Karachi bourse: Nestle becomes second largest company as stock rallies

The company’s stock, which traded at Rs7,043.75 per share on November 1, closed at Rs9,300 on the last trading day of the month. PHOTO: FILE

KARACHI: With market capitalisation touching Rs422 billion – close to $4 billion – for the first time, Nestle Foods Pakistan became the second largest listed company on the Karachi bourse in November, thanks to the recent gains in its stock price that surged 32% in the month.

The company’s stock, which traded at Rs7,043.75 per share on November 1, closed at Rs9,300 on the last trading day of the month.

The recent gains in Nestle’s stock price, according to a report of Topline Securities, helped the company become the second largest listed firm on the Pakistani bourse – below market leader Oil and Gas Development Company whose capitalisation is over Rs1 trillion.

To put the numbers in simple terms, the Pakistani subsidiary of the world’s largest foods and consumer goods giant now accounts for 7.2% of the stock market or 1.8% of the country’s economy ($250 billion), the report said.

The abnormal gains, according to Topline Securities’ Senior Manager Research Zeeshan Afzal, were driven by two factors – limited opportunity for investment in the fast moving consumer goods (FMCG) sector and the growth in both the FMCG sector and the company.

After delisting of Unilever Pakistan, a subsidiary of the Anglo-Dutch consumer goods giant, and setbacks suffered by Engro Foods, Topline’s report said, investors had little choice for investment in the consumer goods sector.

Unilever Pakistan was delisted on September 13 this year, while Engro Foods showed a negative trend both in terms of revenues and profits in the first nine months of 2013.

The local foods giant saw its earnings decline by 23% year-on-year to Rs1.24 billion or Rs1.62 per share during the period. Its sales were down by over 4% to Rs28 billion.

Though investors had limited options for investment in the FMCG sector, the demand for this sector is generally very high, Afzal said. Additionally, he said, there are some investors who like to invest in the FMCGs as there is a growth factor as well.

Nestle Pakistan’s sales, in January-September this year, grew by 6.4% to Rs63.83 billion, resulting in after-tax profit of Rs4.47 billion or Rs98.58 per share, translating into a rise of 3.2% YoY.

The crazy bull-run in the company’s stock price, according to Topline’s report, has had implications for stocks of other companies that have invested in the Swiss foods and consumer goods giant.

IGI insurance, which has a 9.6% shareholding in Nestle, yielded 27% return in November, the report said. Nestle constitutes 84% of IGI’s total portfolio of Rs48 billion.

Packages Limited, which holds 8% of Nestle Pakistan, is another stock that was influenced by the recent rally in Nestle. In November, the report said, the value of Packages portfolio increased by Rs104 per share, up 30%, out of which Nestle contributed Rs98 per share.

The investors could be either fresh buyers or the ones that previously invested in Unilever Pakistan and/or Engro Foods, Afzal said while responding to a question. However, the trend – bull-run – is short term, he said.

Taxing business: FBR reviewing capacity tax on beverage industry

Companies ‘being forced’ to shut down operations. CREATIVE COMMONS

KARACHI: 

The government is facing an increasing pressure to review a controversial tax regime concerning the beverage industry that threatens revenue collection and force half a dozen companies to shut down operations, industry officials said on Monday.

Federal Board of Revenue’s Large Taxpayer Unit (LTU) for the Lahore region has already reported a loss of Rs2 billion during the first quarter since the tax was imposed in July this year, they said.

“We will see companies wrap up operations and the market will be controlled by multinational brands,” said a manufacturer of aerated drinks who has cut his capacity by half.

Under the capacity tax, companies producing aerated water drinks have to pay 17% sales tax and 9% excise duty based on the potential of the machines instead of the actual production. This means that tax has to be paid on the number of valves, the nozzles used to fill the bottles.

From Pakola in Karachi to Murree Brewery in Rawalpindi, all the Pakistani beverage makers have been seriously affected with their sales at less than installed capacity.

