.048 916 790 703 13.3% 136 52 1.254 1.780 7.570 11.120 1.410) (6.148 122.798 8.129 38.999 79.PKRmn Cash and bank balances Trade Debt Stock in Trade Stores & spare parts Other receivables Total Current Assets Assets Long term deposits and prepayments Investment in associate company Long term loans TOTAL ASSETS FY08 8.189 4.730 800 930 1.278 613 13. Expenses Other income Other Operating Expenses EBIT Finance cost EBT Taxation PAT EPS FY08 145.0% 3.7% 3.096 1.491 11.824 735 4.55 FY09 183.626 989 1.085 (378) (821) (1. 2009 Key Financials of SNGPL P&L Statement .819 144.PKRmn Gross Sales Sales Tax GDS Net Sales Cost of gas sold Gross Profit Rental and Service Income Amortization of Deferred Credit Surcharge on Gas Sales Arrears Dist. and Admin.562 29.5 12.346 14.9% FY09 549.997 (8.046 1.(1.520 827 4.000 53.975 2.731 19.721 35.070 11.447 10.162 63.189 5.879 3.301 1.875 12.406 11.392 1.882 (1.308) 1.1% 2.820 Page 14 FY08 FY09 FY10F FY11F FY12F 2.859 62.317 890 946 1.041 70 1.441) (22.210 2.055 (17.

com omair. M. Crosby Securities Pakistan Pvt. 2009 Research Team: Rehan Uddin. data. PRC Towers.543 Ext.com fatima. CFA.akhtar@crosby. This information should only be used by investors who are aware of the risk inherent in securities trading.) Ltd 4th Floor.shaikh@crosby. information.544 Ext.ali@crosby. indicators and charts presented have been obtained from sources believed to be reliable.com +92-21-35615855 +92-21-35615856 Ext.mustafa@crosby.com muhammad.kapadia@crosby. Summary and Analysis are not recommendation to Buy or Sell.irfan@crosby.com shahid.khurram@crosby. but their accuracy and completeness cannot be guaranteed.T Khan Road. ACA Fatima Anis.lal@crosby.com +92-21-35615859-60 +92-21-35615830 +92-21-35615828 +92-21-35615832 +92-21-35615824 +92-21-35615821 This report is prepared and published by: Research Department Crosby Securities Pakistan (Pvt. Cement Economy. Limited and its employees are not responsible for any loss arising from use of these reports and recommendations. Fertilizer & OMC E&P.com madeeha. Karachi. . Pakistan +92-21-35615861-66 cspl.research@crosby.com sohail.542 Ext.anis@crosby.com naveed.com muhammad.uddin@crosby.CROSBY OCTOBER 16.iqbal@crosby.ahmed@crosby.com faisal. IPP GAS DISTRIBUTION Role of USD-PKR parity in the re-emergence of foreign portfolio investments rehan. Insurance & Autos Gas Distribution.com Disclaimer: All reports and recommendations have been prepared for your information only.com pershotam.545 Sales Team: Syed Kashif Mustafa Muhammad Irfan Naviwala Faisal Kapadia Sohail Shaikh Naveed Ahmed Muhammad Khurram Head of Sales & Business Development kashif. ACA Shahid Ali Pershotam Lal Omair Iqbal Madeeha Akhtar Head of Research & Corporate Advisory Deputy Head of Research Research Analyst Research Analyst Research Analyst Research Analyst Banks Refinery. The facts.

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