Pakistan Budget Review FY16

Pakistan Budget Review|FY16
A Cautious Walk towards Growth
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Budget Brief FY16
Budget FY16
Content
Pakistan Economy
Companies with Reserves over 100% of Paid- up
18
Key Measures & Expected Impacts
19
Budget at a Glance
Impacts on Key Sectors, Recommended Stance
20
Key Statistics
Key Sectors
Gradual Move towards Direct Taxation
Tightening the Belt
More Growth- Prone Expenditure the better
Shifting Financing from Domestic to Foreign
Cement Positive
22
Power / IPPs Positive
23
Automobile & Parts Neutral to Positive
24
Textiles Neutral to Positive
25
Fertilizer Neutral
26
E&P, OMCs Neutral
27
Banks Neutral to Negative
28
Key Revenue Measures
10
Key Relief Measures
11
Key Income Tax Measures
13
Other Sectors in the Limelight
29
Sales Tax and Federal Excise Duty
14
Recommendation Sheet
32
Disclaimer
33
Capital Market
KSE: Neutral to Negative in Short - term
16
KSE: Companies with Potential higher Dividend
17
Contact
Contact List
34
Budget Brief FY16
Budget FY16
Despite the government missing some tax targets, we feel intentions to keep overall expenditure growth under control should augur well in
FY16. Much of the fiscal consolidation the government is hoping will come by way of reducing current expenditures rather than the
optimistic increase in the tax revenues. Based on this, the government projects fiscal burden to come down to 4.3% of the GDP. That, in our
view, remains a far-fetched proposition as FY16 budget lacks clear and key policy reform measures, as originally envisaged, to broaden tax
net and encourage investments via incentives from companies to boost capital investments. Similarly, we do not expect massive cuts that
seem to be on the govt agenda, which could lead to cost overruns, ultimately causing the government to miss its fiscal deficit target.
Expenditure reduction - limited scope to cut aggressively:
Increase in tax-to-GDP:
Policy reforms to boost productive growth:
We believe there is limited scope for the government

to undertake drastic measures to reduce the current expenditure in FY16. The government foresees a current expenditure-GDP ratio
of 10.3%, which is lower than historical average of 11.5-12.5%. The only credible way to bring down expenditure to this low is
through sharp reduction in subsidies, which can be inflationary in nature but affordable in a presently weak inflation scenario. Major
cut in development expenditure, if any, will come at a cost of growth, which certainly is not on the government agendas this time
around. Henceforth, we don not see a meaningful reduction in governments expenditures, in FY16.
The decline in tax revenues during FY15, despite a pick-up in growth rate is rather alarming. For
FY16, the government targets a tax-GDP ratio of 11.1% in FY16, which again is higher than historical average of 10%. However, we
believe, given a economic recovery and imposition of one-time tax burdens in FY16 could lift tax-GDP ratio towards target levels.
Other than Textiles and Agriculture sector, overall budget lacked a clear
cut incentives for companies to boost capital investment and policy measures on broadening tax net, thus jeopardizing governments
own investment-GDP ratio targets. These policy reforms and incentives were much-needed to ensure a transition into higher growth
levels. We initially viewed FY16, a decisive year for the government to implement such reforms at a pace faster than previously
expected, given favourable economic environment and improving fiscal space on account of weak oil prices and stable/improving
externals.
Budget Brief FY16
Budget FY16
Budget at a Glance
Revised fiscal deficit of FY15 stands at 5.0% of GDP, slightly higher than initially budgeted number at 4.9%, mainly due to tax revenues
falling short by 8%, or PKR 219bn. For FY16, the government is targeting a 4.3% fiscal deficit, or PKR 1.3trn. This is expected to be achieved
only through a combination of removal of tax exemptions, marked reduction in subsidies, and an upbeat approach to bringing more
economic resources under the tax net, in our view.
Exhibit: FY15, Budget snapshot taken as %age of GDP
Budget FY16 at glance
Total Outlay is projected at PKR 4.3trn, up by 9% YoY.
Tax Revenues are projected at PKR 3.4trn (3.1trn by FBR), which

is 17.5% higher than revised tax collection of PKR 2.9trn for FY15.
Current Expenditures are estimated at PKR 3.2trn, relatively

unchanged from last year (-1% YoY), 40% of which has been
allocated for debt repayments and 25% for defense, while 4%, or
PKR 138bn, is set aside for subsidies (all inclusive), way lower
than last years revised amount at PKR 243bn.
Public Sector Development Program expenditure is estimated to

go up by 27%, to PKR 1.5trn (Federal PKR 700, Provincial PKR
814bn).
Provincial Surplus is projected to grow by 110%, to PKR 297bn.
Total Fiscal Deficit for FY16 is projected at PKR 1.3trn, or 4.3% of

the GDP, compared to PKR ~1.4trn, or 5.0% of the GDP for FY15.
In order to meet the expenditure domestic borrowing has been

estimated at PKR 982bn, or 70% of total deficit financing.
Fiscal Deficit / GDP

Gross Revenues / GDP
Total Expenditure / GDP
4.3%
FY16 B
13.3%
14.1%
5.0%
FY15 A
14.2%
14.4%
5.9%
FY14 A
15.2%
14.2%
7.6%
FY13 A
14.4%
12.4%
0.0%
5.0%
10.0%
15.0%
Source: MoF, AHL Research
Budget Brief FY16
Budget FY16
Key Statistics
PKRbn
Net Receipts
Total Outlay
- Tax Revenue
- Non-tax Revenue
Total Expenditure
Current Expenditure
- Debt Servicing
- Defence
- Subsidies
Development + net Lending
Federal PSDP
FY13 A
1,616
2,837
2,125
712
3,299
2,720
1,029
570
367
579
388
FY14 A
2,184
3,597
2,514
1,083
3,871
2,935
1,187
630
323
936
425
FY15 R
2,378
3,952
2,910
1,042
3,902
3,185
1,270
720
243
717
542
FY16 B
2,463
4,313
3,418
895
4,089
3,166
1,280
781
138
923
700
FY14 A
35%
27%
18%
52%
17%
8%
15%
10%
-12%
62%
9%
FY15 R
9%
10%
16%
-4%
1%
9%
7%
14%
-25%
-23%
28%
FY16 B
4%
9%
17%
-14%
5%
-1%
1%
8%
-43%
29%
29%
Fiscal Balance
Provincial Surplus
Consolidated Fiscal Balance
GDP
%age of GDP
Total Outlay
- Tax Revenue
- Non-tax Revenue
Current Expenditure
Development + net Lending
Consolidated Fiscal Balance
(1,683)
(62)
(1,745)
22,909
(1,687)
183
(1,504)
25,402
(1,524)
142
(1,383)
27,384
(1,625)
297
(1,328)
30,672
0%
-394%
-14%
-10%
-23%
-8%
7%
110%
-4%
12.4%
9.3%
3.1%
11.9%
2.5%
-7.6%
14.2%
9.9%
4.3%
11.6%
3.7%
-5.9%
14.4%
10.6%
3.8%
11.6%
2.6%
-5.0%
14.1%
11.1%
2.9%
10.3%
3.0%
-4.3%
Fiscal Deficit / GDP

8.0%
7.6%
5.9%
6.0%
5.0%
4.3%
4.0%
2.0%
FY13 A
FY14 A
FY15 A
FY16 B
Budget Brief FY16
Budget FY16
Gradual Move towards Direct Taxation
Revenues
The government has set a tax collection target of PKR 3.4trn for FY16, which is higher by 17.5% YoY when compared with the revised FY15
collection PKR 2.9trn. Basis of higher growth in revenues are expected to be a) 22% YoY increase in direct taxes to PKR 1.3trn, b) 17%
increase in indirect taxes to PKR 1.8trn. Non-tax revenue is targeted at PKR 0.89tn, down by 14% YoY.
Given a recovery in growth and imposition of one-off tax burdens,

we think, this should help increase tax revenues in the short-term
to uplift Tax-GDP
The government has set a tax collection target of PKR 3.13trn for
FY16, which is 17.5% YoY higher when compared with the revised
FY14 collection target of PKR 2.9trn.
Exhibit: Ambitious on tax revenue collection
Non - Tax Revenues

