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Zarea Limited Aims to Raise Rs1 Billion Through IPO on Pakistan Stock Exchange

Khashif Sarfraz
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Zarea Limited Aims to Raise Rs1 Billion Through IPO on Pakistan Stock Exchange

Zarea Limited’s IPO: A Major Step Towards Digital Transformation

Zarea Limited (ZL), a business-to-business (B2B) e-commerce platform, applied for listing on the Pakistan Stock Exchange (PSX) on Monday. The company aims to raise at least Rs1 billion through an initial public offering (IPO) of 62.50 million shares, priced at a minimum of Rs16 per share. This offering is open to corporate investors, affluent individuals, and retail investors, presenting an exciting opportunity for those interested in Pakistan’s growing digital economy.

According to the prospectus available on the PSX website, Zarea Limited specialises in providing construction materials, including cement, steel, and agricultural biomass. As part of its growth strategy, the company plans to expand its product offerings by adding coal, chemicals, grains, pulses, sugar, fertilizers, cotton, yarn, and other agricultural perishables.

Expanding with a Strong Technology Focus

The proceeds from the IPO will be primarily used to enhance ZL’s IT infrastructure and grow its customer base. Under the current regulations, the share price could increase by up to 40% through a Dutch auction process, reaching a maximum of Rs22.4 per share. This could boost the total raised funds to Rs1.4 billion, enabling ZL to invest heavily in its technology platform.

The company has developed a proprietary platform that allows buyers to purchase goods at competitive rates and track prices through an easy-to-use interface. Zarea’s mission is to revolutionize the B2B commodity marketplace by digitising the procurement process and offering additional services such as logistics, storage, credit, and data analytics.

Key Players in the Offering

Topline Securities and Growth Securities are acting as joint consultants and book runners for the IPO, which notably marks the sixth listing on the PSX’s main trading platform in 2024. In comparison, the previous five IPOs collectively raised Rs8 billion, further signaling a growing investor interest and improved economic conditions in Pakistan.

Moreover, the PSX has seen impressive performance this year, with the KSE-100 Index rising by 42.5% to over 90,000 points, reflecting strong investor sentiment. Additionally, the top 100 companies in the KSE-100 Index reported a 24.4% increase in profitability, reaching a record high of Rs1.6 trillion in FY24.

Impressive Financial Performance

Zarea Limited has demonstrated strong financial growth over the past year. For the fiscal year ending June 30, 2024, the company reported a remarkable 144% increase in revenue, reaching Rs281 million compared to Rs115 million in FY23. Additionally, profit after tax surged to Rs292.8 million, a significant increase from Rs81.3 million in the previous year.

At the floor price of Rs16 per share, the shares are priced at a price-to-earnings (P/E) multiple of 10.93x, based on the trailing twelve months (TTM) earnings as of June 30, 2024. This represents a notable discount of around 52% compared to the average P/E of 22.99x in the technology sector on the PSX, making ZL’s IPO an attractive opportunity for investors.

Pakistan Stock Exchange Hits New Highs with Record Rally

Khashif Sarfraz
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Pakistan Stock Exchange Hits New Highs with Record Rally

The Pakistan Stock Exchange (PSX) continued its record-breaking rally on Monday, with the benchmark KSE-100 Index registering new highs after gaining over 900 points during trading.

Benchmark Index Performance

At 12 PM, the benchmark index was at 90,936.21, reflecting an increase of 942.25 points or 1.05%. Earlier in the day, it reached an intra-day high of 91,054.83.

Sector Highlights

Buying was prominent in index-heavy sectors, including automobile assemblers, cement, commercial banks, oil and gas exploration companies, and oil marketing companies (OMCs). Notable stocks such as National Bank of Pakistan (NBP), MCB Bank, Meezan Bank (MEBL), Oil and Gas Development Company (OGDC), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO), and Sui Southern Gas Company (SSGC) traded positively.

Market Sentiment and Expectations

The stock market has been on a record-breaking spree recently, as investors anticipate a significant policy rate cut in the upcoming Monetary Policy Committee (MPC) announcement by the State Bank of Pakistan (SBP), scheduled for next week. Optimism is further buoyed by corporate result announcements and favorable economic developments.

