To be recognized as a leader and a brand synonymous with trust, highest standards of service quality, international best practices and social responsibility. Institutionalizing a merit and performance based culture Creating a distinctive brand identity by providing the highest standards of services Adopting the best international management practices Maximizing stake-holders’ value Discharging our responsibility as a good corporate citizen of Pakistan and in countries where we operate Highest standards of integrity Institutionalizing a teamwork and performance culture Excellence in services Advancement of skills for tomorrow’s challenges Awareness of social and community responsibility Value creation for all stakeholders 1/197 INDUSTRY & ECONOMIC BULLETIN - 2017 QUARTERLY ECONOMIC UPDATE FOLLOWED BY COMPARATIVE SECTORAL RESEARCH & RATINGS TO RANK INDUSTRY PERFORMANCE, OPPORTUNITIES & RISKS WITH RECOMMENDATIONS ON STRATEGIC SECTORAL POSTURING Quarter I/March 2017 A strategic tool to preempt increases in risk and proactive identification of opportunities. RESEARCH DIVISION CREDIT MANAGEMENT GROUP (CMG), NBP 2/197 CONTENTS ECONOMIC OUTLOOK International Economic Outlook Update 06 Pakistan Economic Outlook 08 Monetary Policy- January 2017 10 INDUSTRY RATINGS & ANALYSIS SCOPE & METHODOLGY OF SECTORAL RATINGS 12 Industry Rating Criteria & Scorecard 12 Industry Ratings and Classification 13 Key Points Regarding the Use of Ratings 13 Key Assumptions 14 Data/Information Sources & Sector List 15 INDUSTRY SYNOPSIS: KEY ISSUES, OPPORTUNITIES & OUTLOOK (SME Sectors shown in bold) 1. Agro-Chemicals 17 2. Automotive - Assemblers/Manufacturers 20 3. Automotive - Parts & Accessories 27 4. Carpets & Rugs 32 5. Cement 36 6. Chemicals (inc. Plastic & Rubber Products) 42 7. Construction 46 8. Edible Oil 50 9. Energy – Coal 54 10. Energy - Gas Generation & Distribution 58 11. Energy - Oil & Gas Exploration 62 12. Energy - Oil (Petroleum Distribution/Marketing) 67 13. Energy - Oil (Petroleum Refining) 73 14. Energy – Power Generation & Distribution (IPPs) 77 15. Fertilizers 85 16. Financial Institutions 88 17. Food, Beverages & Consumer Products 95 18 .Glass & Ceramics 99 19. Information Technology 103 20. Leather Products 111 21. Machinery & Equipment 115 22. Metallic Products (Iron & Steel) 120 23. Pharmaceuticals 124 24. Sports Products 130 25. Sugar 135 26. Surgical, Precision, Optical Equipment 139 27. Telecommunications 142 28. Textiles – Composite 148 Textile Industry- An Analysis 149 3/197 29. Textiles - Fabrics (Weaving) 155 30. Textiles - Knits & Knit Apparel 156 31. Textiles – Spinning 157 32. Textiles - Synthetic Fibers/Polyester 158 33. Textiles - Woven Apparel 159 34. Tobacco Products 160 35. Transport – Air 164 INDUSTRIES RATED RANKING BY BUSINESS ENVIRONMENT 171 By Demand Volatility 171 By Supply Volatility 172 By Corporate Governance & Control Structure 173 By Strength of Competition 174 By Barriers to Entry 175 By Litigations 176 By Price Elasticity 177 By Exposure (Foreign Exchange Risk) 178 By Exposure (Interest Rate Risk) 179 COMPOSITE RANKING BY BUSINESS ENVIRONMENT 180 RANKING BY PROFITABILITY & FINANCIAL STRENGTH 181 By Interest Coverage 181 By Debt/Equity 182 By Current Ratio 183 By Quick Ratio 184 By Cash Ratio 185 By Net Profit Margin 186 By Total Assets Turnover 187 By ROA & ROE 188 By Solvency 189 COMPOSITE RANKING BY PROFITABILITY/FINANCIAL STRENGTH 190 RANKING BY BUINESS OUTLOOK & MACRO ENVIRONMENT 191 By Business Outlook 191 By Industry/Business Life Cycle 192 By Correlation with GDP Growth 193 By Regulatory/Govt. Support-Future Expectations 194 COMPOSITE RANKING BY BUSINESS OUTLOOK 195 COMPOSITE INDUSTRY RANKINGS 2015 196 Appendix: LIST OF ACRONYMS 197 4/197 ECONOMIC OUTLOOK 5/197 INTERNATIONAL ECONOMIC OUTLOOK UPDATE [Based on IMF World Economic Outlook (WEO) Update, January 2017] FORECAST 1. Global growth projected to be 3.4% and 3.6% in 2017 and 2018 respectively. For 2016, it is now estimated at 3.1%. 2. Advanced economies projected to grow by 1.9% in 2017 and 2% in 2018. Growth in emerging market and developing economies (EMDEs), currently estimated at 4.1% in 2016, is projected to reach 4.5% for 2017 and 4.8% for 2018. This pickup is the primary contributor in strengthening global outlook over 2017-18. 3. For China, the growth forecast for 2017 is 6.5% and 6.0% in 2018 as against the estimated 6.7% in 2016. Factors like rapid expansion of credit and slow progress in addressing corporate debt, along with continued reliance on policy stimulus measures especially in hardening the budget constraints of state-owned enterprises, raises the risk of a sharper slowdown or a disruptive adjustment, and can be aggravated by capital outflow pressures. 