100.0%
90.0%
This growth in tax collection is estimated on the back of

substantial 22% YoY increase in direct taxes to PKR 1.3trn with a
major push from 21% YoY growth in income tax to PKR 1.3trn.
80.0%
Indirect taxes are projected to grow by 17% YoY to PKR 1.8trn,

with sales tax contributing almost 72%, followed by 17%
contribution through custom duties.
50.0%
Non-tax revenues are targeted at PKR 0.89trn (PKR 1.0trn in FY15)

on account of lower receipts from civil admin.
Tax-GDP is estimated at 11.1% for FY16 against 10.6% in FY15.
Tax Revenue
25%
30%
26%
21%
75%
70%
74%
79%
FY13 A
FY14 A
FY15 A
FY16 B
70.0%
60.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Budget Brief FY16
Budget FY16
Tightening the Belt
Expenditures
FY15s revised total expenditure was down by 1% to PKR 3.9trn. For FY16, the government is targeting total expenditure to PKR 4.1trn or
13.3% of GDP, compared to 14.6% average during FY13-15 period.
Total expenditures higher-than-budgeted in FY15, but expected to

decline in FY16
Current expenditure is estimated at PKR 3.43trn, mainly led by

higher interest repayments of PKR 1.3trn (down by 4% YoY), and
defense expenses worth PKR 0.8trn (up by 8%YoY)
Exhibit: Expenditure is forecasted to decelerate
(PKR trn)
Subsidies
Defense
Debt Servicing
2.5
Subsidies are reduced by PKR ~105bn, to PKR 138bn versus PKR

243bn last year.
2.0
Overall Development expenditure is estimated to go up by 27%

to PKR 1.5trn in FY16 compared to revised PKR 1.18trn.
1.5
0.3
0.4
0.6
0.2
0.1
0.7
0.8
0.6
1.0
0.5
1.0
1.2
1.3
1.3
FY13 A
FY14 A
FY15 A
FY16 B
Budget Brief FY16
Budget FY16
More Growth-prone Expenditure the better
Public Sector Development Program
Given the better FY15 fiscal stance as a starting point, we believe government stands a good chance of enhancing Public Sector
Development Projects (PSDP) expenditure.
Exhibit: A massive increase in motorways and hydro power plants in

FY16, is where much of the PSDP will be allocated.
Significant growth in overall PSDP allocation
Overall size of PSDP is targeted at PKR 1.51trn, or 4.9% of the GDP,

which is higher by a significant 27% YoY compared to PKR 1.18trn, or
4.3% of the GDP.
Of this, federal PSDP is targeted at PKR 0.70trn, up by 29% YoY, and
provincial share of PKR 0.8trn, up by 26% YoY.
Development Budget / GDP

2.9%
2.8%
2.8%
2.8%
2.7%
2.6%
Public Sector Development Expenditure

PKRbn
Federal
- WAPDA
- National Highway Authority
Provincial
Total PSDP
PSDP %age of GDP
Source: Ministry of Finance
2.5%
2.5%
FY15B
525
64
112
650
FY15R
542
49
109
646
FY16B
700
112
160
814
1,175
4.0%
1,188
4.3%
1,514
4.9%
%YoY
29%
128%
46%
26%
27%
2.4%
2.3%
2.2%
2.2%
2.1%
2.0%
FY13 A
FY14 A
FY15 A
FY16 B

Budget Brief FY16
Budget FY16
Shifting Financing from Domestic to Foreign
Deficit Financing
Financing burden is finally shifting to foreign inflows, gradually. This is expected to ease-up domestic borrowing requirement, where we
may see a systematic decline in government security issues. Moreover, lowering domestic financing would also bode well in terms of private
sector credit off-take. We think this financing mix would provide just about the right balance to support long-term objective of sustained
economic growth.
Lowering domestic burden should support long-term objective of
sustained economic growth, going forward
For FY16, though deficit financing is still skewed towards

mobilizing domestic financing sources worth PKR 932bn (70%
versus 75%).
However, in FY16, government has increased the portion of
external financing sources for budgetary financing to PKR 346bn
(26%), from PKR 327bn (24%) last year.
Since FY14, there has been a systematic decline in government
domestic borrowing requirement, due to increase in foreign
inflows.
The rest is expected from Privatization of government-owned
entities, with 4% of fiscal financing expected from this source,
compared 1% last year.
Exhibit: Deficit financing through domestic sources would eventually

decline owing to better realization of foreign inflows
Privatisation
100%
90%
Domestic
External
1%
4%
75%
70%
22%
24%
26%
FY13 A
FY14 A
FY15 A
14%
80%
70%
60%
50%
64%
40%
30%
20%
10%
0%
Budget Brief FY16
Budget FY16
Key Revenue Measures
Revenue receipt: Gross revenue receipts of the federal government for FY15 are estimated at PKR 4,313bn compared to
revised figures of PKR 3,952bn for FY14, showing an increase of 9.1%.
Provinces share: Share of provinces is PKR 1,849bn, compared to revised estimate of PKR 1,575bn for FY14, an increase of
17.4%.
Net resources of federal govt: Net resources of federal government are PKR 2,463bn compared to revised estimate of PKR
2,378bn for last year.
Removing SROs: Here also, the government has focused on reducing concessions relating to customs, sales tax and income tax
of PKR 120bn compared to last years PKR 105 bn.
New Taxes: Imposition of new taxes including super tax in case earnings exceed PKR 500mn , and increase in cost of doing
business for non-filers
10
Budget Brief FY16
Budget FY16
Key Relief Measures
Agriculture Sector
Tax Holiday for Agricultural Delivery Chain: Income Tax Holiday for 3 years is being introduced for new industrial
undertakings engaged in setting up and operating
Cold chain facilities
Warehousing facilities for storage of agriculture produce.

The exemption for 4 year for Halal Meat Production: Companies which set up halal meat production plant and obtain
halal certification by 31st December 2016
Relief to Rice Mills: In order to provide relief to Rice Mills suffering from low global demand, exemption from minimum tax for
the Tax Year 2015 is being granted.
Section 13: All notifications issued under section 13 (Exemptions) shall stand cancelled at the end of financial year. The power
to issue notifications from now onwards rests with the Federal Government with the approval of the National Assembly.
Exemption on Supply of Fish: Exemption from withholding tax on supply of agricultural produce is to be extended to supply of
fish.
Import and Local Supply of Agricultural Machinery and Equipment: Non-adjustable sales tax is reduced rate of 7% instead of
existing rate of 17%.
Import of Agricultural Machinery: At present Customs duty, Sales Tax and withholding tax on import of agricultural machinery
in aggregate ranges from 28% to 43% are being cumulatively reduced to 9% as under:
Customs duty from existing rate of 5-20% to 2%;
Sales Tax from 17% to non-adjustable Sales Tax at 7%; and
WHT from 6% to 0%
Interest Free Loans for Solar Tube Wells: Interest free loans of up to Rs.1 Million for setting up new or replacing solar tube
wells.
11
Budget Brief FY16
Budget FY16
Key Relief Measures
Construction Sector
Housing Credit: Mark-up on housing loans obtained by individuals from banks and other institutional lenders for construction or
buying a house to be allowed as a deduction against income up to 50% of taxable income or Rs. 1 million.
Suspension of Minimum Tax on Builders: The minimum tax on builders levied for the business of construction and sale of
residential and other buildings is being suspended for a period of three years.
Real Estate Investment Trust (REIT) Development Schemes: Capital Gains of any person who sells a property to a REIT
development scheme formed for the development of housing sector will be exempt from Income Tax up to 30.6.2018. If a
development REIT Scheme for the development of housing sector is set up by 30.6.2018, for the first three years the rate of
Income tax chargeable on dividend income of such REIT shall be reduced by 50%.
Bricks and crushed stone: Supply of bricks and crushed stone will be exempted from Sales Tax for three years up to
30.6.2018.
Reduction in customs duty on import of Construction Machinery: Customs Duty is reduced to 10% on import of construction
machinery registered with Pakistan Engineering Council and SECP.
LNG terminal: Exemption of profit and gains derived by LNG Terminal Operators and Terminal Owners for a period of 5 years
beginning from the day when commercial operations are commenced. They are also eligible for exemption from minimum tax
under section 113.
12
Budget Brief FY16
Budget FY16
Key Income Tax Measures
Reduction in Tax Rate for Companies: Corporate tax rates further reduced to 32% for Tax Year 2016.
Exemption to Electricity Transmission Projects for a period of 10 years provided that the project is set up by June, 2018.
Tax Credit for new investment in shares: To encourage saving and investment in new companies quoted on stock exchange
the limit for individual investors is being enhanced to 1.5 million.
Tax Credit for Enlisting: To encourage enlisting of companies on stock exchange, credit is being be enhanced to 20% from 15%.
Reduction in Withholding Tax On Token Tax and Transfer of Vehicles: To encourage investment from car assemblers due to
higher demand.
Relief to Small Taxpayers: Salaried taxpayers earning PKR 400,000 to PKR 500,000 are reduced to 2% instead of 5%. NonSalaried individual taxpayers and Association of Persons earning taxable income from PKR 400,000 to PKR 500,000 reduced to
7% tax compared to 10 %.
Exemption from Customs Duty and Sales Tax: It is proposed that Customs Duty, sales tax and withholding tax in respect of
various items used in Aviation Sector may be reduced to zero subject to certain conditions
Customs Tariff Reforms: Maximum general tariff rate of 25% reduced to 20%. Substitution of 1% duty slab with 2%
customs duty.
Capital Gains Tax increased : <1 year from 12.5% to 15%; 1-2 years, from 10% to 12.5%; 2-4 years, from 0% to 7.5%
Taxation of Dividend: It is proposed that the rate be increased to 12.5%. Consequently, in case of non-filers the rate of tax is
proposed to be increased from 15% to 17.5% of which 5% shall continue to be adjustable. For Mutual Funds, the existing rate of
10% shall continue.
Small Company: Income Tax Ordinance provides a reduced rate of 25% for taxing the income of a small company as an
incentive for going public.
Payments in respect of advertisement expenses to print/electronic media: Exemption from WHT on payments to electronic
and print media in advertising services may be withdrawn.
Reduced rate for cash withdrawals by exchange companies: Cash withdrawals by exchange companies are subject to
withholding tax rate of 0.15% instead of being exempt.
13
Budget Brief FY16
Budget FY16
Key Sales Tax and Federal Excise Duty
Excise Duty : An dumping duty of 20% imposed on imported cement.

