omc: no mention; hence safe - BMA Capital Management

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14 Fiscal consolidation; Promote savings June 7, 2010 Considering lower savings and investment ratios for an emerging country like Pakistan, it is of prime importance that savings are promoted – Pakistan’s savings currently stand at 13.8% of GDP. In order to attain sustainable growth, increasing domestic savings is the right step to conserve resources for investments. As per budget FY11, government targets PKR213bn and PKR61bn through saving instruments and investment bonds. Alongside the higher targets, declaration of WHT as final tax on profit on Govt. securities i.e. PIBs and T-bills seems the right step in this direction. However, the same also indicates restricted downward adjustment for interest rates. Saving mobilization on the cards Manufacturing to uplift economic growth 24 22 20 18 16 14 12 10 Current Account Balance Total Investment National Savings 2001 2002 2003 2004 2005 2006 2007 2008 F 2009 R Source: FBS, MoF, BMA Research Source: FBS, MoF, BMA Research 2010 P 5 3 1 -1 -3 -5 -7 -9 -11 20 15 10 5 0 -5 GDP Agriculture Manufacturing Services Sector 2001 2002 2003 2004 2005 2006 2007 2008 F 2009 R 2010 P Manufacturing: The key growth element As per the revised economic indicators, trend in manufacturing sector remained the key element for uplifting the overall growth to 4.1% compared to the anticipated 3.3%. LSM sector has performed well by posting 5.2% YoY growth compared to steep fall of 3.7% in FY09. To attain consistent growth in real sector, the recent announcements regarding 1) tax credit for BMR, 2) 5% tax credit for enlistment of corporate sector, 3) incentive to foreign lenders for tax free repatriation of profit on loan and 4) exemptions for war affected areas are expected to bode well for the industrial sector performance. However, 1) electricity shortage 2) non resolution of circular debt and 3) higher interest rates would remain the key risks to attain 5.6% growth target for manufacturing sector. Service sector is projected to grow at 4.7% in FY11, wherein tax incentives to financial sector are to play a vital role. However, the agriculture sector seems to be neglected in the budget with no significant measures announced on PSDP, agri-credit and water conservation. GDP growth for FY11 is targeted at 4.5% along with inflation target of 9.5%. Considering the prevalent inflationary pressure (CPI at 13.26% for Apr10) along with incremental 100bps increase in Sales tax and expected 6% electricity tariff adjustment w.e.f Apr10, the said targets seem challenging to us.
15 KEY MEASURES Income tax June 7, 2010 � The long awaited capital gain tax has finally been imposed on securities wherein long term investment prospects have been incentivised by lower tax rates. � Government has increased income tax rate for small companies form existing 20% to 25%. We expect this to be a measure taken to gradually bridge the income tax rate gap between small companies and corporates. In addition, 5% tax credit for enlistment of companies has been announced for the year of enlistment. � Non taxable income has been increased from PKR100,000 and PKR200,000 to PKR300,000 to incentivise the lower income non salaried and salaried class. However, tweaking the upper slabs for the salaried class will help offset the revenue impact for the same. � To discourage loss adjustment and tax frauds, the government has increased the minimum tax rate for loss making entities from 0.5% to 1.0%. � Incentives for investment through 10% tax credit for BMR in the year of incurrence � For the rehabilitation of war affected areas the government has taken multiple steps to promote commercial and industrial activities in the northern areas. � 10% Withholding tax on debt instruments (including govt. securities) is proposed to be treated as final tax Sales Tax and Federal Excise Duty � Sales Tax (GST) rate has been increased form 16% to 17% � Adjustment of FED paid on beverage concentrate allowed � Increased FED on Natural Gas from PKR5.09/mmbtu to PKR10/mmbtu � FED of PKR1.0 per filter rod of cigarettes � 10% FED on electricity intensive home appliances Custom Duty � Reduced custom duty on crude palm oil from PKR9,000/MT to PKR8,000MT to lower the cost of vegetable ghee and oil � Reduction of duty to 5% on pharmaceutical raw materials � Exemption of custom duty on import of raw material for energy saving lamps to support the local manufacturers � Exemption of CD and S.tax on rice processing machinery
Page 1 and 2: 65 Federal Budget 2010-11 Cautious
Page 3 and 4: 3 TABLE OF CONTENTS Budget FY11: No
Page 5 and 6: 5 June 7, 2010 package will have li
Page 7 and 8: 7 June 7, 2010 against an average o
Page 9 and 10: 9 Sector wise Budget Impact and BMA
Page 11 and 12: ECONOMY Budget Impact Positive Abdu
Page 13: 13 June 7, 2010 announced in the bu
Page 17 and 18: E&P MARKETWEIGHT Budget Impact Neut
Page 19 and 20: OMC OVERWEIGHT Budget Impact Neutra
Page 21 and 22: 21 June 7, 2010 Moreover, seemingly
Page 23 and 24: CEMENTS OVERWEIGHT Budget Impact Ne
Page 25 and 26: CHEMICALS MARKETWEIGHT Budget Impac
Page 27 and 28: 27 Outlook FY11E June 7, 2010 Incre
Page 29 and 30: 29 Top Investment Ideas June 7, 201
Page 31 and 32: BUY Fair Value: PKR 282 Current Pri

omc: no mention; hence safe - BMA Capital Management

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