4. In India, the growth forecast for the current and the next fiscal year were trimmed by 1 and o.4 %age point, respectively, primarily due to the temporary negative consumption shock induced by cash shortages and payment disruption associated with the recent currency note withdrawal and exchange initiative. 5. Growth was also revised down owing to weaker-than-expected private investment in Indonesia, and in the light of a slowdown in consumption and tourism in Thailand. 6. In the Middle East, growth in Saudi Arabia is expected to be weaker in 2017 than previously forecast as oil production is cut back in line with the recent OPEC agreement. Civil strife continues to take a heavy toll on a number of other countries. 7. Growth forecasts are revised down for Latin America also, reflecting weaker than expected growth outturns in Argentina and Brazil in the second half of 2016, tighter financial conditions and increased headwinds from US-related uncertainty in Mexico, and continued deterioration in Venezuela. RISKS 1. A potential widening of global imbalances coupled with possible sharp exchange rate movements in response to major policy shifts, could further intensify protectionist pressures. Increased restrictions on global trade and migration would hurt productivity and incomes, and take an immediate toll on market sentiment. 2. In advanced countries where balance sheets remain impaired, an extended shortfall in private demand and inadequate progress on reforms could lead to permanently lower growth and inflation, with negative implications for debt dynamics. 3. Underlying vulnerabilities remain among some large emerging market economies. High corporate debt, declining profitability, weak balance sheets, and thin policy buffers imply that these economies are still exposed to tighter global financial conditions, capital flow reversals, and balance sheet implications of sharp depreciations. 6/197 4. In many low-income economies, low commodity prices and expansionary policies have eroded fiscal buffers and led in some cases to a precarious economic situation, heightening their vulnerability to further external shocks. 5. Geopolitical risks and a range of other noneconomic factors continue to weigh on the outlook in various regions – civil war and domestic conflict in parts of the Middle East and Africa, the tragic plight of refugees and migrants in neighbouring countries and Europe, acts of terror worldwide, the protracted effects of a drought in eastern and southern Africa, and the spread of Zika virus. If these factors intensify, they would deepen the hardship in directly affected countries. 6. Upside: The support to activity from the US policy stimulus and/or China could turn out to be larger than what has been incorporated into current forecasts, which also would result in a stronger pickup of activity in their trading partners unless the positive spillovers are tempered by protectionist trade policies. POLICIES In those advanced economies where output gaps are still negative and wage pressures muted, the risk of persistent low inflation (deflation in some cases) remains. Monetary policy therefore must remain accommodative, relying on unconventional strategies as needed. However, accommodative monetary policy alone cannot lift demand sufficiently, and fiscal support, calibrated to the amount of space available and oriented towards policies that protect the vulnerable and lift medium term growth prospects, remains essential for generating momentum. In those advanced economies without substantially negative output gaps, any fiscal support should be targeted towards strengthening safety nets (including for aiding the integration of refugees in some cases) and increasing longer-term potential output through high-quality infrastructure investment and supply-friendly and equitable tax reform. For EMDEs, enhancing financial resilience can reduce the vulnerability to a tightening of global financial conditions, sharp currency movements, and the risk of capital flow reversals. Economies with large and rising non-financial debts, unhedged foreign liabilities, or heavy reliance on short- term borrowing to fund longer-term investments must adopt stronger risk management practices and contain balance sheet mismatches. In low-income countries that have seen their fiscal buffers decrease over the last few years, the priority is to restore those buffers while continuing to spend efficiently on critical capital needs and social outlays, strengthen debt management, improve domestic revenue mobilization, and implement structural reforms, including in education, that pave the way for economic diversification and higher productivity. For the countries hardest hit by the decline in commodity prices, the recent market firming provides some relief, but the adjustment to reestablish macroeconomic