Rationalization of sales tax on steel sector melters, re-rollers and , ship breakers
The rate of further tax for supplies to unregistered persons is being enhanced to 2%.
Increase in the rate of sales tax on mobile phones to PKR 300, 500 and 1000, from PKR 150, 250 and 500, respectively,
depending on features in the mobile set, whereas Regulatory Duty on mobile phones has been slashed
Restricting zero-rating on dairy products to milk only baby formula.
Enhancement of rates of Federal Excise Duty on locally produced cigarettes. Average tax incidence to increase from 58% to
63%
The rate of Federal Excise Duty on aerated waters is being enhanced from 9% to 12% of retail price
Sales Tax on Steel Sector: Fixed sales tax of PKR 4/unit of electricity has been increased to PKR 7/unit on Steel Sector. Also
the sectors demand of collection of withholding tax on purchase of their electricity bills at PKR 1/unit has been accepted
Telecom services tax reduced by 1ppt to 18.5%.
FED & Withholding Income Tax (WIT) rate on Telecom: FED rate on Telecom services to reduced from 19.5% to 18.5%, as well
WIT on telephone services from 15% to 14%
14

Capital Market
Budget Brief FY16
Budget FY16
KSE: Neutral-to-Negative in Short-term
Between
24M-48M
7.5%
Filers
Old (FY2015)
10.0%
New (FY2016)
15.0%
Source: AHL Research, Federal Budget FY16
Non-Filers
12.5%
17.5%
Dividend Tax
20%
KSE100 returns, before and after budget

May
June
10%
-10%
-20%
16
CY15
CY14
CY13
CY12
CY11
CY10
CY09
0%
CY08
Conversely, mandatory dividend payout for companies having reserves at/over 100% of
paid-up (post cash payout in a year, otherwise taxed at incremental 10%), is positive,
though needs amendments on definition of reserves (whether total earned in a year net
of payout). Assuming reserves as profit for the year, average payout is expected to be
71% from 34% or paying additional tax will result in ~4% EPS impact (AHL Universe, see
next slide for detail). However, if reserve is declared as accumulated, companies with
huge accumulated reserves may announce one-time bonus issues to convert it into paidup (better pay 5% one-off than 10% every year for cash to be retained), which is negative.
Above 12M but

Below 24M
10.0%
12.5%
CY07
Further, 2.5% increase in dividend tax rate to 12.5% (though 7.5% dividend tax on power
projects/IPPs stays intact, as per certain explanations) with no relief on bonus tax (5%)
will also keep dividend/bonus-loving investors relatively at bay compared to earlier.
Exhibit: CGT and Dividend Tax

Capital Gains Tax
Below
Current
12M
Old (FY2015)
12.5%
New (FY2016)
15.0%
CY06
Increase in Capital Gains Tax (CGT) to 12.5%/15% (below 1yr/between 1-2yrs), with a new
slab introduced (7.5% on gains between 2-4yrs), is negative and may trigger
selling/booking gains by companies/individuals having gains on books older than 2 years
before the measure comes into effect from Jul-15. In addition, increase in corporate tax
rate reduction of 1% as planned while addition of 3% for 1-yr to support on-going
operation against insurgency ,called Zarb-e-Azb and FATA/IDPs, resulting in 35% for nonbanking, and 39% for banking companies - will put pressure on corporate profits (5.2% YoY
average decline in profit growth for CY15/FY16), which may impact market in short term.
CY05
Cement, Power / IPPs, Automobiles, and a

select in the Textiles and Transportation
sectors remain in our focus with top picks
as LUCK, DGKC, FCCL, HUBC, KAPCO, PSMC,
PNSC and NML.
CY04
Federal Budget FY16 turns out to be Neutral-to-Negative for the capital market. Major
changes in the taxes on investors 2.5% increase in Capital Gains Tax (CGT) with additional
slab of 7.5% (on 2-4yr gains), 3% additional corporate tax rate in general (for 1yr), and 4% on
banking companies in particular (for 1yr), alongside increase in dividend tax by 2.5% (to
12.5%) with no relief on bonus tax (5%) - are all expected to keep KSE on the lower side in the
short-term, though long term attraction of Pak equities remains intact.
Budget Brief FY16
Budget FY16
KSE: Companies with Potential Higher Dividend
AHL Universe*
INDU
PSO
ENGRO
LUCK
PSMC
KOHC
DGKC
Other KSE100 Cos.*
41.9%
23.9%
24.6%
27.6%
27.4%
25.4%
30.8%
Additional DPS
over Paid-up
59.9
38.4
21.2
19.4
17.0
8.1
1.7
Revised
Payout
92.0%
84.9%
76.7%
76.2%
74.0%
59.8%
41.4%
Payout
Base Case
Additional
DPS FY16 (PKR)
Revised
Payout
53.0%
44.8%
14.0%
40.1%
0.0%
9.1%
24.2%
14.8%
28.8%
49.6%
46.0%
0.0%
31.6%
27.9%
44.7%
23.3%
0.0%
0.0%
0.0%
114.8
85.4
82.7
27.9
32.4
28.4
21.8
25.0
15.2
7.8
4.0
19.4
10.0
10.6
0.4
2.0
3.9
2.4
2.2
96.4%
94.5%
91.1%
84.8%
77.3%
77.2%
77.0%
76.6%
72.6%
72.3%
70.9%
67.2%
66.7%
66.0%
46.9%
36.8%
29.3%
20.3%
18.6%
FY16 EPS
FY16 Payout
119.4
62.9
40.7
39.9
36.5
23.6
16.2
Last Full-year EPS^
RMPL
264.3
BATA
171.9
IDYM
107.2
SRVI
62.4
PSEL
41.9
MARI
41.6
ATBA
41.3
MUREB
40.5
SHEZ
34.7
COLG
34.3
THALL
16.3
ATRL
28.9
PKGS
28.5
ABOT
27.9
ICI
17.9
POML
15.0
BNWM
13.4
SEARL
11.9
NRL
11.7
Source: Company Financials, AHL Research
Or Additional
Tax at 10%
6.0
3.8
2.1
1.9
1.7
0.8
0.2
Additional 10%
Tax Impact on Yearly EPS
5.0%
6.1%
5.2%
4.9%
4.7%
3.4%
1.1%
Revised DY
Or Additional
Tax at 10%
Additional 10%
Tax Impact on EPS
2.9%
5.1%
9.7%
7.8%
6.9%
6.7%
4.7%
3.0%
2.8%
1.5%
4.2%
9.2%
3.4%
3.0%
2.0%
3.6%
9.3%
0.9%
0.9%
11.5
8.5
8.3
2.8
3.2
2.8
2.2
2.5
1.5
0.8
0.4
1.9
1.0
1.1
0.0
0.2
0.4
0.2
0.2
4.3%
5.0%
7.7%
4.5%
7.7%
6.8%
5.3%
6.2%
4.4%
2.3%
2.5%
6.7%
3.5%
3.8%
0.2%
1.4%
2.9%
2.0%
1.9%
Revised DY
8.6%
13.9%
10.6%
6.3%
6.2%
7.5%
5.0%
*Companies with Reserves at/over 100% of Paid-up Capital, to be additionally taxed at 10% if leftover reserves/earnings from payout clocks in at/over 100% of the Paid-up Capital
(excluding Banks, Modarabas and Public sector companies where government stake is at/over 50%). ^Assuming other KSE100 companies keeping at least same growth in profits.
17
Budget Brief FY16
Budget FY16
Companies with Reserves over 100% of Paid-up
AHL Universe
PNSC
Pak National Shipping Corp
DGKC
D. G. Khan Cement Co.
NML
Nishat Mills Ltd.
ENGRO
Engro Corporation Ltd.
PPL
Pak Petroleum Ltd.
NPL
Nishat Power Ltd.
Other KSE100 Companies
PKGS
Packages Ltd.
IDYM
Indus Dyeing Manufacturing Co. Ltd.
ATRL
Attock Refinery Ltd.
SHEZ
Shezan International Ltd.
ATBA
Atlas Battery Ltd.
ARPL
Archroma Pakistan Ltd.
BNWM
Bannu Woollen Mills Ltd.
MTL
Millat Tractors Ltd.
IGIIL
IGI Insurance Ltd.
ATLH
Atlas Honda Ltd.
EFUG
EFU General Insurance
PSEL
Pakistan Services Ltd.
GHGL
Ghani Glass Mills Ltd.
AHCL
Arif Habib Corporation Ltd.
CHCC
Cherat Cement Company Ltd.
OLPL
Orix Leasing Pakistan Ltd.
SNGP
Sui Northern Gas Ltd.
GATM
Gul Ahmed Textile Mills Ltd.
GLAXO
Glaxosmithkline (Pak) Ltd.
JGICL
Jubilee General Insurance Co. Ltd.
SHEL
Shell Pakistan Ltd.
KTML
Kohinoor Textile Mills Ltd.
NESTLE
Nestle Pakistan Ltd.
SRVI
Service Ind.
Source: Company Financials, AHL Research
Paid-up Capital (PKR mn as of Reserves (PKR mn as of

