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SUNRISE
PIA Outlook
Friday, January 10, 2014
Overview : Privatization of PIA
PIA a state owned entity with a GoP holding of 2.43bn shares (84.64%) is suffering
with huge losses since more than 5 years. There are various reasons behind the
losses like corruption, incompetent management and political appointments. As
per financials of 9MCY13, Losses of PIA stood at Rs 31.94bn with an increase of
42% YoY and so far PIA has accumulated loss of Rs 180bn. The finance cost of PIA
appreciated by 10% to Rs 9.32bn while due to huge borrowings, liabilities of PIA
stood at Rs 267.8bn as compare to Rs 238bn last year with an uptick of 12%. In
current scenario due to consistent losses PIA is unable to pay off its outstanding
debt and due to which accrued interest is compiling up and as on 9MCY13 it stood
at Rs 11.26bn with an uptick of 66%.
It is hard to believe that the airline with 26 operational aircrafts supports a staff of
16,600 regular and 2,700 contractual employees, having 742 employees per
aircraft which is almost 6 times higher than the global average of 120 per air craft.
PIA is still having losses of approximately Rs 3bn per month with Rs 1bn mark up
included in Rs 3bn amount.
Risks associated with PIA
Trend of PIA Losses (Rs Billions)
31.94
33.18
35
30
25
20
15
10
5
0
26.77
20.79
9.45
Movement Since Jan-13TD
KSE vs PIAA
15
30000
surgerd by 56%
10
20000
Fuel price risk
PIA has exposure to fuel price risk and due to which its earnings are affected by
changes in price of aircraft fuel. As per 9MCY13, PIA fuel cost is Rs 40.8bn and due
to current tension in Iraq and Libya it is expected that it may disturb the supply of
oil which may push the price. If international oil prices appreciated by 10% from
here onwards, it will further increase the fuel cost of about Rs 3bn to Rs 4bn and
deteriorate financial position of the company.
10000
surged by 149%
0
KSE-100 Index
PIA
Revenue by Geographical Segments
Currency risk
0.48
PIA revenue streams are denominated in a number of foreign currencies resulting
in exposure to foreign exchange rate fluctuations. In addition, PIA has substantial
foreign currency borrowings and lease liabilities that are primarily denominated in
US Dollar (USD), Saudi Riyal (SAR), United Arab Emirates Dirham (AED) and Great
Britain Pound (GBP). As per 9MCY13 financials PIA lost Rs 6.13bn due to changes in
exchange rates. Since FY14TD PKR has depreciated about 7.31% against US$ so it is
expected that losses due to exchange rates may increase about Rs 0.4bn. PIA
manages some of its currency risk by utilizing its foreign currency receipts to
satisfy its foreign currency obligations.
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
0.2
0.19
0.05
0.08
Interest rate risk
PIA is also exposed to risk of Interest rate that have the impact on the fair value or future
cash flows of a financial instrument due to changes in market interest rates.
Sunrise Research
Sunrise Capital (Pvt.) Limited
DISCLAIMER: ANY UNAUTHORIZED USE OR DISCLOSURE OF THIS REPORT IS PROHIBITED. THIS REPORT HAS BEEN PREPARED BY SUNRISE CAPITAL PVT LIMITED AND THE INFORMATION CONTAINED HEREIN WAS OBTAINED FROM
VARIOUS SOURCES WHICH ARE BELIEVED TO BE RELIABLE, SUNRISE CAPITAL PVT LIMITED DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF THE INFORMATION PRESENTED HEREIN. NEITHER THE INFORMATION NOR AN
OPINION EXPRESSES CONSTITUTES AN OFFER OR AN INVITATION TO BUY OR SELL ANY SECURITY.
www.sunrisecapital.com.pk | 111-786-772 | research@sunrisecapital.com.pk
SUNRISE
In 9MCY13, finance cost of PIA was Rs 9.32bn if we assume increase in policy rate
in coming monetary policies in 2HFY14 by 50-100 basis points its finance cost will
also increased.
Liquidity risk
Liabilities (Rs Billions)
300
238.35
250
As per financials, PIA liquidity risk has grown with increase in liabilities and
compiling of accrued interest and dont having earnings due to consistent losses
to payoff. But through support of GoP either in the form of capital/loans or in the
form of guarantee to obtain financing from lenders, liquidity risk is minimum.
Privatization of PIA & GoP
PIA is considered as white elephant among public state entities which has eaten
up the billions of rupees of tax payers. Due to which govt has placed PIA in the list
of companies which has to be privatized. As per previous guidelines of IMF PIA
was set to privatized in June, 2014 but now it has been changed to Dec 2014.
According to Privatization Secretary Amjad Ali Khan, advisor will be hired by the
end of March in current year and he will prepare a report on financial and
technical aspects of the PIA after that final decision will be made and it can be
further extended to beyond Dec 2014 in the light of financial advisors report.
Board of privatization commission in its meeting has approved the appointment
of financial advisor who will also determine the base price. It has also been
decided in the meeting that the liabilities will not be transferred to the buyer.
Management control will also be transferred to the buyer.
Govt has planed to sell 26% shares of PIA, since "A" Class shares of PIA having face
value of Rs 10 is most likely to be considered for 26% sale deal. If we assume the
market price of PIA at the time of privatization stands at Rs 9.97/ share, Govt can
earn Rs 6.3bn due to selling of 633mn shares.
200
267.85
204.93
179.88
183.28
150
100
50
0
Finance Cost (Rs Billions)
11.38
12
9.24
9.3
10.1
9.32
10
8
6
4
2
0
Recommendation
Accrued Interest ( Rs Billions )
The consideration is not just to earn revenue out of the privatization of PIA. To
meet IMF condition, Govt looking after efficient private player having the
ability/capacity to turn it around & safeguard tax payers money & stop losses.
Govt will appoint a financial adviser by March 2014 who will be responsible for
finalizing different stages of cut-off dates to accomplish in consultation with
Privatization Commission and hand over the airlines to a potential party by Dec
2014.
As per privatization commission, outstanding liabilities of PIA stands at Rs 268bn
which will not be transferred to successful bidder which has made the potential
deal more lucrative. Since Jan-13 to till date KSE-100 Index surged by 56%, while
PIA share price surged by hefty gain of 149%. Post privatization, with the take
over of professional and efficient management control it is possible that PIA can
transform into profitable entity so it can be potential stock for investment
purpose.
11.26
12
10
6.77
8
4.69
6
4
3.07
1.85
2
0
Sunrise Research
Sunrise Capital (Pvt.) Limited
DISCLAIMER: ANY UNAUTHORIZED USE OR DISCLOSURE OF THIS REPORT IS PROHIBITED. THIS REPORT HAS BEEN PREPARED BY SUNRISE CAPITAL PVT LIMITED AND THE INFORMATION CONTAINED HEREIN WAS OBTAINED FROM
VARIOUS SOURCES WHICH ARE BELIEVED TO BE RELIABLE, SUNRISE CAPITAL PVT LIMITED DOES NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF THE INFORMATION PRESENTED HEREIN. NEITHER THE INFORMATION NOR AN
OPINION EXPRESSES CONSTITUTES AN OFFER OR AN INVITATION TO BUY OR SELL ANY SECURITY.
www.sunrisecapital.com.pk | 111-786-772 | research@sunrisecapital.com.pk
