Pakistan Strategy - Long-awaited gas price hike finally set to come through
Latest newsflow on the long-awaited gas price hike for industrial and domestic consumers suggests that Prime Minister has approved OGRA’s proposal and the final decision to increase prices is expected in the next ECC meeting.
On macro level, the expected gas price hike may prove to be inflationary though the impact of the same appears quite manageable given current policy stance and future expected hike in policy rate. Moreover, the increase in gas price may serve to address build-up of circular debt on the balance sheets of the gas companies.
For manufacturing sectors, the gas price hike may test the pricing power of the sector though the impact may vary for two reasons: (i) LNG tariff applied on Punjab-based industrial users, and (ii) quantum of gas used in the energy mix.
We see higher likelihood of a staggered gas price increase to bridge the revenue shortfall. Our estimates already incorporate 26.5% gas price hike and hence the impact of actual gas tariff hike is likely to be limited on overall corporate earnings growth (12% earnings growth expected for BMA Universe in FY19).
Chemicals & Fertilizers appear to be worst hit though we believe the government may decide not to pass on the full impact of gas tariff for fertilizer. Our top picks are PPL, MARI, MCB, UBL, EFERT, FATIMA, NCL, HUBC, ASTL, & DGKC.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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