Equity Analysis /

Pakistan: GIDC resolution at last

    Intermarket Securities
    29 August 2019

    The Pakistan government has reportedly made amendments to the Gas Infrastructure Development Cess (GIDC) Act in order to recover the long-standing (overdue) cess from various industries including fertilisers, CNG, chemicals and textiles. Key highlights of the Act include a 50% prospective reduction in GIDC rates for those consumers that pay 50% of outstanding dues.

    Fertilisers  Key implications for the fertilisers industry are: (i) Prior year settlements of 50% outstanding amount from 2016-18 (as per our understanding), (ii) future GIDC also reduced by 50% (adjusted against increase in gas price), (iii) concessionary gas players will not pay GIDC for new plants, (iv) Settlement of outstanding amount allowed to be offset by subsidy and GST receivables. Broadly, these changes in the Act are consistent with the market and our expectations on how the issue would be resolved (see our previous report here)

    We believe the settlement of the 50% outstanding amount may lead to one-off gains for FFC (PKR11.74/sh), EFERT (PKR3.34sh), FFBL (PKR6.25/sh) and FATIMA (PKR0.58/sh). On a recurring basis, however, this will be marginally negative for concessionary-gas based producers, namely EFERT and FATIMA – their earnings will be lower by PKR0.50/sh and PK0.15/sh, respectively. It will be positive for FFBL, but for FFC, future earnings will likely be trimmed by lower interest income on cash withheld (cPKR1.0/sh by our estimates).

    Chemicals: This will be positive for chemical companies namely LOTCHEM and EPCL with one off gains of PKR0.56/sh and PKR1.61/sh, respectively. On a recurring basis, EPCL may observe earnings accretion of PKR0.40/sh.

    Cement: LUCK is majorly reliant on gas-based captive power. According to management, LUCK has made provisions for most of the GIDC accrued. Prospective adjustment would lead to positive recurring impact of PKR1.4/sh.