Some companies have taken stayorders against the tax but continue to remain under constant uncertainty. “We have to scale down production anyway because the decision might hold in future hearings.”

Federal Board of Revenue has taken notice of the situation. Its spokesman Shahid Hussain said that other LTUs have also faced similar losses. “This is not working out to be the way we had hoped for,” he said.

“Revenue loss is not acceptable for the government, since there hasn’t been any improvement; we are considering the tax.” Hussain said.  He further added there was an understanding with multinational beverage companies that the tax collection will increase by 25% under the new method.

Multinational brands control 97% of the beverage market. First introduced in 1990, it is widely believed that this method of tax collection was the result of aggressive lobbying by the multinationals. It was rolled back in 1994 but, by then 10 beverages and 13 juice plants had been closed.

The government aims to raise Rs33 billion through the capacity tax in comparison with last year’s Rs28 billion it earned from the beverage industry.

Amrat Beverages, a beverage company that makes drinks like Amrat Cola and Amrat Lime, had the privilege of being the bottler of both top multinationals from 1989 to 2003.

“The market looked so good during the early 2000s that the company decided to come out with its own products,” Mukhtar Ahmed Qadri, Amrat’s director operations, told The Express Tribune a few months ago explaining that there was a sudden rush of patriotism. People wanted Pakistani products and the sales picked up, but the situation changed in a matter of a few years. “Project viability was designed considering the sugar price which was at Rs30 per kg. It went up to Rs80, carbon dioxide (CO2) was available at Rs30 per kg and then we had a gas shortage and it shot up to Rs250,” Qadri said.

The added burden of the capacity tax will make things worse for Amrat, he said. “It is almost impossible to sell anything in northern Pakistan during winters, drinks are not preferred between November and February. With little production, we’ll still be paying the tax as though we are running the plant at full capacity.”

Small bottlers point out that the entire regime is tilted in favor of the multinational companies. “Those dispensers in restaurants are directly competing with bottles, but they have been exempted because we know which two brands have complete monopoly over this market,” said a Punjab-based beverage maker.

As a consequence of the capacity tax regime machines have been dismantled and transported to warehouses at least one kilometer away from the plants. Tax officials are regularly monitoring the implementation of the tax.

Builders, developers upbeat after PM’s incentive package

Leading builders and developers say inclusion of low-cost housing schemes among top priority areas shows how much the government is keen to prop up the housing and construction industry. PHOTO: REUTERS/FILE

KARACHI: The prime minister’s incentive package offers everything positive for the housing and construction industry as it is among the four sectors where the government strives to attract hefty investments by giving scores of concessions.

“This is for the first time in decades that a government has come up with such incentives for the housing and construction industry,” Association of Builders and Developers of Pakistan (ABAD) Chairman Mohsin Sheikhani told The Express Tribune.

ABAD, with its head office in Karachi, is an association of over 700 builders and developers working in the country.

On Friday last week, the prime minister announced that no limit has been fixed for investment in green field industrial and expansion projects that also include captive power plants, low-cost housing, livestock and mining projects provided they are set up on or after January 1, 2014.

The incentive package has set minimum investment limit of Rs10 million to a maximum of Rs50 billion for most sectors where the government would not ask about the investor’s source of income but housing is among those where the limit has been scrapped.

Leading builders and developers say inclusion of low-cost housing schemes among top priority areas shows how much the government is keen to prop up the housing and construction industry.

“What is different in this package is that this time the private sector is being encouraged to do everything and the role of bureaucracy is restricted,” said the ABAD chairman. “This is why we are very much hopeful this time.”

Referring to the tax incentives that are part of the package, the builders and developers say this is one of the best policies as it will minimise corruption and make housing projects viable.

On its part, the government is also working on some schemes to build 500,000 houses in the next five years.

ABAD representatives are of the view that their members can assist the government in building most of these houses as they have large pieces of land for such projects. However, for that they need state support so that they can bring the most economical housing schemes for the middle and lower middle classes.

What analysts say

For economic experts, the move to give priority to housing and construction – one of the labour-intensive industries – is welcome.