Mar-15)
Mar-15)
1,321
22,000
4,381
42,705
3,516
33,308
5,238
17,497
19,717
52,845
3,541
6,814
864
181
853
73
174
341
95
443
1,227
1,034
1,600
325
1,232
4,538
1,051
821
5,766
1,828
3,185
1,569
1,070
2,455
453
120
44,766
5,022
19,493
1,099
1,478
2,803
706
3,264
8,471
6,879
9,513
1,869
5,947
21,213
3,813
2,162
14,458
3,580
6,184
2,750
1,711
3,714
516
124
Reserves* to Paid-up
Ratio
16.7
9.7
9.5
3.3
2.7
1.9
51.8
27.8
22.9
15.1
8.5
8.2
7.4
7.4
6.9
6.7
5.9
5.7
4.8
4.7
3.6
2.6
2.5
2.0
1.9
1.8
1.6
1.5
1.1
1.0
*Total Accumulated Reserves as of Mar-15 Financials
18
Budget Brief FY16
Budget FY16
Key Measures & Expected Impacts
Furthermore, mandatory cash dividend stands against

accumulation of reserves, thus business expansion needs will
be hindered by insufficient cash accumulations. Moreover, if
applied in its proposed form, its can be legally challenged on
the basis that it is being applied retrospectively (on past
earnings), so we believe govt will review it.
Thus, we expect the new Finance Act to incorporate the
amended form of the mandatory dividend clause soon as: 1)
dividend out of free reserves which are to be accumulated
out of profit only from Jul-15 onwards with addition from
unappropriated profit accumulating the base for dividend or
additional tax or bonus considerations, or 2) the same would
be subject to a hurdle payout i.e. 50% to avoid additional tax
instead of all accumulated reserves for dividend.
Few other positives, such as, increased tax incentive for new
enlistment to 20% should help increase breath and depth of
the market (more IPOs), and indirect measures like 47% YoY
reduction in power subsidies, 29% YoY higher PSDP allocation
alongside commitment on privatization program (PKR 50bn)
will keep the KSE buoyant in the long term.
We believe, increased documentation and improved macros
(higher growth, weak CPI, reduced interest rates, stable
externals with improved fiscals) are larger positives. KSE
remains attractive with PER at 8.7x (36% disc. to region)
while offering massive DY of 5.9% (56% disc. to region).
Key Measures
Potential
Impact
Corporate tax rate effectively increased to 35% (3% super tax)

for non-banking (with profits at/over PKR 500mn) and 39%
(including 4% super tax) for banking companies for 1 year.
Negative
New slab for investment between 2-4 years levied with CGT
at 7.5%.
Negative
35% uniform tax rate levied on all income of banks.
Negative
Mandatory cash payout for corporate having reserves 100% in

excess of their paid-up capital (accumulated reserves
excluding capital reserve, share premium reserves and
reserves required under any law, rules & regulation, as
defined in the Finance Bill 2015).
Negative
Tax on dividend income increased by 2.5% to 12.5%.
Negative
Tax on bonus shares unchanged at 5%.
Neutral
Tax rate on shares sold within a year and between 1-2 years
increased by 2.5% to 15% and 12.5%, respectively.
Neutral
Tax Credit to be enhanced to 20% in FY16 from 15% previously

on newly listed companies, while tax credit for investment in
an industrial undertaking established before July 1, 2011,
with 100% new equity raised through issuance of new shares,
has been enhanced from 4 to 5 years.
Positive
Tax credit limit for individual investors for investment in new

companies quoted on stock exchange is proposed to be
enhanced from PKR1.0mn to PKR1.5mn.
Positive
19
Budget Brief FY16
Budget FY16
Impacts on Key Sectors, Recommended Stance
Sector
Budgetary Impact
Stance
Top Picks
Cement
Positive
Overweight
LUCK, DGKC, FCCL
Power / IPPs
Positive
Overweight
HUBC, KAPCO
Automobiles
Neutral to Positive
Market-weight
PSMC
Textile
Neutral to Positive
Market-weight
NML
Transportation
Neutral to Positive
Market-weight
PNSC
Fertilizer
Neutral
Market-weight
ENGRO, EFERT, FFBL
Telecom
Neutral
Market-weight
PTC
E&Ps
Neutral
Market-weight
POL, PPL
Oil Marketing
Natural
Market-weight
PSO
Banks
Neutral to Negative
Market-weight
UBL, MCB
Other Sectors
Neutral to Positive for Foods &

Beverages, Textile Clothing &
Footwear and Power, Neutral to Market-weight
Negative for Media &
Technology
EFOODS, NESTLE, UPFL, GATL, ADMM, CHBL,

DLL, SFL, BATA, SRVI
20

Key Sectors
Budget Brief FY16
Cement Positive
Budgetary Measures
Impact
Comment
Positive
With strong correlation of 0.96x between PSDP and cement

demand, we expect the decision to increase PSDP allocation
would be pivotal in generating cement demand. The key
allocation to China-Pak Economic Corridor stands at PKR 146bn
alongside other key projects i.e. Basha Dam (initial phase),
Dasu Hydropower project, Tarbela IV extension, Karachi-Lahore
Motorway.
Imposition of import duty on imported coal has

been increased by 5%, from 1% previously.
Neutral
Imposition of import duty on imported cement by