Last week, the PSX performed exceptionally well, hitting historic levels due to aggressive buying mainly from local investors and institutional support. The benchmark KSE-100 index surged by a massive 4,743.88 points on a week-on-week basis, closing at its highest level ever at 89,993.97 points. During this period, the index crossed the psychological 90,000 points mark but failed to sustain it due to profit-taking in some stocks.

International Market Update

On the international front, Mainland China stocks fell in early trade on Monday, while Hong Kong stocks showed little movement as investors awaited potential outcomes of a key legislative meeting in China and the upcoming U.S. presidential election. China’s blue-chip CSI300 Index eased by 0.4%, while the Hong Kong benchmark Hang Seng remained largely flat in early trading.

Pakistan Stock Exchange Breaks 90,000-Point Barrier

Khashif Sarfraz
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Pakistan Stock Exchange Breaks 90,000-Point Barrier

The Pakistan Stock Exchange (PSX) reached a historic milestone on Friday as the KSE-100 index broke past the 90,000-point barrier during intra-day trading.

The index climbed to 90,087.41 points at 10 a.m., gaining 1,109.73 points or 1.25% from the previous close of 88,945.98 points. This upward momentum continued throughout the week, showcasing sustained market optimism.

Factors Driving the Rally

Investor confidence surged, fueled by economic reforms and government initiatives. As a result, trading activity saw 62.3 million shares changing hands, reflecting strong market participation. The total value of shares traded reached Rs5.05 billion.

On Thursday, the market had already crossed another key milestone, nearing 89,000 points, with a gain of 1,750 points. This was largely driven by investor interest in blue-chip stocks and expectations of a policy rate cut in the upcoming monetary policy announcement.

Key Contributors to the Market Surge

Several factors contributed to the bullish trend:

  • Positive corporate earnings reports during the ongoing results season.
  • Negotiations with China over restructuring energy sector debt.
  • Surging global crude oil prices.
  • Anticipation of State Bank policy rate cuts.
  • Government discussions about privatizing state enterprises.

According to Ahsan Mehanti, Managing Director of Arif Habib Corp, the combination of strong blue-chip stocks, speculation during earnings season, and positive economic signals drove the PSX to new heights.

Market Data & Key Players

At the close of trading, the KSE-100 index registered a significant rise of 1,751.45 points, or 2.01%, ending the day at 88,945.99 points.

Top gainers included:

  • Fauji Fertiliser Company (+6.7%)
  • United Bank Limited (+5.33%)
  • Oil and Gas Development Company (+3.65%)

Notable losers:

  • Systems Limited (-1.53%)
  • Interloop Limited (-2.74%)
  • Mari Petroleum (-0.44%)

Trading Volume & Market Sentiment

Friday’s trading volumes surged to 757.6 million shares, up from 699.3 million on the previous day, with a total value of Rs36.05 billion. A total of 454 companies were traded, with 238 gaining, 167 declining, and 49 remaining unchanged.

K-Electric led the volume chart, with 113.2 million shares traded, followed by Pakistan Telecommunication Company and Fauji Cement.

Foreign investors were net sellers, offloading shares worth Rs2.68 billion, according to the NCCPL.

Pakistan Misses IMF Cash Surplus Target by Rs182 Billion

Khashif Sarfraz
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Pakistan Misses IMF Cash Surplus Target by Rs182 Billion

Pakistan Misses IMF Cash Surplus Target by Rs182 Billion Due to Punjab’s Performance

Pakistan has failed to meet a major condition of the International Monetary Fund (IMF) to generate Rs342 billion in cash surplus from the four provincial governments. This shortfall, driven by Punjab’s underperformance, reached Rs182 billion, falling 53% short of the target in the first quarter of the fiscal year.

According to preliminary federal government data, the provinces collectively posted a cash surplus of Rs160 billion, missing the Rs342 billion target. This shortfall underscores the difficulties Pakistan faces in meeting the $7 billion IMF Extended Fund Facility (EFF) conditions. Punjab’s inability to meet its target resulted from the retirement of its commodity-related commercial debt, which reduced its surplus.

