By: Foundation Securities Limited
Pakistan Strategy: Oil and Gas Limited Regulatory Authority (OGRA), last week, has finalized the FY16 revenue requirements for the two gas distribution companies which is a prerequisite for the determination of consumer tariff. Our initial understanding suggests a 27% increase in prescribed prices of SNGPL (down 6% for SSGC) would require another increase in consumer tariff effective from January 01’2016.
Information constraints limit us from assessing the exact reflection of the said on consumer tariff and therefore it would be premature to incorporate this in our valuations. However, to assess the vulnerability of sectors we present sensitivity analysis for this. We see negative implications for fertilizer while limited impact on Cement and Textile.
Fertilizers –Negative: Given restricted pricing power, gas price hike would have negative implication for the fertilizer sector, in our view. Where FFC and FFBL would bear the major brunt, the availability of concessionary gas makes the impact less profound for EFERT and FATIMA.