20%.
Positive
Reduction in corporate tax rate by 1% to 32% and

imposition of super tax by 3% for 1 year.
Negative
This would eventually increase coal prices by ~USD 2.9/ton

while to pass-on this impact local manufacturers need to
increase cement price by ~PKR 2.5/bag. In case of no pass-on
of the same, the companies would take an annualized earnings
impact of 1.3%-2.2% on their bottomline.
According to our estimates the imported cement comprises only
1% of total market (~200k tons). We believe the development
would be positive for the local cement manufacturers but the
quantum will be too small.
This should decrease the bottomline by a net 3% for the sector.
The government has allocated PKR 700bn for

federal PSDP for FY16B - 29% higher than the
revised PSDP target of PKR 542bn in FY15. Total
PSDP for FY16B is PKR 1.5trn, including provincial
share, versus revised budgeted/estimated PKR
1.2trn for FY15.
Top Picks (1Yr - Fwd)

Company
P/E
DGKC
8.4
LUCK
12.1
FCCL
9.3
Source: KSE, AHL Universe
P/B
0.8
2.0
2.6
DY (%)
3.7
2.3
8.0
RoE (%)
10.2
17.9
29.1
Target Price
167.5
596.9
41.8
Current Price
135.4
483.5
34.5
Upside (%)
23.7
23.5
21.0
22
Budget Brief FY16
Power / IPPs - Positive

Budgetary Measures
Impact
A steep cut in the subsidies of power sector in

the budget FY16, to PKR 118bn compared to the
revised target of PKR 221bn for FY15.
Reduction in corporate tax rate by 1% from

33%and imposition of super tax at 3% for 1 year.
Withholding tax on the dividends from power
sector to be kept at 7.5%.

Company
P/E
KAPCO
7.9
HUBC
9.5
P/B
2.6
3.3
Positive
Negative
Positive
DY (%)
11.5
10.2
Comment
The govt is targeting PKR 118bn for power subsidies (PKR 98bn
for WAPDA and PKR 20bn for KEL) during FY16, massively down
47% as compared to FY15 revised target of PKR 221bn (PKR
185bn for WAPDA and PKR 36bn for KEL). By lowering the
subsidy target, the govt will pass the actual cost to end
consumers, therefore be able to manage circular debt more
effectively, thereby helping improve IPPs liquidity positions
and positive impacts on companies payouts.
Power sector has exemptions from corporate/income tax.
However, only KAPCO is subject to corporate tax and would
have net negative 3% impact on the bottomline for FY16.
Rate of withholding tax on dividend from power projects (IPPs)
remain unchanged at 7.5%, which bodes well for the high
dividend-yielding stocks i.e. KAPCO, NCPl and NPL.
RoE (%)
33.8
35.7
Target Price
89.5
94.1
Current Price
87.0
97.0
Upside (%)
3.0
(3.0)
23
Budget Brief FY16
Automobiles Assemblers Neutral to Positive

Budgetary Measures
Impact
Comment
Reduction in withholding tax on token tax and

transfer of vehicles. Rate of advance income tax
to be reduced by ~20-25% for filers.
Positive
Reduction in tax should make automobiles cheaper for

consumers, and increase demand of all three major local
assemblers products (INDU, PSMC, HCAR).
Reduction in corporate tax rate by 1% to 32% and

imposition of super tax of 4% on income for tax
year 2015.
Negative
This is a one-time tax (for FY16/CY15), which will nevertheless

have a downward earnings impact (~2-3% on annualized EPS) on
the sector.
Reduction in sale tax on agricultural machinery

from existing 17% to 7% (reduced rate on
particular parts of the tractor industry).
Positive
This should augur well for tractor companies, namely Millat

Tractors (MTL) and Al-Ghazi Tractors (AGTL) in boosting sales
volumes.
Sales tax on Tractors has been kept unchanged at

10%.
Neutral
This should help sustain Tractor companies sales volumes.

Company
P/E
PSMC
9.0
P/B
1.6
DY (%)
2.3
RoE (%)
19.1
Target Price
425.2
Current Price
435.1
Upside (%)
(2.3)
24
Budget Brief FY16
Textiles Neutral to Positive

Budgetary Measures
Impact
Comment
Positive
Will provide further incentives to the manufacturers, e.g

subsized machinery import, increase in rebate, lower gas rates
and higher availability of gas. NML stands to benefit the most
as companys exports make up over 70% of the topline.
Since 1st July 2015, Export Refinance Facility and

Long Term Finance Facility will be available for
textile-exporters at reduced rates i.e. at 4.5% (6%
earlier) and 6% (7.5% earlier), respectively.
Positive
Availability of cheaper financing will encourage exporters to

boost exports. In this regard, NCL will benefit the most as its
debt-equity stands highest at 2.12x followed by NML.
The Custom Duty on import of textile machinery

under SRO 809 is zero for the FY16 as well.
Positive
This measure should encourage production and lead to

creation of competition in the industry and internationally.
The benefit of drawback of local taxes and levies

scheme shall remain available for the textile
exporter in the FY16 under which they shall be
entitled to the drawback on FOB values of their
enhanced exports if increased beyond 10% of their
previous years exports.
Neutral
This is similar to last year, however should help textile

manufacturers to avoid under invoicing. This would at least
help to maintain exports at current levels.
Under Textiles Policy 2014-19 financial package of

PKR 64.15 billion has been approved in order to
double the textiles exports by the year 2019.
In order to facilitate and incentivize the investments

in plants and machinery, Technology Up-gradation
Neutral
Fund Scheme will be launched in the FY16, as per
the provisions of Textiles Policy 2014-19.

Company
P/E
NML
7.6
P/B
0.6
DY (%)
4.4
Will encourage manufacturers to upgrade their machinery,

thus will improve efficiency and competitiveness of the sector.
RoE (%)
7.5
Target Price
145.0
Current Price
113.9
Upside (%)
27.3
25
Budget Brief FY16
Fertilizer Neutral
Budgetary Measures
Impact
Allocation of PKR 25bn for urea imports up 5%

YoY as compared to revised target of PKR
23.7bn in FY15.
The govt kept the Gas Infrastructure
Development Cess (GIDC) target at PKR 145bn,
same levels as revised target of last year.
Reduction in corporate tax by 1% to 32% and
Neutral
Neutral
Comment
Due to higher demand and lower production, the demand is
being met through urea imports. We estimate that govt will
be able to import 600k tons of urea from aforementioned
allocation (local prices at 15% discount to intl).
Despite stay on the bill by the court during FY15, the fertilizer
companies have been accruing (FFC, EFERT) while paying
partially (FFBL) GIDC on feed and fuel stocks. The recent
reinstatement of the bill by the Parliament and the Senate has
already been incorporated by the market.
Negative
Fertilizer manufacturers should have a negative impact of 3%

on their bottomline (impact taken for 2015 being the tax year).
Income tax exemption of 4-yr for the companies

which set up halal meat production plants and
obtain halal certification by 31-12-2016.
Positive
FFBL through its 100% owned subsidiary Fauji Meat Limited

(FML) is currently in process of setting up halal meat facility
and have to obtain halal certification. It is expected that FML
will fall under this scheme of 4-year income tax exemption.
Sales tax reduced to 7% from 17% on agriculture

machinery and equipment coupled with
interest-free loans for solar tube-wells for the
Agriculture sector in the budget FY16.
Positive
Support to farmers and incentive for agriculture would support

fertilizer offtake

Company
ENGRO
EFERT
FFBL
P/E
10.0
8.1
8.9
P/B
2.1
3.0
3.4
DY (%)
2.7
6.9
10.1
RoE (%)
21.2
41.7
36.8
Target Price
411.1
110.5
61.6
Current Price
295.4
87.4
49.4
Upside (%)
39.2
26.5
24.7

26
Budget Brief FY16
E&Ps, OMCs - Neutral

Budgetary Measures
Sharp cut in subsidies to PKR 118bn in FY16
compared to revised target of PKR 221bn for FY15.
RD on Crude Oil, Motor Spirit, HSD, FO and other

petroleum products has been slashed. Also, RD has
been replaced by custom duty of 2% for both MS and
Crude Oil. Conversely, custom duty for FO has
remained flat at 5%. Lastly, custom duty/deemed
duty on Diesel is unchanged at 7.5%.
Petroleum Levy' (PL) is targeted at PKR 135bn for
FY16B versus revised target of PKR 126bn for FY15R.
Impact
Comment
Positive
Higher subsidies remain major reason for filling wide gap

between cost of electricity and selling price, which has been
the major cause for circular debt, currently ~PKR 200bn. Lower
subsidies hint toward higher cost pass-on, while improving the
liquidity for the energy chain and thus lower the intensity of
circular debt.
Neutral
Concern on margin dent for companies on HSD removed.