“Construction activities in big cities have increased in the last few months. We know there is demand. But to fully realise the strength of the housing industry, the government needs to stabilise economic indicators like a stable rupee and large foreign exchange reserves, to win the confidence of investors,” Topline Securities Chief Executive Mohammad Sohail told The Express Tribune.

Analysts and economic experts are also giving importance to the government’s house building plans. For them, there is a huge demand for new houses, especially in large cities, which can only be met when the private sector is offered incentives.

“Recent incentives for the housing and construction industry are important for its growth. Looking at the government plans to build 500,000 new houses, one can safely say these moves will definitely bring more investments into the sector,” JS Global Capital analyst Atif Zafar said.

Matter closed: Shangrila Private Ltd avoids CCP bullet

The representative of National Foods argued that, in terms of clear findings of the inquiry report and the retail audit survey conducted by AC Neilsen, it had a major market share while the market share of Shangrila was quite low. PHOTO: FILE

ISLAMABAD: The Competition Commission of Pakistan has accepted commitments made by Shangrila Private Ltd and disposed of the matter, which saw the latter being issued a showcause notice for its first encounter violation of section 10 under the Competition Act that deals with deceptive marketing practices.

The representative of National Foods argued that, in terms of clear findings of the inquiry report and the retail audit survey conducted by AC Neilsen, it had a major market share while the market share of Shangrila was quite low.

It was also submitted that even the Brands Foundation has not allowed Shangrila to use the ‘number one’ tagline.

On the other hand, the counsel, appearing on behalf of Shangrila, filed a Commitment under Regulation 30 of the Competition Commission (General Enforcement) Regulations 2007 that stated that the marketing campaign under question had already been discontinued and it will ensure compliance with the Competition Act and directions of the CCP.

Based on the previous commitment and the forthcoming approach of Shangrila, the CCP’s bench disposed of the matter while accepting the commitments filed by Shangrila ensuring compliance thereof and also directing to file the compliance report that none of the marketing material contains any deceptive claim — the ‘Pakistan’s number one’ used in the marketing campaign in question.

Consumer protection is a key area of the Competition Law Enforcement and CCP’s Office of Fair Trade (OFT) is set up to further the vommission’s objective of creating a business environment based on healthy competition and protecting consumers from anti competitive practices.

The matter was heard by a three-member bench, which included CCP Chairman Dr Joseph Wilson and members Mueen Batlay and Dr Shehzad Ansar.

Matter closed: Shangrila Private Ltd avoids CCP bullet

The representative of National Foods argued that, in terms of clear findings of the inquiry report and the retail audit survey conducted by AC Neilsen, it had a major market share while the market share of Shangrila was quite low. PHOTO: FILE

ISLAMABAD: The Competition Commission of Pakistan has accepted commitments made by Shangrila Private Ltd and disposed of the matter, which saw the latter being issued a showcause notice for its first encounter violation of section 10 under the Competition Act that deals with deceptive marketing practices.

The representative of National Foods argued that, in terms of clear findings of the inquiry report and the retail audit survey conducted by AC Neilsen, it had a major market share while the market share of Shangrila was quite low.

It was also submitted that even the Brands Foundation has not allowed Shangrila to use the ‘number one’ tagline.

On the other hand, the counsel, appearing on behalf of Shangrila, filed a Commitment under Regulation 30 of the Competition Commission (General Enforcement) Regulations 2007 that stated that the marketing campaign under question had already been discontinued and it will ensure compliance with the Competition Act and directions of the CCP.

Based on the previous commitment and the forthcoming approach of Shangrila, the CCP’s bench disposed of the matter while accepting the commitments filed by Shangrila ensuring compliance thereof and also directing to file the compliance report that none of the marketing material contains any deceptive claim — the ‘Pakistan’s number one’ used in the marketing campaign in question.

Consumer protection is a key area of the Competition Law Enforcement and CCP’s Office of Fair Trade (OFT) is set up to further the vommission’s objective of creating a business environment based on healthy competition and protecting consumers from anti competitive practices.