Challenges in Meeting IMF Conditions

Despite missing the cash surplus target, provincial governments did meet another important IMF condition—collecting Rs213 billion in taxes, exceeding the Rs184 billion target by Rs29 billion. However, the cash surplus shortfall is the third major IMF condition that Pakistan has missed so far. Previously, the federal government failed to meet the Federal Board of Revenue (FBR) target of Rs2.652 trillion and a Rs10 billion collection from traders, which yielded only Rs1 million.

The IMF set a goal for the provincial governments to generate Rs1.217 trillion in cash surplus for the current fiscal year. For the first quarter, the target was Rs342 billion, but Punjab’s inability to meet this goal caused the significant shortfall. Provincial spending surged, particularly on current expenditures, which increased by 28% year-on-year.

Impact on the $7 Billion IMF Deal

The IMF’s $7 billion EFF aims to improve fiscal discipline, reduce Pakistan’s debt burden, and re-balance relations between the federal and provincial governments. However, the underperformance at the provincial level raises concerns about meeting the overall fiscal targets set by the IMF.

Sources revealed that the provinces spent Rs1.75 trillion in the first quarter, a 33% year-on-year increase. Most of this spending was on current expenditures, while development spending rose by only 4%. The provinces also generated Rs213 billion in independent revenue, up 22% from the previous year, largely through sales tax on services.

Looking Ahead: Fiscal Challenges

Pakistan’s ability to meet the IMF’s conditions depends heavily on both federal and provincial fiscal performance. The National Fiscal Pact, agreed upon by the IMF, the federal, and provincial governments, requires greater collaboration to meet cash surplus targets and enhance revenue collection.

The IMF staff report acknowledged the risks of slippage at the provincial level, noting that provincial governments must play a more active role in fiscal performance through both revenue mobilization and spending restraint. The report also stated that evolving conditionality might be necessary to address these emerging challenges.

Urgent Action Needed on Wheat Support Price to Avoid $1 Billion Import Bill

Khashif Sarfraz
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Urgent Action Needed on Wheat Support Price to Avoid $1 Billion Import Bill

Ministry Urges Swift Action on Wheat Support Price

The Ministry of National Food Security and Research has called on Prime Minister Shehbaz Sharif to quickly announce a new wheat support price and set procurement targets. The ministry warns that failing to act could lead to wheat imports worth over $1 billion.

This urgency comes from conditions set by the International Monetary Fund (IMF), which advises the government to refrain from intervening in agricultural markets. However, farmers are left uncertain about the government’s intentions regarding a minimum support price, making it difficult for them to plan for the upcoming Rabi season.

Potential Impact on Wheat Production

The Ministry of Food warns that without a clear wheat price and procurement plan, there could be a significant reduction in wheat planting this season. This might increase wheat imports, which have averaged $1 billion annually in recent years. In 2023, the government set the wheat support price at Rs3,900 per 40 kg, offering an 18% profit margin. Despite this, domestic wheat production consistently falls short of self-sufficiency.

IMF Conditions and Government Commitment

The IMF has recommended that Pakistan avoid setting support prices for agricultural products as part of a broader effort to deregulate markets. Finance Minister Muhammad Aurangzeb has committed to phasing out price controls by 2026. The ministry, however, has proposed that the government set the wheat support price for Rabi 2024-25 and then discontinue the policy from the next season to align with IMF agreements.

Policy Options on Wheat Pricing

The ministry has presented three options for the government:

  1. Announce a profitable wheat support price for Rabi 2024-25 and set procurement targets.
  2. Avoid setting a support price but allow wheat to be procured at market rates.
  3. Refer the matter to the Economic Coordination Committee for a decision on wheat pricing and procurement.

The ministry emphasized the importance of making a decision before the Rabi season to ensure farmers have the confidence to plant wheat. Without this, Pakistan could face another year of costly wheat imports, worsening the country’s economic situation.

