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PICIC Growth Fund is one of the largest closed-end scheme in Pakistan. Its principal business is to invest in listed equities with an objective to generate capital growth.
The fund aims to be the top performer of the Mutual Fund Industry through wealth maximization of the certificate holders by investing in the best available opportunities with emphasis on growth, while considering risk parameters and applicable rules and at the same time to provide investors lucrative investment opportunities through an investment mix of blue chip shares having the potential of offering healthy dividends and growth opportunity.
The certificates of the Fund are listed on all the stock exchanges of Pakistan. The Fund is being managed by PICIC Asset Management Company Limited, which is the investment adviser. Central Depository Company of Pakistan Limited is the Trustee of the Fund. JCR-VIS Credit Rating Company Limited has assessed the fund performance ranking of PICIC Growth Fund at 'MFR-2 Star' for the two years period ended June 30, 2007.
During FY06, the investment decisions were based purely on fundamentals and entry and exit strategy was driven by market opportunity. Sector weightings were adjusted accordingly throughout the year given changing company and sector fundamentals.
The FY07 rally in the stock market was led by oil and gas exploration sector, followed by the commercial banks and then the fertiliser sector. As a result, these sectors remained the dominant investment avenues for the fund given their strong fundamentals and attractive valuations. Its customers, rather shareholders are individuals as majority. PICIC Asset Management Company, which is the wholly owned subsidiary of the fund, holds a major portion of the units of the mutual fund, followed by financial institutions (including PICIC), NIUT, investment companies and insurance companies. Modarabas, mutual funds, and joint stock companies have smallholdings.
RECENT RESULTS (Q3FY08)
The third quarter of FY08 bode well for the fund, as it out-performed the benchmark KSE-100 index by 0.61% a complete turnaround, compared to the 18% under-performance in the same period last year. The KSE-100 Index grew by 9.83% while on dividend adjusted non-frozen basis the fund increased by 10.44%. During 9MFY08, total income stood at Rs 1,046 million as compared to income of Rs 673 million in the corresponding period, registering a healthy 55% growth on the back of unrealised gain on re-measurement of investments to fair value through profit or loss.
Realized capital gains during the period declined by 68% standing at Rs 191 million as compared to realized capital gains of Rs 596 million in the corresponding period. This can be attributed to overall bearish trend in the stock market. The dividend income during the period also declined by 6% standing at Rs 419 million as compared to Rs 448 million in the corresponding period.
Total expenditure during the period at Rs 236 million, showed a 4% decline as compared to Rs 245 million during the corresponding period. This was driven by lower transaction costs on securities, which declined by 37% coupled with other operating expenses, thereby offsetting the increases in fees to SECP, investment advisor and trustee.
These results can be attributed to reorganization and restructuring of the fund during the first quarter of the FY08, to maximize portfolio yield over the long term in a manner that is consistent with management strategies and safety of principal. The restructuring has been completed and the results have started manifesting themselves as shown by lower expenditures in 9 months of FY08. Furthermore, fund managers have been able to bring operational efficiencies to reduce the operating cost of the fund.
Tax provision for the current year was nil due to tax exemption under Clause 99 of Part I of the Second Schedule of the Income Tax Ordinance, 2001 and Regulation 72 of NBFC and NE Regulation, 2007. The net profit for the period stood at Rs 810 million as compared to Rs 428 million reported for the corresponding period, showing a healthy 89% surge. This translates into earnings per certificate of Rs 2.86 for the period as compared to Rs 1.51 in the corresponding period.
The net assets increased from Rs 13,489 million on June 30, 2007 to Rs 14,065 million on March 31, 2008 and accordingly the net asset value per certificate increased from Rs 47.58 per certificate on June 30, 2007 to Rs 49.61 per certificate on March 31, 2008. This increase is attributed to a 12% decline in liabilities of the fund coupled with a 3% surge in assets. Amongst the liabilities, the payables to management company which is PICIC AMC, showed remarkable decline followed by payables against purchase of investments and SECP. This increase in net assets was offset by an increase in surplus on revaluation of available for sale investments and decline in unappropriated profits of the fund.



