JS Securities Limited – Pakistan Market: JS Research Beep

Karachi, October 26, 2016 (PPI-OT): GIDC Act ruled null and void by Sindh High Court

As per JS Securities Limited ‘s channel checks, Sindh High Court has passed a ruling in favour of fertilizer manufacturers with respect to the applicability of Gas Infrastructure Development Cess (GIDC). As per JS Securities Limited’s understanding, GIDC should not be applicable on fertilizer manufactures from here onwards. Please see below earnings sensitivity table on fertilizer companies if it is not passed on to the consumers. JS Securities Limited believes most of it is likely to be passed on to the consumer, which in turn should help pick up docile fertilizer demand in the country. JS Securities Limited flags Fauji Fertilizer Company (FFC) as the biggest beneficiary, while JS Securities Limited also highlight overhang of GIDC on Engro Fertilizer’s (EFERT) new plant should disappear. However, JS Securities Limited waits for further clarity, including whether it will be applicable retrospectively

JS Securities Limited believes the judgment will be used by other industries (Cements, Textiles, Steel, and Chemicals etc.) to make GIDC void for them as well. It will be interesting to see if the government challenges the judgment in the Supreme Court given the importance of GIDC receipts for the government to contain fiscal deficit. However, with 2018 General Elections in mind and Pakistan not part of the IMF program anymore, government may just accept the High Court’s decision.