Updated July 09, 2005




A weekly review

During the week an overall flat trend was witnessed with the KSE-100 index increasing by a mere 0.9% to the 7464.60 point level. The start of the week was promising especially in the wake of PTCL's historic privatization.

However, the privatization rally was short lived on the squaring of the futures positions and the ongoing phasing out of carryover transactions, thereby creating a financing gap in the market.

Given the short-term beneficial implications of high oil prices, the cheerful investors' sentiments towards PSO, OGDCL, and POL. Other fuel and energy plays especially scrips having dollar based financial support may trigger positive activity in the capital market on the back of improved dollar position against European currencies.

The KSE-100 index was however compelled to swing at almost breakeven level during the week. Overall activity was lackluster as has been mostly observed at the end of the week on Fridays. The ongoing tussle between the KSE and SECP created confusion among the investors regarding the phase out of badla and accessibility of margin financing.

Generally speaking, the market sentiment was sluggish as the broker and investor community is awaiting news regarding the investigation report of the March 2005 stock market crash. The market, however, moved aimlessly while its future course depends much on the regulatory front with respect to the financing matters.

The launch of Chenab Limited IPO for 30 million ordinary shares at a price of Rs10 plus a premium of Rs8/- was one of the highlights of the week. The subscription date of July 13-14 is expected to draw attention of the investors on the back of strong sailing of the group in textile exports. The provisional trading at Rs28 after listing with the KSE was however a positive indicator of the success of the Chenab IPO. The timing for launch Chenab IPO however shows the confidence of the group managers.



The managers of the three stock exchanges of the country have however expressed their dismay over what they called indifferent and cold attitude of the banking sector towards implementation of newly introduced margin financing. While the COT was waning out on one hand the banks were not spontaneous to the financial need of the investors. The transition process from COT to margin financing created a wide gap between demand and supply in the market.

It is worth mentioning that the National Bank of Pakistan launched its margin financing operations in Karachi in conformity with the directives of the SECP. They are also planing to extend the financing facility in Lahore and Islamabad before the final date of August 26.

Contrary to the complaints of the trading community over what they observed inaccessibility to margin financing, the consortium of the banks claims that they have made available over Rs18 billion wroth of credit lines for margin financing.

Hot rumors however remained in circulation either for restoration of badla system, rescheduling of the time-frame for phasing out of badla allowing another year to make it effective or consideration for parallel running of the two systems as in vogue in neighboring India.

Meanwhile amongst the textile scrips, Nishat Chunian is capturing the eyes of the investors in view of splendid earnings growth prospects ensuing from expansionary and export-led growth in revenues.

Tanvir Abid, Chief research analyst of Live Securities while discussing company's financial results said that the company's Oct - March 2005 earnings depicted a 119% increment resulting from capacity augmentation, lower cotton prices and effect of merger with Umer Fabrics.

Gross margins during FY05 have been substantially boosted on sharply lower cotton prices. estimate Nishat Chunian's cotton costs this season to be approximately Rs2,000/md, at least 40% lower as against over Rs3,000/md last year. Nishat Chunian's FY05 annualized earnings are expected at Rs1, 028 million, translating into an EPS at Rs15.04, 62% higher YoY. The company also plans to augment its weaving capacity by 13%. Moreover, Nishat Chunian's dyeing and finishing unit is expected to start operations during the second half of CY2005. The FY06 budgetary announcements bode extremely favorably for the textile sector in the form of liberalization and rationalization of the tariff and taxation structure.

In the recent past, Nishat Mills has made expansions in almost all areas including spinning, weaving, printing, dyeing, stitching and finishing. The company's weaving products have penetrated the Central American, Spanish, French and Portuguese markets. Nishat Mills also intends to further tap new markets in the value-added segment in order to boost revenues and profits. FY05 annualized core earnings projected to improve 307.1% to Rs1, 167million Investors should note that following regulatory directives, from 2005 the year-end of the textile sector companies will be June instead of September i.e. the audited accounts for FY2004-05 will be for the nine months period. Going forward, Nishat Mills' core profitability is to be supported on the back of upbeat sales volumes and improved product prices. Volumes are to be fuelled on the impact of capacity additions and higher utilization levels. Another significant contributor is to be Nishat's continuing focus on product innovation, value-addition and developing strategic alliances with global textile players. Excluding other income, Nishat Mills' FY05 annualized earnings are expected at Rs1, 167million, translating into an EPS at Rs8.04, 307.1% higher YoY.