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Recent Results (Mar '08) 9M FY'08 9M FY'07 % chg
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PKR ('000)
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INCOME
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Capital (loss) / gain on sale of investments 191,005 595,801 -68%
Dividend income 419,243 448,290 -6%
Unrealised gain /(diminution) on
re-measurement of investments
to fair value through profit or loss - net 382,065 (462,929) 183%
CFS income - 7,564 -100%
Return on deposit accounts with banks 53,592 84,086 -36%
1,045,905 672,812 55%
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OPERATING EXPENSES
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Fee to Investment Adviser 188,180 180,239 4%
Fee to Trustee 5,715 5,538 3%
Fee to S.E.C.P. 9,409 9,012 4%
Securities transaction costs 28,560 45,607 -37%
Other expenses 4,089 4,880 -16%
235,953 245,276 -4%
Profit before taxation 809,952 427,536 89%
(Loss) / Profit after taxation 809,952 427,536 89%
Earnings per certificate (Rupees) 0.75 0.88 -
==========================================================================

The operating performance of the fund improved from 2002 to a peak in 2006. After that in 2007, the profile witnessed a decline. The dividend income of the fund has increased consistently over the years. The fund has diversified investments with some of them being in active sectors of the economy. There has been witnessed a robust growth in the market capitalization of the economy due to strong macroeconomic performance as well as financial sector reforms.
These have increased the global investors' confidence. Aggressive foreign interest in the domestic capital markets particularly in the banking sector (owing to the acceleration in the mergers and acquisition activity) has allowed the market to remain buoyant throughout the years. The capital gains were lower this year as compared to the last year because the capital gains of 2006 included the impact of gain from NRL privatization of Rs 323 million. The capital gains in 2007 were about 3 times less than 2006. Due to lower capital gains, the total income of the fund was also recorded at a low level in 2007 than 2006.
The capital gain to total income ratio showed a peak in 2006, declining after that. This was because the total income in 2005 was the lowest of all the years in the period concerned and there was experienced a negative unrealized appreciation on investment. As the capital gains declined in 2007, the ratio also nose-dived. Capital gains comprised only 41.49% of the total income in 2007 as compared to 117% in 2006.
The dividend income to total income also showed a consistently rising trend except a little dip in 2005 owing to robust growth in the capital markets. Since the total income was relatively less in 2007 as against 2006, the ratio witnessed a slight increase over 2006 in 2007. The dividend income comprised 28.12% of total income in 2007 while it constituted 14.35% in 2006. The returns from investment of the company peaked in 2003 and 2006. In other years, they were relatively lower. The profit after tax of the company in 2006 was the highest among all the years in the period under review. This was due to higher total income due to capital gains from the privatization of NRL.
The return on assets in 2003 was 17.42%. The fund's asset base was smallest in 2003 of all the years, while the profit remained high due to lower expenses. In 2006, the ratio again increased to 25.45% due to a more than double increase in profit. The total asset base continued to increase while the profit saw a decline in 2007. Hence, the ratio was lower at 12.61%. This was almost a decline to half.
The return to equity ratio depicted a trend similar to the return to assets ratio of the fund due to same reasons as mentioned above. The equity of the fund continued to rise as investors gained confidence in the market and as more foreign investors were attracted to the capital stocks. The ratio was at a level of 13.26% in 2007 as against 27.23% in 2006. The PAT to total income paralleled the other two ratios due to the same reasons. It was recorded at 81% in 2007 and 89% in 2006. The debt management profile of the company showed a fluctuating trend, with attaining a peak in 2006. Overall, the ratios have remained low indicating that the fund has managed its liabilities quite effectively. It also reinforces the fact that the fund is largely equity-based.
The debt to asset ratio indicated a peak in 2006 at 7% since the liabilities of the fund were the highest in 2006. The major portion of the fund's payables comprises of the fee to investment advisor. This portion showed a major increase in 2006. In 2007, the ratio was at 5%. Though the fee to SECP increased in 2007, however, the total assets recorded a far greater increase over the period 2006-07. Hence, the ratio was lower than in 2006.
The debt to equity ratio peaked in 2006 for the same reason. It was 7% in 2006. In 2007 it declined to 5% due to an increase in the unappropriated profit and surplus on revaluation of available for sale securities.
