Pakistan Trasport INdustry Fundamental Analysis

University Degree Business and Administrative studies

Executive Summary

This project was assigned to us by our respected teacher Sir Azfar. In this project we were assigned two companies, Pakistan International Airlines and Pakistan International Container Terminal. In this project we have invested 100,000 in each of the two companies for one month starting from 20th January to 20th of February. In PIA we have adopted active investment strategy because there is high chance of price gains, in PICT we have adopted passive strategy. We have made fundamental analysis of both the companies separately in which we have seen that these two transport sector companies have different business operations and different market forces affect there business. P.I.A is largest national airline and its shares are trading at far below par value, there is no dividend so only investor can make is little price gain. PIA is in losses due to its ineffient resource utilization and incompetent management. Pakistan container is leading container terminal which is growing and there are price gains and dividend as well. Return of the companies are calculated with different methods and different ratios of the companies are calculated like required rate of return for investor and book value to check whether or not stock is overpriced in the market. We have analyzed the weekly index and total return of the market and than compare the market return with our return to check which strategy is more appropriate in current market environment

ECONOMY

The government has forecasted 5.5 percent GDP growth for fiscal year 2008-2009. Pakistan is not able to act according to current economic crisis in time that can lead Pakistan’s economy from recession to depression and they should take immediate action to resolve the situation. The country has missed all major economic targets, including GDP, budgetary deficit, investment, agriculture, manufacturing, inflation, broad money growth, tax revenue, etc, during FY08 with domestic and external shocks being the main reasons. The current energy crisis disturbed the manufacturing activities in the country as the growth in energy supply could not keep pace with the rising demand due increasing in manufacturing activities in recent years. Total limits under EFS will increase by Rs 25 billion from Rs 181.3 billion to Rs 206.3 billion. Resultantly, cushion of Rs 46.4 billion will be available with the banks over and above their current utilization of the facility for meeting the requirements of the industry. Deficit of $2.4 billion in service trade has been recorded during seven months of current fiscal year mainly due to larger payments on account of transportation, construction, financial and royalties). Textile is main export sector and its international contracts are cancelled and industrial units are shut down because of increase in cost of production. The Federal Board of Revenue (FBR) may discontinue existing policy of extending special sales tax zero-rating facility to consumption of electricity and natural gas. Pakistani rupee depreciated by 13.4 percent during Jul-Dec 22, 2008. Pakistan was expecting 10 percent decline in textile exports due to the economic slowdown in developed countries; however, demand for low cost textile products have increased and importers are placing orders with countries including Pakistan having low price of these products

Inflation

Inflation starts decelerating in FY09

=================================================

Over corresponding month of last year

=================================================

CPI WPI SPI Core

Inflation*

=================================================

Jul-08 24.3 34.0 33.0 14.7

Aug-08 25.3 35.7 33.9 16.4

Sep-08 23.9 33.2 31.1 17.3

O ct-08 25.0 28.4 32.7 18.3

Nov-08 24.7 19.9 29.8 18.9

Dec-08 23.3 17.6 25.8 18.8

Interest rates

State Bank has maintained the rate of mark-up up-to 15 percent and banks are charging a little less than 20 percent, which is perhaps the highest mark-up rate in the world. Pakistan is again under IMF debt and if it misses IMP growth target than interest rates would be further increased.

KIBOR Rates

Tenor BID OFFER

1 - Week 10.01 10.51

2 - Week 10.79 11.29

1 - Month 12.30 12.80

3 – Month 14.16 14.41

6 - Month 14.85 15.10

9 - Month 15.28 15.78

1 - Year 15.44 15.94

2 - Year 15.60 16.10

3- Year 15.70 16.20

Unemployment

Pakistan unemployment is 22.50% and in this regard it is ranked 91st in the world. Pakistan has currently 49.19 million labor force which also includes overseas.

INDUSTRY ANALYSIS

Growth Stage

The industry is at growth stage, there are only strong companies in the sector. The revenues and profits are growing and investor can earn dividends as well as price gains. The risk is moderate and competitors are very strong. The major player currently is Karachi container terminal and in future Dubai Port.

Business Cycle

The risk is moderate so industry is moderately cyclical It means when there is downfall in economy the industry also goes down but with a slower rate as compared with economy.

Competitor

The only competitor is Karachi International Container Terminal (KICT), which is located west of the Indus Delta in the natural deep-water harbor of the century old Port of Karachi. Subsequent to the signing of the concession agreement by the international project sponsors with Karachi Port Trust (KPT) in June 1996, KICT was formed as the Terminal Operating Company with the object of setting up a common user dedicated international container terminal at Karachi Port on the existing berths 28, 29 & 30, at West Wharf on a build, operate and transfer (BOT) basis. has since been "Pakistan's leading container terminal operator", both in terms of productivity and efficiency.
As Pakistan's shipment of containerized cargo consistently grows apace with the market economy, it is matched by KICT's ability to handle increasing numbers of containers. In 2006 KICT recorded a container volume growth of 19% to 565,000-TEU from the previous year, representing over 50% of Karachi Port's total container throughput and a 55% increase in EBIT due mainly to the higher throughput growth, comprehensive array of end user service offerings, improved productivity levels, minimized vessel turnaround times and deployment of leading technologies and terminal equipment.
KICT has the unique distinction for being the first container terminal operator in Pakistan to implement Pakistan Automated Customs Clearance System (PACCS), an automated risk assessment customs clearance process at KICT in collaboration with Pakistan Customs under Customs Administrative Reforms (CARE).

Porter’s Five Model

Rivalry among existing competitors

There are currently 2 Container terminals within the port of Karachi, Pakistan International Container Terminal (PICT) and Karachi International Container Terminal (KICT). There is no rivalry between competitors as KICT is owned by KPT and PICT project is on BOT which will be transferred to KPT eventually after completion of 21 years and both terminals are operating at full capacity. But competition in international market is high.