Conclusion

The Ministry of National Food Security stresses the need for quick policy action on wheat pricing to prevent a reduction in wheat sowing for Rabi 2024-25. Delaying this decision could lead to further reliance on wheat imports and strain Pakistan’s already fragile economy.

KSE-100 Index Hits Record High at PSX, Surpasses 87,000 Points

Khashif Sarfraz
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KSE-100 Index Hits Record High at PSX, Surpasses 87,000 Points

KSE-100 Index Hits New Record at PSX

The Pakistan Stock Exchange (PSX) continued its upward momentum on Wednesday, with the KSE-100 Index surpassing 87,000 points for the first time. The index closed at an all-time high of 87,194.53 points, marking a gain of 727.96 points or 0.84%.

During the day, the index touched a record intra-day high of 87,309.22 points, reflecting strong market activity and optimism.

Energy Stocks Drive the Market

The energy sector was a key driver of the rally. Stocks of major companies like HUBCO, K-Electric (KEL), Pakistan Petroleum Limited (PPL), Oil & Gas Development Company (OGDC), and Attock Refinery Limited (ATRL) showed significant gains, drawing investor interest.

What’s Fueling the Rally?

Market experts believe the rally is due to growing expectations of a central bank rate cut, driven by lower inflation forecasts. Mohammed Sohail, CEO of Topline Securities, explained, “The drop in yields in the secondary market, political stability, the successful Shanghai Cooperation Organisation (SCO) summit, and strong mutual fund investments are key reasons for this surge.”

Previous Day’s Gains

This record-breaking session comes after Tuesday’s strong performance when the KSE-100 Index closed at 86,466.58 points, a gain of 409.06 points or 0.48%. That rise was led by aggressive buying from local investors, supported by institutional interest.

Trading Volumes

Trading volume on the all-share index dipped slightly to 699.29 million shares from 722.21 million the previous day. However, the total value of traded shares increased to Rs26.82 billion from Rs25.02 billion.

K-Electric Ltd led the volume chart with 207.63 million shares, followed by WorldCall Telecom with 42.92 million shares and Pakistan International Bulk Terminal (PIBT) at 33.97 million shares.

Market Activity Overview

On Wednesday, 447 companies were traded, with 214 gaining, 173 declining, and 60 remaining unchanged. Meanwhile, the Pakistani rupee stayed steady against the US dollar, closing at 277.73, a minimal increase of Rs0.01.

Government Ends Energy Subsidies to Tackle Circular Debt Crisis

Khashif Sarfraz
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Government Ends Energy Subsidies to Tackle Circular Debt Crisis

Government Withdraws Energy Subsidies

In a bold move, the government has announced the withdrawal of all subsidies on electricity and gas. This applies to federal and provincial subsidies and is a part of efforts to address the ongoing circular debt crisis in Pakistan’s energy sector. The International Monetary Fund (IMF) has been informed about the new measures aimed at stabilizing the economy.

Circular Debt Crisis Reaches Rs4.8 Trillion

Pakistan’s energy sector has accumulated an unsustainable circular debt of Rs4.88 trillion. The electricity sector alone accounts for Rs2.794 trillion, while the gas sector adds another Rs2.083 trillion as of early 2024. This mounting debt has become a significant burden on the national economy.

To counter this, the government plans to raise gas tariffs starting February 15, 2025. Additionally, it will halt gas supply to captive power plants by January 2025, further aligning energy tariffs with production costs.

Energy Tariffs to Reflect Production Costs

The government has committed to collecting the full cost of electricity and gas production from consumers. This marks a shift away from the long-standing practice of providing subsidies. The new policy includes regular adjustments to energy tariffs to prevent the accumulation of further debt.

Gas Tariff Hikes and Privatization Plans

In line with the plan, the Ministry of Finance will notify gas tariff increases by February 2025. The government will also implement other reforms, including the privatization of electricity distribution companies.

In addition, efforts will be made to reduce line losses and improve the overall efficiency of energy distribution networks. These steps aim to make the energy supply more sustainable and cost-effective, preventing the circular debt from spiraling further out of control.