The capital adequacy of the fund shows the fund as an equity-based fund. Paid-up capital as a portion of equity has been different in different years. Also the equity as a portion of total assets has been hovering from 99% to 95% because the fund is equity based. The major portion of the equity goes to the unappropriated profit of the fund, followed by paid-up capital, confirming the fund's objective of growth by retaining a major portion back.
The assets are allocated with the greatest part going to investments, then bank balances. Among the investments, the largest is in the banking sector. In terms of sectoral performance of 2007, the banking sector topped the list with 56% growth with profitability driven by increased interest and non-interest income. Cement sector outperformed the KSE-100 Index, as the price appreciation was driven by the strong local as well as regional demand. Power sector had a good year owing to the shift of the sector to capacity enhancements of IPPs owing to the growth in the demand of power and lower availability of gas. The asset and equity break up of the fund is as shown.
The market value of the fund has shown mixed trends. Generally, the market value of the fund has remained high throughout. The net assets of the fund have shown a rising trend over the years, most of them being financed by capital through investments in equity. The capital base of the fund has increased slightly for the last 6 years and so did the premium on issue of certificate. What increased was the unappropriated profit and surplus on revaluation of available for sale securities.
The closing NAV has increased sharply after 2002 after which it hovered between 52 and 47. This shows that the fund is able to handle the volatility in the market and hence is able to maintain its NAV at a consistent value. The number of share certificates in 2007 remained same as in 2006 but the net assets recorded a greater value that made the NAV stand out at 47 in 2007 as against 22 in 2006. The earnings per certificate also maintained a similar value throughout the period under review. It showed a slight dip in 2005 due to lower profitability. It increased in 2006 due to a more than double increase in profits.
However, the ratio slightly declined in 2007 as lower capital gains stimulated lower profits. Consequently, the ratio was recorded at 6.31 in 2007 as compared to 15.28 in 2006. The dividend per share has shown an erratic trend and so have the dividend yield and dividend payout. The dip in both the ratios is attributed to the low DPS in 2005. However, both have shot up again in 2007 on the account of a handsome DPS.
FUTURE OUTLOOK
Amid the current economic distress in the country, the stock market is expected to remain bearish. However, the fund's restructuring will bring operational efficiencies and reduce the operating cost of the fund. Taking this into consideration, the profitability and operating results of the fund are expected to improve. The fund does not seem to face any problems with regard to its capital adequacy that is sufficient to maintain to long-term growth. It can also be said for the debt profile of the fund.
However, a fact to be noted is that the fund being a growth fund does not have any investments in government securities that provide a more certain return. Hence, the investors from this view may face greater uncertainty about the returns and volatility in their investments. Overall, the risk may be reduced due a diversified portfolio of the fund.



===========================================================================================================
PICIC GROWTH FUND - FINANCIALS
===========================================================================================================
STATEMENT OF ASSETS & LIABILITIES 2002 2003 2004 2005 2006 2007
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Net Assets:
-----------------------------------------------------------------------------------------------------------
Investment in HFT 2,126,396 1,090,922 2,643,087 2,234,380 7,685,039 7,768,015
Investment in AFS - 3,073,783 4,066,101 6,038,966 3,869,359 4,520,672
Other Assets 370,086 250,367 236,585 994,546 1,175,817 1,904,529
Total Assets 2,496,482 4,415,072 6,945,773 9,267,892 12,730,215 14,193,216
Liabilities -14,213 -30,130 -135,856 -220,843 -831,262 -704,283
Net Assets: 2,482,269 4,384,942 6,809,917 9,047,049 11,898,953 13,488,933
-----------------------------------------------------------------------------------------------------------
Financed By:
-----------------------------------------------------------------------------------------------------------
Capital 840,000 840,000 1,260,000 1,575,000 2,835,000 2,835,000