The matter was heard by a three-member bench, which included CCP Chairman Dr Joseph Wilson and members Mueen Batlay and Dr Shehzad Ansar

Pakistan mobile internet use to overtake desktop in 2014: Survey

Source: Pakistan Digital Consumer Survey

Pakistani internet users are rapidly moving towards a new era of mobile internet dominance over access from desktop computer, a new survey sponsored by Google has found.

According to a press release, this trend follows a decline in the prices of smartphones and tablets, and anticipated launch of 3G services.

Internet-capable feature phones are expected to continue to play an important role, too. An additional factor is the unreliability of the electricity supply which is also helping to promote the usage of tablets and smartphones in Pakistan.

The findings come from a survey of over 1,000 Pakistanis by research firm IDC on behalf of Google. The “Pakistan Digital Consumer Study” conducted earlier this quarter took a look at the life of the connected Pakistani consumer.

The survey found that digital consumers are engaging more with the internet than ever before. The study revealed that home is the preferred location for Internet access — even for mobile-only users, who prefer to use their home wi-fi connection.

The top three activities in Pakistan both on desktop and mobile Internet are: social media, email and general search.

The main challenge of Internet proliferation in Pakistan are the quality and reliability of connectivity — including poor speed or bandwidth availability, perceived value-for-money, customer service quality, limited choice of plans and frequency of service interruptions. The unreliability of the power supply is also a factor, the press release stated.

Main findings

Government approves PIA's aquisition of five aircraft

ECC also approves providing sovereign guarantees for obtaining $150 million loan for repairing Boeing 777 aircraft.

ISLAMABAD: The government on Tuesday approved Pakistan International Airlines request to acquire five aircraft of European make on lease, aimed at cutting the financial losses of the state-run entity whose accumulative losses increased to Rs267.8 billion till September this year.

The decision was taken by Economic Coordination Committee of the Cabinet, headed by Finance Minister Ishaq Dar. However, the ECC turned down the PIA’s request for another five aircraft that the national flag carrier also wanted to obtain on lease.

It also approved providing sovereign guarantees for obtaining $150 million loan for repairing Boeing 777 aircraft and extended the existing guarantees of Rs33.5 billion till end of current financial year 2013-14.

The PIA management had shortlisted ten A319/320 aircraft on their combined score tabulated on their financial and technical parameters. According to a handout of the Ministry of Finance the remaining five aircrafts were rejected because of their low combined score.

The PIA had emphasized that it needed at least 10 aircraft to prop up revenues and cut financial loss. The PIA’s board of directors had approved acquisition of six Airbus-320 and four A-319 aircraft on dry lease.

According to third quarter financial report of the PIA, the entity’s liabilities have increased to Rs267.8 billion by end-September. Minister of State for Privatization, Khurram Dastgir Khan has recently said that the corporation was causing Rs72 billion per annum losses.

The Secretary Aviation Imran Ali Gardazi claimed in front of the ECC that last month the PIA management had reduced losses from Rs3.3 billion per month to Rs1.5 billion.

The ECC directed that the lease period of the present four aircraft hired on wet lease may be extended so that a pool of at least ten aircraft could be maintained. The ECC also authorized PIA to initiate bidding for tender of additional five aircraft which may be inducted by June 15, 2014.

The Finance Minister observed that the finalization of this lease by PIA will not only rehabilitate its international credibility but also improve its image.

The Secretary Aviation informed ECC that after approval of Rs16 billion bailout package in July this year PIA was able to add six additional aircrafts which raised the number of operational aircrafts from 20 to 26. This, he said had increased schedule integrity and no complaints of delay was reported during Hajj operations which was smooth after many years.

The ECC approved providing guarantees to Exim Bank of USA and Islamic Corporation of Insurance and Export Credit (ICIEC) for providing $150 million financing for servicing and repairs of nine Boeing 777 aircraft. However, the approval was subject to clearance of financing terms by the Finance Division