Imposition of custom duty on Motor Spirit/High Speed Diesel
will be passed on to consumer, thus OMC margins are to be
intact. Lastly, 5% custom duty on FO is already incorporated in
price, thus again the margin dent for OMCs is not a concern.
Neutral
PL is a pass-through item for the OMCs.
Reduction in corporate tax rate by 1% to 32%, and

The companies in E&P and OMCs would have negative impact
Negative
of ~3% on their bottomline for the year FY16.
Federal Budget is more of a non-event for E&P companies as their major profitability aspects are driven through Petroleum
Policies. Furthermore, the govt disclosed its dividend expectations for FY16 of PKR 10/share, PKR 13.5/share and PKR 9.0/share
from OGDC, PPL and PSO, respectively.

Company
PPL
PSO
POL
P/E
8.2
6.1
8.1
P/B
1.5
1.0
2.5
DY (%)
7.3
3.9
11.5
RoE (%)
19.6
17.7
31.9
Target Price
230.4
461.2
450.8
Current Price
170.4
382.7
389.7
Upside (%)
35.2
20.5
15.7

27
Budget Brief FY16
Banks Neutral to Negative

Budgetary Measures
Impact
Comment
Negative
While banks in general were already paying an effective tax

rate of 32-34%, exclusion of tax benefit on capital gains (over 1
year at 12.5%) and dividends (10%-25%) should pull down
earnings by ~3-6% on average (AHL Universe Banks).
Imposition of super tax of 4% additional on income

of banking companies for 1 year (tax year 2015).
Negative
Imposition should impact all the banks with this additional tax
for the year 2015 (we expect banks to charge the liability
retrospectively for full-year 2015). This should trim down
earnings by a good 4-5%, but only for tax year 2015!
Cumulative earnings impact of both the tax measures for 1yr
i.e. 35% on all income with additional 4% super tax, ranges 812%, with NBP (12%), ABL (11.5%) being the most affected,
followed FABL (9.1%), BAFL (9%), HBL (8.7%), MCB (8.3%), with
UBL (8%) being the least affected.
0.6% on banking transactions by non-filers in excess

of PKR 50K/day
Neutral
A further increase in WHT would not cause a significant impact

to banks since its a pass-on item.
Income of banks from all sources, including dividend

and capital gains, are to be tax at a uniform rate of
35%.

Company
P/E
MCB
13.6
UBL
10.0
P/B
2.2
1.5
DY (%)
4.8
6.5
RoE (%)
16.6
15.8
Target Price
301.5
179.0
Current Price
272.8
169.7
Upside (%)
10.5
5.5
28
Budget Brief FY16
Other Sectors in the Limelight

Budgetary Measures
Impact
Comment
Dairy products, except milk, proposed to be

treated as exempt goods instead of zero rated.
Neutral to
Further dairy products (other than milk) sold as
Positive for
retail product is chargeable to tax at 10%. Duty on Foods
imported skimmed milk reduced from 25% to 20%.
While the 10% tax is a negative for EFOODS, due to the low
proportion of processed dairy products in its sales mix, the
impact is not significant as such. On the other hand, reduction
of duty on skimmed milk will help boost margins for the
companys main brand i.e. Olpers. Similar impacts may take
place for NESTLE and UPFL.
The government has slashed import duty on

skimmed milk powder from 25% to 20%.
Currently, there is a 20% import duty on skimmed milk, while

reduction in import duty should result in margin accretion for
EFOODS.
Positive for
Foods
Positive for
Sales tax at 5% on second-hand and worn clothing value-added
and footwear has been imposed.
Textiles and
Footwear
Sales tax of 16% on TV/Radio ads has been

imposed.
Negative for
Media
Companies
Sales tax of 18.5% on call centers, 16% on

Negative for
services provided by software or IT based system Technology
development consultants has been imposed.
Stocks
This step should help increase demand of new clothing and

footwear, as cost of second-hand clothing and footwear items
goes up, making new clothing (GATL, ADMM, CHBL, DLL, SFL)
and footwear (BATA, SRVI) more attractive.
TV channels may suffer from this measure as advertisements

become more expensive, reducing demand for ad slots
(negative for HUMNL, MDTL) unless it is passed on.
These taxes should be a potential negative for the technologybased companies, such as TRG (internet based consultant and
call center), NETSOL (internet based consultant), SYS and AVN.
29
Budget Brief FY16
Other Sectors, Contd

Budgetary Measures
Impact
Comment
Reintroduction of the rationalized International

Clearing House (ICH) arrangement. Further, 14%
Neutral for
sales has been imposed on internet prepaid card /
Telecom
prepaid telephone card or sale of units through
any electronic medium.
Despite the failure of the original ICH arrangement in curbing

grey traffic, as well as decreasing international calling
minutes, the government has announced rationalizing calling
rates in new ICH scenario. This will be highly positive for
telecom operators, PTC in particular as all international calls
were routed through PTCs network in the last ICH
arrangement. However, the actual calling rates will be key
factor to determine the true impacts on companys profits.
Imposition of 14% sales tax on prepaid internet cards should be
a pass-on item thereby not impacting companys profits.
Positive for
Marine
Transport
Governments focus of growth via international trade is

evident through PKR 12bn allocation of PSDP for ports and
shipping. All companies in marine transport (PICT, PNSC and to
a lesser extent, PIBT as its not yet operational) stand to
benefit from increased investment allocation for the sector.
Zero rating regime for import of specific

machinery, tools and other equipment for aviation
sector. The government is also looking to open
Positive for
airline routes in remote areas and with that aim in Airlines
mind, have exempted areas like Gilgit, AJK, etc
from FED and WHT.
Exemption from customs duties and sales tax on airlines is a

distinct positive for the aviation sector (especially for PIAA).
Furthermore, to increase aviation sectors contribution to GDP,
the government is opening up air routes to remote areas which
will again provide a much-needed boost to the industry.
Positive for
Increase in FED on aerated drinks from 9% to 12%. Food &
Beverages
Increase in FED on carbonated drinks (Pepsi, Coke etc.) will

naturally boost sales of substitute products like Fruit Juices,
Fruit Juice concentrates, Flavored Milk, etc. Companies to
benefit from this development include NESTLE, MUREB, SHEZ,
EFOODS, MFFL, QUICE and RMPL.
Allocation of PKR 12bn of PSDP to Ports and

Shipping has been made.
30
Budget Brief FY16
Other Sectors, Contd

Budgetary Measures
Impact
Comment
Increase in duty on MEG from 1% to 2%.

However, duty on Ethylene has been reduced to
2% from 5%.
Neutral for
Chemicals
Since MEG is the raw material to produce PSF, this duty

increase on MEG is expected to bode negative for ICI, while
positive for EPCL as Ethylene is a raw material to produce EDC
(Ethylene Dichloride) where the duty has been slashed.
Tax exemption has been given to the Electricity

Transmission Projects for a period of 10 years, if
the project is setup by Jun18.
Neutral to
Positive for
Electricity
Transmission
This should bode well for transformer sales. In particular, this