Premium on issue of certificate - - 630,000 630,000 2,992,500 2,992,500
Unappropriated profit 1,642,269 2,192,814 2,575,471 2,524,738 3,622,469 4,561,137
Surplus on revaluation of AFS Investment - 1,352,128 2,344,446 4,317,311 2,448,984 3,100,296
Total Certificate Holder's Funds 2,482,269 4,384,942 6,809,917 9,047,049 11,898,953 13,488,933
Net Asset Value per Certificate (Rupees) 29.55 52.2 54.05 57.44 41.97 47.58
-----------------------------------------------------------------------------------------------------------
INCOME STATEMENT 2002 2003 2004 2005 2006 2007
-----------------------------------------------------------------------------------------------------------
Income:
-----------------------------------------------------------------------------------------------------------
Capital gain on Sale of Investments -net 42,185 196,541 533,508 547,331 4,232,009 882,486
Unrealised appreciation/(Diminution) - 338,517 56,976 -118,677 -1,193,622 498,732
Dividend 189,990 303,732 358,726 466,403 519,612 598,242
Other Income 18,176 11,088 4,462 9,139 63,726 147,779
Total Income 250,351 849,878 953,672 904,196 3,621,725 2,127,239
-----------------------------------------------------------------------------------------------------------
Expenditure:
-----------------------------------------------------------------------------------------------------------
Management Fee 51,045 78,883 136,198 158,929 210,407 245,018
Auditors' Remuneration 57 127 262 358 533 490
Other Expenses 1,248 1,923 14,555 39,642 167,402 92,563
52,350 80,933 151,015 198,929 378,342 338,071
-----------------------------------------------------------------------------------------------------------
Profit Before Taxation 198,001 768,945 802,657 705,267 3,243,383 1,789,168
Taxation - Prior years - - - - 3,652 -
Profit After Taxation 198,001 768,945 802,657 705,267 3,239,731 1,789,168
Basic Earning per Certificate (Rupees) 2.36 8.05 5.1 3.56 15.28 6.31
-----------------------------------------------------------------------------------------------------------
Ratios
-----------------------------------------------------------------------------------------------------------
Operating Performance 2002 2003 2004 2005 2006 2007
-----------------------------------------------------------------------------------------------------------
Dividend Income 189990 303732 358726 466403 519612 598242
Capital Gain 42185 196541 533508 547331 4232009 882486
Capital Gain/Total Income 16.85% 23.13% 55.94% 60.53% 116.85% 41.49%
Dividend Income/Total Income 75.89% 35.74% 37.62% 51.58% 14.35% 28.12%
-----------------------------------------------------------------------------------------------------------
Profitability Ratios 2002 2003 2004 2005 2006 2007
-----------------------------------------------------------------------------------------------------------
Return on Assets 7.93% 17.42% 11.56% 7.61% 25.45% 12.61%
Return on Equity 7.98% 17.54% 11.79% 7.80% 27.23% 13.26%
PAT/Total Income 79.09% 90.48% 84.16% 78.00% 89.45% 84.11%
-----------------------------------------------------------------------------------------------------------
Debt Management Ratios 2002 2003 2004 2005 2006 2007
-----------------------------------------------------------------------------------------------------------
Debt/Assets Ratio 0.01 0.01 0.02 0.02 0.07 0.05
Debt/Equity 0.01 0.01 0.02 0.02 0.07 0.05
-----------------------------------------------------------------------------------------------------------
Capital Adequacy 2002 2003 2004 2005 2006 2007
-----------------------------------------------------------------------------------------------------------
Paid-up Capital / Total Equity 0.34 0.19 0.19 0.17 0.24 0.21
Equity/Total Assets 0.99 0.99 0.98 0.98 0.93 0.95
-----------------------------------------------------------------------------------------------------------
Dividend Ratios 2002 2003 2004 2005 2006 2007
-----------------------------------------------------------------------------------------------------------
Dividend Per share 2.60 3.50 4.50 3.50 1.00 4.25
Dividend Yield 0.09 0.07 0.08 0.06 0.02 0.09
Dividend Payout 13.30 13.41 22.02 21.83 7.83 26.42
Market Value Ratios 2002 2003 2004 2005 2006 2007
Net Assets 2482269 4384942 6809917 9047049 11898953 13488933
Certificates issued (in '000s) 84000 84000 126000 157500 283500 283500
Opening NAV 12.48 29.55 52.20 54.05 57.44 41.97
Closing NAV 29.55 52.20 54.05 57.44 41.97 47.58
Earnings Per Certificate 2.36 8.05 5.10 3.56 15.28 6.31
===========================================================================================================

COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
Copyright Business Recorder, 2008

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