Oil Industry Raises Alarm Over Restrictive Fuel Pricing

Khashif Sarfraz
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Oil Industry Raises Alarm Over Restrictive Fuel Pricing

Oil Industry Concerns Over Restrictive Pricing

The oil industry in Pakistan has raised serious concerns over the restrictive pricing of motor fuels, which has reportedly caused significant financial losses. The Oil Companies Advisory Council (OCAC), representing refineries and oil marketing companies (OMCs), expressed these concerns in a letter to the Oil and Gas Regulatory Authority (OGRA) chairman. The council warned of potential consequences if the pricing issues were not addressed promptly.

Losses from Reduced Customs Duty and Freight Margins

The OCAC highlighted a deviation from the government-approved pricing formula, effective from October 16, 2024. In particular, customs duty on high-speed diesel (HSD) was reduced from Rs15.18 to Rs13.26 per litre, a Rs1.92 decrease. According to the OCAC, this reduction will result in a loss of around Rs700 million for the industry during the second half of October.

In addition to customs duty cuts, the inland freight equalisation margin (IFEM) was also reduced. The IFEM for HSD was slashed by Rs3.04 per litre and for petrol by Rs4.07 per litre. These cuts were made by including an adjustment to the refinery regulatory duty of Rs3 billion. This, the industry claims, will lead to a less-than-expected recovery of freight costs, creating additional financial pressure on oil marketing companies.

Call for Consistent Pricing Adjustments

The OCAC urged OGRA to ensure that price adjustments are spread evenly across multiple pricing periods to avoid sharp fluctuations and financial exposure for the industry. The letter highlighted that OGRA has always insisted on spreading adjustments evenly, particularly related to recoveries for pipeline losses and other costs.

The advisory council emphasized that manipulating oil prices is unsustainable and could lead to further challenges for an industry already struggling with various issues. These include high financing costs, smuggling, insufficient profit margins, high turnover tax, and the impact of sales tax exemptions.

Industry Urges Price Formula Implementation

The OCAC called for an immediate revision of prices based on the government-approved formula to ensure the oil sector’s viability. It stressed the importance of implementing the pricing formula in its true letter and spirit to avoid supply chain disruptions.

The council also pointed out that without proper pricing mechanisms, the industry’s challenges could worsen, threatening the overall stability of the oil supply chain in Pakistan.

Pakistan’s Forex Reserves Cross $11 Billion Amid Positive Economic Indicators

Khashif Sarfraz
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Pakistan’s Forex Reserves Cross $11 Billion Amid Positive Economic Indicators

Pakistan’s Forex Reserves Reach $11 Billion After 30-Month Gap

Pakistan’s foreign exchange reserves, held by the State Bank of Pakistan (SBP), rose to over $11 billion as of October 11, 2024. This marks an increase of $215 million in a week and a significant milestone after 30 months. The reserves have grown for 12 consecutive weeks, reflecting an overall increase of $2 billion in three months. The International Monetary Fund’s (IMF) $7 billion loan program, initiated in September, contributed to this rise. The inflow of IMF funds, along with strong remittance inflows, supported the growth.

Rupee Stability and Improved Import Cover

The Pakistani rupee appreciated by Rs0.05 against the US dollar in the inter-bank market, ending a brief losing streak. The SBP’s active dollar purchases to repay foreign debt and boost reserves played a role in this stabilization. With the latest surge, Pakistan’s import capacity has expanded to over two months, a significant improvement from less than one month in June 2023. The SBP Governor predicts that foreign exchange reserves will rise to $13 billion by June 2025, supported by healthy remittance inflows and export growth.

RDA Inflows and Market Impact

Roshan Digital Account (RDA) inflows also contributed positively, increasing by $168 million in September, bringing total deposits to $8.75 billion since the scheme’s inception. Net inflows amounted to $1.53 billion, stabilizing reserves. Overseas Pakistanis primarily invested in Naya Pakistan Certificates (NPCs), Shariah-compliant NPCs, and the stock market.

