Morning Briefing for March 10, 2014 – Standard Capital

Karachi, March 10, 2014 (PPI-OT): Sector wise impact on strengthening PKR against greenback

During FY14 Pakistani economy faced many problems due to exchange rate. In this tenure PKR was depreciated to ever low against USD.

According to Standard Capital, the depreciated PKR leaded USD to trade at ceiling price of PKR108.75/USD on 4th Dec 2013 as per the SBP data. Then central bank and ministry of finance intervene to control the exchange rate by taking feasible steps in banking system and linking minimum deposit rate to Repo rate. From Jan’14 onwards things starting to coming on track and PKR started to appreciated against USD. As per latest data it is trading at PKR 103.61/USD which is a good sign for overall economy in term of low import bill due to low cost of petroleum products imports.

Appreciating PKR: Impact on key sectors:
Standard Capital’s economy is highly sensitive to exchange rate because Standard Capital’s most of sectors imports raw material denominated in USD. Major portion of Standard Capital’s import bill consist of cost of oil products, which then channelized to higher production cost in major sectors.

The appreciating PKR will be favourable to cut the import bill and sustaining current account deficit.

The cement sector’s cost of production will decrease due to lower cost on imported coal, which may lead to a decrease in per bag selling price of cement.

Sectors like, fertilizers, OMC and other which are carrying foreign loans in their books will enjoy exchange gain due to appreciating PKR against USD.

IPPs will face decrease in revenue due to positive PKR/USD parity because their tariffs are USD denominated , but will be beneficiary due to low cost of import of Furnace Oil.

The textile sector may see a hard time in export products because appreciated LCY always leads costly export products, so earnings may hamper.

Favourable PKR/USD parity for Auto sector
Along with PKR/USD parity, PKR/JPY parity plays key role in different sectors mainly in auto assembler sectors. Cost of importing spare parts for autos is major cost of auto industry which is effects the gross margin of a company. The favourable PKR/JPY parity is adding value in profitability of auto assemblers which was observe in latest results of HCAR, PSMC and INDU.

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