development bodes well for PAEL, as sales of company would
augur given 42% contribution of power business to the total
company sales.
31
Budget Brief FY16
Recommendation Summary
S.No
Company
Symbol
Price*
E&P
PPL
1
Pakistan Petroleum Ltd.
170.4
OGDC
2
Oil and Gas Dev Co.
187.5
POL
3
Pakistan Oilfields Ltd.
389.7
Banks
FABL
4
Fay sal Bank Ltd.
16.3
ABL
5
Allied Bank Ltd.
102.5
UBL
6
United Bank Ltd.
169.7
MCB
7
MCB Bank Ltd.
272.8
MEBL
8
Meezan Bank
45.5
BAFL
9
Bank Alfalah
26.5
HBL
10
Habib Bank Ltd^^
209.1
NBP
11
National Bank of Pakistan
55.0
Fertilizer
ENGRO
12
Engro Corporation
295.4
FFBL
13
Fauji Fert. Bin Qasim
49.4
EFERT
14
Engro Fertilizer
87.4
FFC
15
Fauji Fertilizer Co.
142.7
FATIMA
16
Fatima Fertilizer Company *
39.0
AHCL
17
Arif Habib Corporation Ltd.*
39.6
Cem ent
FECTC
18
Fecto Cement
69.5
ACPL
19
Attock Cement Ltd.
190.9
LUCK
20
Lucky Cement Ltd.
483.5
KOHC
21
Kohat Cement Company
187.5
DGKC
22
D.G. Khan Cement Co.
135.4
FCCL
23
Fauji Cement Company
34.5
MLCF
24
Maple Leaf Cement Factory
77.1
POWER
25
Pow er Cement*
8.1
Oil Marketing
PSO
26
Pakistan State Oil
382.7
APL
27
Attock Petroleum Ltd.
539.9
Autos
INDU
28
Indus Motor Company
1279.3
PSMC
29
Pak Suzuki Motor Co.
435.1
Power
KAPCO
30
Kot Addu Pow er Co.
87.0
HUBC
31
Hub Pow er Company
97.0
NPL
32
Nishat Pow er Limited
55.1
NCPL
33
Nishat Chunian Pow er Ltd.
61.2
Textiles
NCL
34
Nishat (Chunian) Ltd.
35.1
NML
35
Nishat Mills Ltd.
113.9
Chem ical
EPCL
36
Engro Poly mer & Chem.
9.3
LOTCHEM
37
Lotte Chemical Pak Ltd.
6.5
Fixed Line Telecom
PTC
20.6
36
Pak Telecom Co. Ltd**
Industrial Transporation
PNSC
108.0
37
Pak. National Shipping Corp
Cable & Electrical Goods
PAEL
72.8
38
Pak Elektron Ltd
Health Care Equipm ent & Services
39
Shifa Int'l Hospitals
SHFA
270.4
EPS
DPS
P/E
Targe t
Price
Dec-15
Upside/
Downside
Stance
230.4
229.3
450.8
35%
22%
16%
Buy
Buy
Buy
1,972
4,301
237
26.08
28.81
54.48
20.50
22.91
38.64
20.80
23.00
47.86
11.00
10.50
60.10
12.50
12.50
35.00
12.50
12.50
45.00
6.53
6.51
7.15
20.5
118.3
179.0
301.5
51.5
26.7
200.9
50.1
26%
15%
5%
11%
13%
1%
-4%
-9%
Buy
Buy
Hold
Buy
Buy
Hold
Hold
Hold
1,043
1,145
1,224
1,113
1,003
1,587
1,467
2,128
2.37
13.11
17.91
21.85
3.55
21.69
7.06
3.74
12.85
17.02
20.09
3.81
19.13
4.91
3.87
14.82
19.08
22.33
3.34
21.82
6.13
6.50
11.50
14.00
2.00
12.00
5.50
7.00
11.00
13.00
2.30
11.00
4.00
0.50
9.00
12.00
14.00
2.00
12.00
5.00
411.1
61.6
110.5
147.8
NC
NC
39%
25%
26%
4%
na
na
Buy
Buy
Buy
Hold
NC
NC
524
934
1,318
1,272
2,100
454
14.89
4.30
6.23
14.28
4.41
5.08
29.55
5.53
10.76
13.76
na
na
40.71
6.32
12.75
15.43
-
6.00
4.00
3.00
13.65
2.75
2.50
8.00
5.00
6.00
13.00
na
na
96.8
282.0
596.9
220.1
167.5
41.8
69.8
NC
39%
48%
23%
17%
24%
21%
-9%
na
Buy
Buy
Buy
Buy
Buy
Buy
Hold
NC
50
115
323
155
438
1,331
528
366
11.86
17.59
35.08
20.42
13.62
1.97
5.36
(0.20)
12.85
22.22
38.11
20.74
15.17
3.06
6.84
-
13.99
22.91
39.91
23.64
16.22
3.69
7.22
-
2.50
13.00
9.00
2.00
3.50
1.50
-
461.2
579.4
21%
7%
Buy
Hold
272
83
80.31
52.16
37.77
38.22
62.86
54.89
1165.0
425.2
-9%
-2%
Hold
Hold
79
82
49.28
27.22
120.83
48.09
89.5
94.1
47.5
49.7
3%
-3%
-14%
-19%
Buy
Hold
Hold
Hold
880
1,157
354
367
8.78
5.66
8.24
7.90
145.0
27%
Buy
352
8.9
37%
Buy
1,514
Shares
(mn)
Div. Yield
P/B
ROE
Indices
2014
2015
2016
2014
2015
2016
2014
2015
2014
2015
2014
2015
2014
2015
8.31
8.18
10.09
6.5%
5.6%
15.4%
7.3%
6.7%
9.0%
1.85
2.04
2.62
1.66
1.80
2.70
31.0%
35.0%
37.8%
21.1%
23.3%
26.4%
KSE100, KSE30, KMI30 & MSCI

6.87
7.82
9.47
12.48
7.45
9.64
7.79
4.35
7.98
9.98
13.58
6.94
10.93
11.21
6.3%
6.8%
5.1%
7.6%
5.7%
10.0%
6.8%
6.5%
4.8%
8.7%
5.3%
7.3%
0.65
1.45
1.66
2.33
0.94
1.82
0.66
0.60
1.34
1.51
2.18
0.88
1.68
0.64
10.2%
20.4%
19.4%
20.2%
0.0%
14.7%
20.6%
9.0%
14.3%
17.5%
15.8%
16.6%
0.0%
13.1%
16.0%
5.8%
KSE100
KSE100 & BKTI
KSE100, KSE30, BKTI & MSCI
KSE100
KSE100, KSE30 & BKTI
KSE100, KSE30, BKTI
10.00
5.00
7.00
15.00
na
na
19.83
11.48
14.04
9.99
8.85
7.79
9.99
8.92
8.12
10.37
na
na
2.0%
8.1%
3.4%
9.6%
7.0%
6.3%
2.7%
10.1%
6.9%
9.1%
na
na
2.15
3.17
3.91
7.16
na
na
2.08
3.40
2.98
6.81
na
na
12.2%
28.4%
29.7%
72.0%
26.6%
9.1%
21.2%
36.8%
41.7%
67.4%
na
na
KSE100, KSE30 & MSCI

KSE100, KSE30 & KMI30
KSEALL
KSE100, KSE30
KSE100
3.00
12.00
10.00
4.00
4.00
2.50
2.00
na
4.00
14.00
11.00
6.00
5.00
2.75
3.00
na
5.86
10.86
13.78
9.18
9.95
17.48
14.38
nm
5.41
8.59
12.69
9.04
8.93
11.26
11.28
na
3.6%
6.8%
1.9%
1.1%
2.6%
4.3%
-
4.3%
6.3%
2.1%
2.1%
3.0%
7.2%
2.6%
na
1.47
2.59
3.14
3.37
0.96
2.91
4.17
2.08
1.21
2.27
2.33
2.49
0.89
2.82
3.05
na
27.8%
24.7%
25.0%
43.1%
10.9%
16.6%
34.3%
-5.1%
24.5%
28.2%
21.1%
31.7%
10.4%
25.4%
31.2%
0.0%
KSEALL
KSE100
KSE100
KSEALL
8.00
45.00
14.00
32.50
15.00
50.00
4.77
10.35
10.13
14.13
2.1%
8.3%
3.7%
6.0%
1.32
3.25
1.16
3.04
31.0%
31.1%
12.2%
22.2%

119.36
36.55
29.50
4.00
55.00
10.00
50.00
10.00
25.96
15.99
10.59
9.05
2.3%
0.9%
4.3%
2.3%
5.05
1.86
4.11
1.61
20.6%
12.1%
42.8%
19.1%
10.33
7.50
8.49
8.18
11.07
10.19
8.77
8.20
6.50
6.50
4.00
6.50
8.50
7.26
6.00
7.40
10.00
9.85
7.00
7.80
9.91
17.13
6.69
7.75
8.42
12.94
6.49
7.48
7.5%
6.7%
7.3%
10.6%
9.8%
7.5%
10.9%
12.1%
2.77
3.62
1.89
3.19
2.69
3.55
1.66
2.93
29.1%
20.6%
29.8%
40.5%
32.4%
27.7%
27.2%
40.9%
15.68
10.83
15.02
4.00
7.27
10.52
3.5%
3.5%
0.61
0.55
8.5%
5.2%
KSE100 & KSE30