Economic Outlook for FY2024-25

Despite positive trends, Pakistan’s economy faces challenges. The SBP’s annual report indicated that while industrial and services sectors are expected to grow in FY2024-25, the agriculture sector may not maintain its momentum due to a decline in cotton arrivals. The central bank forecasts real GDP growth between 2.5% and 3.5%, up from 2.5% last year. The services and industrial sectors show recovery, while remittances are projected to reach $32-33 billion in FY2025. However, volatility in global energy prices poses a risk to economic stability.

Inflation and Policy Adjustments

Headline inflation has been on a downward trend, falling to 6.9% in September 2024. The SBP lowered the policy rate by 4.5 percentage points to 17.5%, reducing borrowing costs and supporting industrial expansion. Despite the challenges posed by global oil prices and fiscal slippages, inflation is expected to remain in check.

The SBP continues its efforts to stabilize the economy through fiscal consolidation, maintaining positive real interest rates, and boosting foreign exchange reserves. While structural challenges like low investment, climate change risks, and energy sector inefficiencies remain, the outlook for FY2024-25 is cautiously optimistic.

Chinese Firm Commits $1 Billion for PRL Upgradation

Khashif Sarfraz
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Chinese Firm Commits $1 Billion for PRL Upgradation

Chinese Firm Pledges $1 Billion for PRL Upgradation

A Chinese investment corporation has agreed to invest $1 billion in Pakistan Refinery Limited (PRL) to support its upgradation project. This move will significantly enhance the refinery’s production capacity, boosting it from 50,000 barrels per day to 100,000 barrels per day. However, the Chinese firm has placed a strict condition on the deal. They have made it clear that they do not want any government involvement in the repayment process. The Chinese company expects PRL to repay the loan in dollars, without interference from the Pakistani government.

Dollar Repayment and Export Plans

Currently, the State Bank of Pakistan (SBP) allows the private sector, including refineries, to retain dollars for investment purposes. The Chinese firm has urged that such controls should be eliminated to ensure smooth repayment. PRL has assured the investor that it will generate the required dollars through the export of petroleum products. These earnings will then be used to repay the Chinese investment corporation. Additionally, China Export & Credit Insurance Corporation (SINOSURE), which promotes China’s foreign trade, has also insisted on no government control over the dollar remittances.

PRL’s Expansion and Modernization Goals

PRL is currently undergoing an upgradation project to transition from a basic hydro-skimming process to a deep-conversion process. This shift will allow the refinery to produce Euro 5 compliant high-speed diesel (HSD) and motor spirit (petrol), reducing its reliance on the less profitable furnace oil. Although after the expansion, PRL’s annual production of motor spirit is expected to rise from 250,000 tonnes to 1.5 million tonnes. Similarly, HSD production will increase from 600,000 tonnes to 2 million tonnes. This project aligns with PRL’s strategy to meet growing domestic demand and contribute to a more environmentally friendly energy landscape.

Collaboration with China’s United Energy Group

PRL has signed a memorandum of understanding (MoU) with China’s United Energy Group (UEG) to begin the refinery’s significant expansion. The partnership will play a crucial role in modernizing Pakistan’s energy infrastructure and improving fuel quality. In addition, PRL has signed licensing agreements with Honeywell UOP and Axens, global leaders in refinery technology, to produce gasoline and diesel that meet Euro 5 specifications.

Pakistan Refinery Policy and Future Investment

Pakistan’s Oil Refining Policy for Up-gradation of Existing/Brownfield Refineries 2023 incentivizes refineries to upgrade their plants and produce Euro-V fuels. The policy offers a 2.5% incremental incentive on HSD and a 10% incentive on petrol in the form of deemed duty for seven years. However, PRL, along with Attock Refinery Limited (ARL) and National Refinery Limited (NRL), has committed to investing a total of $3 billion in upgrades. Once Pak Arab Refinery (Parco) and Cnergyico PK join the project, the total investment will reach $6 billion. The Cabinet Committee on Energy (CCOE) recently extended the deadline for refineries to sign implementation agreements for these upgrades, ensuring that the upgradation of Pakistan’s energy sector continues at a steady pace.

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