The market witnessed very strange and un-explainable movement of KSE-100 index during the week. Some analysts say, "It was the outcome of very high tension on Indian border, particularly Line of Control." Others say, "It was the fall out of change of COT rules." A small group term this, "The tussle among the two giants."

The KSE-100 gains on last day of the week clearly proved the first group of analysts 'incorrect'. Certainly the border situation has not changed over night. The closure of market of Thursday adds to the credibility of second group of analysts. The last point also has some validity and relevance with the closure of the market.

The nature of the index movement and the steps taken by the KSE management clearly shows that there was some thing grossly wrong. Some analysts say, "The index was pushed to high level artificially and as the volume dropped brokerage came down drastically. Therefore, the downward slide was managed to force the weak holders to liquidate their positions and earn money."

The rationale, offered initially that the down slide was due to tension on border, had little relevance. Some analysts say, "The market is hardly driven by economic fundamentals. It is a bunch of a few brokers who decide KSE-100 index movement. They are often joined by Badla providers. Some of them play dual role of broker as well as Badla provider. The market is virtually controlled and dictated by a dozen brokers and a similar number of Badla providers."

Saying this much, one must also remember that equities market in Pakistan also moves on rumour mills. This mill was very active at one stage it looked that Indian attack was eminent. Why and how the situation has changed? It is anybody's guess.

The company has recently signed an MoU with Afghanistan's Ministry of Communication for the assistance in rebuilding its telecommunication infrastructure, enabling the establishment of telecommunication links between Pakistan and Afghanistan through international gateway. The company has also invited EoIs for a partnership to meet the IT, telecom and networking requirements of IT end-users, ISPs, banks and large corporate customers. The scrip is currently being traded at a very high discount and offers incredibly attractive dividend yield.

The half year results, for the period ending March 31, 2002, indicate a quantum fall in profit after tax as compared to corresponding period of last year. Profit declined from Rs 218 million to Rs 50 million. Gross profit for the period was more or less at the level of previous year. The reduction in profit can be attributed to increase in administrative, selling and general expenses and financial and other charges. Administrative, selling and general expenses went up from about Rs 310 million to Rs 379 million. Financial and other charges grew from Rs 482 million to about Rs 574 million. As a result EPS came down from Rs 1.96 to Rs 0.45 only. The probable explanation for the increase in expenses is that the company has initiated expansion and upward integration programme. Once the facility commence commercial production, there will be increase in sales volume as well as unit price realization, leading to higher profit margins.

The half year ending March 31, 2002 witnessed over 50 per cent reduction in EPS as compared to corresponding period of last year, a fall from Rs 13.79 to Rs 7.02. Not only that there was decline in sales, gross margin also came from 16.3 per cent to 14.8 per cent. The management succeeded in containing financial charges which came down from Rs 36 million to Rs 28 million. While there was an increase in administrative, selling and distribution expenses, other income also decreased. All these factors contributed towards erosion of EPS.

During the half year ending March 31, 2002, the company was able to improve its profit margin at the back of a number of factors, optimization of cost of goods sold, rationalization of operating expenses and higher level of other income. As a result profit before tax increased from Rs 55 million to Rs 75 million. The EPS improved from Rs 5.61 to Rs 7.83.

The quarterly results show an improving gross margin as it has grown from 5.6 per cent for third quarter of last year to 6 per cent for third quarter of year 2002. This has, most probably, resulted not only from price revisions and inventory gains but also due to increase in sales of furnace oil to WAPDA. However, lately the situation changed because PSO managed to win supply of furnace oil to WAPDA due to intervention of the government. Operating expenses for the quarter rose by 41 per cent resulting in a drop of over 39 per cent in its operating profit during the quarter under review.