(0.73)
(0.45)
(0.17)
nm
nm
1.07
1.09
-10.6%
-7.4%
KSEALL
KSEALL
Under Review
4.00
5.00
Under Review
-
Under Review
KSE100
KSE100
KSE100 & KSE30
KSE100
KSE100
170.0
57%
Buy
132
16.27
13.89
17.20
1.50
1.50
1.50
6.64
7.78
1.4%
1.4%
0.63
0.57
10.0%
7.7%
78.5
8%
Hold
398
5.63
6.33
7.86
1.00
1.50
12.92
11.49
1.4%
2.63
2.20
25.5%
20.8%
KSE100, KSE30
KSEALL
299.9
11%
Buy
51
9.18
11.10
17.91
3.00
4.00
5.00
29.46
24.37
1.1%
1.5%
7.23
5.94
26.7%
26.8%
KSE100, KSEALL
* Group Company , **Earning Consolidated Basis, ^based on new number of shares, Closing price as of Jun 05, 2015.
32
Budget Brief FY16
Disclaimer
Analyst certification: The analysts for this report certify that all of the views expressed in this report accurately reflect their personal
views about the subject companies and their securities, and no part of the analysts compensation was, is or will be, directly or indirectly
related to specific recommendations or views expressed in this report.
Disclosures and disclaimer: This document has been prepared by investment analysts at Arif Habib Limited (AHL). AHL investment
analysts occasionally provide research input to the companys Corporate Finance and Advisory Department.
This document does not constitute an offer or solicitation for the purchase or sale of any security. This publication is intended only for
distribution to current and potential clients of the Company who are assumed to be reasonably sophisticated investors that understand
the risks involved in investing in equity securities.
The information contained herein is based upon publicly available data and sources believed to be reliable. While every care was taken to
ensure accuracy and objectivity, AHL does not represent that it is accurate or complete and it should not be relied on as such. In
particular, the report takes no account of the investment objectives, financial situation and particular needs of investors. The
information given in this document is as of the date of this report and there can be no assurance that future results or events will be
consistent with this information. This information is subject to change without any prior notice. AHL reserves the right to make
modifications and alterations to this statement as may be required from time to time. However, AHL is under no obligation to update or
keep the information current. AHL is committed to providing independent and transparent recommendation to its client and would be
happy to provide any information in response to specific client queries. Past performance is not necessarily a guide to future
performance. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any
investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make
such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred
to in this document (including the merits and risks involved), and should consult his or her own advisors to determine the merits and risks
of such investment. AHL or any of its affiliates shall not be in any way responsible for any loss or damage that may be arise to any person
from any inadvertent error in the information contained in this report. We and our affiliates, officers, directors, and employees may: (a)
from time to time, have long or short positions in, and buy or sell the securities thereof, company (is) mentioned herein or (b) be engaged
in any other transaction involving such securities and earn brokerage or other compensation or act as advisor to such company (is) or have
other potential conflict of interest with respect to any recommendation and related information and opinions. The disclosures of interest
statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of
the views expressed in the report. AHL generally prohibits it analysis, persons reporting to analysts and their family members from
maintaining a financial interest in the securities that the analyst covers.
2015 Arif Habib Limited: Corporate Member of the Karachi, Lahore and Islamabad Stock Exchanges and Pakistan Mercantile Exchange
Limited. No part of this publication may be copied, reproduced, stored or disseminated in any form or by any means without the prior
written consent of Arif Habib Limited.
33
Budget Brief FY16
Contact
Shahid Ali Habib
Chief Executive Officer
shahid.habib@arifhabibltd.com
+92 -21-3240-1930
Research Team
Khurram Schehzad
Shahbaz Ashraf, CFA
Saad Khan
Tahir Abbas
Ahmed Lakhani
Rao Aamir Ali
Ovais Shakir
EVP- Director, Research & Investment Strategy

VP- Deputy Head of Research
AVP- Senior Investment Analyst
AVP- Senior Investment Analyst
Investment Analyst
Manager Database
Officer- Database
k.shehzad@arifhabibltd.com
shahbaz.ashraf@arifhabibltd.com
saad.khan@arifhabibltd.com
tahir.abbas@arifhabibltd.com
ahmed.lakhani@arifhabibltd.com
amir.rao@arifhabibltd.com
ovais.shakir@arifhabibltd.com
+92-21-3246-0742
+92-21-3246-2589
+92-21-3246-1106
+92-21-3246-2589
+92-21-3246-1106
+92-21-3246-0742
+92-21-3246-1106
Equities Sales Team

M. Yousuf Ahmed
Syed Farhan Karim
Farhan Mansoori
Afshan Aamir
Atif Raza
Azhar Javaid
Furqan Aslam
Usman Taufiq Ahmed
SVP- Equity Sales

VP- Equity Sales
VP- Equity Sales
VP- Equity Sales
VP- Equity Sales
AVP- Equity Sales
AVP- Equity Sales
AVP- Equity Sales
yousuf.ahmed@arifhabibltd.com
farhan.karim@arifhabibltd.com
farhanmansoori@arifhabibltd.com
afshan.aamir@arifhabibltd.com
atif.raza@arifhabibltd.com
azhar.javaid@arifhabibltd.com
furqan.aslam@arifhabibltd.com
usman.ta@arifhabibltd.com
+92-21-3242-7050
+92-21-3244-6255
+92-21-3242-9644
+92-21-3244-6256
+92-21-3246-2596
+92-21-3246-8312
+92-21-3240-1932
+92-21-3240-1932
34

Pakistan Budget Review FY16

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Pakistan Budget Review|FY16

A Cautious Walk towards Growth

Budget Brief FY16

Companies with Reserves over 100% of Paid- up

A Cautious Walk towards Growth

Key Measures & Expected Impacts

Impacts on Key Sectors, Recommended Stance

Gradual Move towards Direct Taxation

Tightening the Belt

More Growth- Prone Expenditure the better

Shifting Financing from Domestic to Foreign

Power / IPPs Positive

Automobile & Parts Neutral to Positive

Textiles Neutral to Positive

E&P, OMCs Neutral

Banks Neutral to Negative

Key Revenue Measures

Key Relief Measures

Key Income Tax Measures

Other Sectors in the Limelight

Sales Tax and Federal Excise Duty

KSE: Companies with Potential higher Dividend

Budget Brief FY16

Expenditure reduction - limited scope to cut aggressively:

Policy reforms to boost productive growth:

We believe there is limited scope for the government

Budget Brief FY16

Exhibit: FY15, Budget snapshot taken as %age of GDP

Budget FY16 at glance

Total Outlay is projected at PKR 4.3trn, up by 9% YoY.

Tax Revenues are projected at PKR 3.4trn (3.1trn by FBR), which

Current Expenditures are estimated at PKR 3.2trn, relatively

Public Sector Development Program expenditure is estimated to

Provincial Surplus is projected to grow by 110%, to PKR 297bn.

Total Fiscal Deficit for FY16 is projected at PKR 1.3trn, or 4.3% of

In order to meet the expenditure domestic borrowing has been

Fiscal Deficit / GDP

Total Expenditure / GDP

Source: MoF, AHL Research

Budget Brief FY16

Fiscal Deficit / GDP

Budget Brief FY16

Given a recovery in growth and imposition of one-off tax burdens,

Exhibit: Ambitious on tax revenue collection

Non - Tax Revenues

This growth in tax collection is estimated on the back of

Indirect taxes are projected to grow by 17% YoY to PKR 1.8trn,

Non-tax revenues are targeted at PKR 0.89trn (PKR 1.0trn in FY15)

Tax-GDP is estimated at 11.1% for FY16 against 10.6% in FY15.

Budget Brief FY16

Total expenditures higher-than-budgeted in FY15, but expected to

Current expenditure is estimated at PKR 3.43trn, mainly led by

Exhibit: Expenditure is forecasted to decelerate

Subsidies are reduced by PKR ~105bn, to PKR 138bn versus PKR

Overall Development expenditure is estimated to go up by 27%

Source: MoF, AHL Research

Budget Brief FY16

Exhibit: A massive increase in motorways and hydro power plants in

Significant growth in overall PSDP allocation

Overall size of PSDP is targeted at PKR 1.51trn, or 4.9% of the GDP,

Development Budget / GDP

Public Sector Development Expenditure

Source: MoF, AHL Research

Budget Brief FY16