During the week the KSE-100 index gained another 48 points and closed at 1527. While HUBCO was the favourite, PSO remained under pressure. Alongwith blue chips some second tire scrips ended with fresh gains. While the market is expected to maintain upward momentum, technical correction and profit taking cannot be ruled out. As said earlier, investors are beginning to learn to live with a hostile neighbour. All eyes are set at a mega event being organized by International Chamber of Commerce where some heavy weights are expected, particularly from the US.

One may wonder if Pakistani exporters of textiles and clothing will be able to exploit greater access to developed market, the US and the EU. However, there are indications that some of the exporters, individually, are making efforts but the industry as a whole is not responding to these opportunities. Import of textile machinery increased by almost 100 per cent from Rs 9.6 billion in year 2000 to Rs 19 billion for the year 2001. Exports of higher value-added products is on an increase. However, the real point of concern is that while quota utilization increased by more than 12 per cent in terms of quantity, the increase in terms of value was around 6 per cent. Theoretically, investors should be interested in textile scrips but shy away, in reality, only due to the habit of sponsors of 'no sharing' of profit with shareholders.

The company is holding an EOGM on January 31, 2002 to seek approval of the shareholders to participate in the bidding of United Bank Limited (UBL). The Bestway Group (based in the UK and having stake in Bestway Cement) alongwith a Abu Dhabi Group is participating to acquire 51 per cent stake in UBL. The cement company intends to take up 12.75 per cent of UBL's shares in case the Bestway Group emerges a successful bidder. The Bestway Group is the second largest distributor of grocery and drinks in the UK cash and carry sector. The Group's total sales amounted to in excess of Pound Sterling 862 million during year 2000. Bestway Cement has remained one of the few profitable units posting Rs 187 million profit after tax for the year ending June 30, 2001 and declaring 5 per cent dividend. The scrip is quite illiquid reflecting its closely held shareholding. Since the management intends to finance its acquisition through loans from financial institutions, the transaction would only increase debt burden and affect company's profitability.

The half yearly results for the period ending December 31, 2001 announced revealed significant growth in profit after tax but failed to attract attention of investors. Revenue increased from Rs 29,483 million to Rs 31,624 million — a growth of 7.3 per cent. Interestingly, revenue grew by the same percentage for the corresponding period of last year. This vindicates the management's claim that the company had increased its installed capacity at a steady rate, simply because there is usually a lagged revenue impact in the next period. Operating margin improved only marginally, stifling hopes that the company had begun to eliminate inefficiencies in operations. Other income declined by 52.7 per cent compared to corresponding period of previous year. This seems to be due to a decline in return on deposits and investments. The decline in rate has also helped the company in reducing its financial charges by 66 per cent, more than compensating for the reduced other income.

The company has posted Rs 1.1 million profit after tax for the year ending August 31, 2001 as compared to a profit of Rs 12.2 million for the previous year. Sales increased from Rs 661 million to Rs 830 million but gross profit came down from 54.5 million to Rs 50.4 million. There was increase in administrative and selling expenses as well as financial charges. Financial charges hiked from Rs 32 million to 37.6 million. Earning per share declined from Rs 1.53 to Rs 0.15. As on August 31, 2001 accumulated loss amounted to nearly Rs 51 million as against a paid-up capital of Rs 80 million. Both the SECP and the KSE must look into the affairs of company because it may be more appropriate to ask the sponsors to buy back the shares or inject fresh equity to overcome the working capital issue.

The company has posted Rs 10 million profit after tax for the year ending September 30, 2001 as compared to a profit of Rs 121 million for the previous year. The real problem seems to be due to hike in cost of goods sold affecting gross profit, declining from Rs 179 million to Rs 91 million. Financial charges also went up from Rs 37.5 million to Rs 62.3 million. For the year 2000 a dividend of Rs 2 per share was paid but sponsors and associates had waived their right to dividend. The Board of Directors also decided to enhance paid-up capital by issuing 10 per cent bonus shares.