Strategy: Gas hike shows PTI Government can bite the bullet
- ECC approved gas price hikes between 10-143% for all slabs of domestic consumers and 30-60% for industrial sector natural gas consumers, while cushioning export oriented textiles (amongst five zero rated industries) in a bid to augment cash flows at the state run gas utilities
- Lifting our expectations for CPI by 60/90bps for FY19/CY19F, we believe the knock on impact of rising price levels will translate to an additional 100bps hike in our benchmark rate expectations (+275bps cumulative rise during FY19)
- Industries consuming natural gas for feed stock (Fertilizers, Refiners, some chemicals), and mostly for fuel stock (Cements, Steel, Power) are expected to undergo varying degrees of pricing pressure, where their ability to pass-on escalations may be in doubt (particularly in the case of Fertilizers and Cements)
- Resultantly, the weight added to CPI expectations and persistent focus on sheltering export oriented sectors from input price hikes furthers an investment case based on export oriented industries and Banks where the themes of PkR devaluation and tightening monetary policy deliver upside.
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