OIL IMPACT Who will be beneficiary? Power sector A cut in commodities (oil and coal) prices to ease up supplies in the economy in general and for IPPs in particular. This is a good omen for IPPs since they may get better FO supplies for the time being. In the longer term, plants converted on coal to rule the roost in share of better IRR. We like HUBC in power sector. Paints industry Falling oil price will also impact positively on chemical and paint industry. The paint manufactures like Berger (BERG) will be benefited by two ways. Firstly, decrease in prices of raw material like solvents which are used in oil paints and also emulsion that are used in water based paints. The other element which is likely to impact is decreasing freight cost due to plunge in diesel and petrol prices. Paint manufacturers’ gross margins can be inched up by 150bps to 200 bps. We have strong buy signal on BERG. Consumable chemical and packaging The prices of commodities used in chemical sector as raw material have directly relationship with international oil prices. A decrease in oil price will lower down the prices of chemical raw material which will enhance gross margin by roughly 2.5% because these chemical companies do on pass this impact in final products prices. Companies include EPCL, LOTCHEM, ECOP, TRIPF etc. Auto sector: Our auto sector is dependent on Japanese economy and its exchange rate against USD. Likewise Pakistan, Japan is net oil importer country and its economy will have positive impact due to falling oil prices. Currently Bank of Japan has adopted monetary easing policy and Yen is continuously depreciating against USD. Weakening JPY will have direct impact on manufacturing cost of auto assemblers in Pakistan. Secondly lowering local oil price will reduce operational cost of auto assemblers. Therefore we see a slightly jump in gross margins of auto assemblers in next quarter. We give positive stance for HCAR, INDU and PSMC. Cement Sector Cement industry is considered as a highly leverage and economic cycle sensitive industry. With decrease in fuel prices cost of operational activities decreases and inflation in economy also lowers. A continuous decrease in inflation will crease ground for cut in DR. Which means in short run cement sector to benefit from increasing construction activities in low inflation scenario and in long run a cut in DR may lower finance expenses burden. We like DGKC, MLCF, and FCCL in cement sector. General Industries Oil is used as basic fuel in all the industries, this decrease in oil prices would benefit the companies like PAEL, TGL etc. Its impact will be reflected in next quarter’s profitability. We have strong BUY stance on PAEL deciphers lowest expected PE multiple and growth potential in the company. SCS trade
Posted on: Tue, 02 Dec 2014 11:51:32 +0000
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