Updated July 16, 2005



Subscription for shares of Chenab remained open on 13th and 14th July. Chenab offered 30 million shares for public subscription at a price of Rs 18/share. The company is a leading manufacturer and exporter of home textile products and woven fashion garments. It has a vertically integrated unit having in-house facilities for ginning, spinning, weaving and finished products. The company is expected to benefit from the removal of textile quotas as it drives over 90% of revenues from export sales. The company has shown good top-line growth, which reflects its capacity enhancements over the years. Growth in operating profit has been relatively steady. The balance sheet shows long-term debt of Rs 1.6 billion and short-term finances Rs 3.8 billion. The Rs 540 million raised from the IPO (Rs 270 million from issue of 15 million new shares, plus Rs 162 million of subordinated debt as 60% of proceeds from sale of 15 million shares owned by sponsors) is to be used to lower debt, and improve financial flexibility. The company has invested about Rs 3 billion in BMR over the last few years.

United Bankís IPO failed to attract investorsí attention. Similarly the IPO of Eye Television got battered as investors shunned the offer (only 2.18% of the shares offered to the general public were subscribed). Keeping in view the fate of to these two IPOs, it may be said that it is not an appropriate time for NetSol to make a public offering. Having said this it is necessary to reiterate that one should not ignore the scrip completely, but look at the strengths of the company before making the final decision. NetSol is the first software company seeking listing in Pakistan and will be the only listed company offering exposure to the growing software sector. The company is offering 10 million shares at Rs 25/share. NetSol is also the only Pakistani company having achieved CMM level 4 rating (an international standard for software development quality, the highest being CMM Level 5 which Netsol hopes to achieve by the end of this year). NetSol has an impressive portfolio of domestic and foreign clients, and an ambitious expansion plan. NetSol expects organic growth of 80-100% this fiscal year and an earning growth at a CAGR of 55% over the next three years.



According to the chief spokesman, the State Bank of Pakistan will announce its Monetary Policy Statement for the first half of current financial year on 21st July. The SBP releases the policy statement twice a year. Last time around, the SBP had hinted at aggressive tightening of the policy. The SBP also followed the strategy by raising short-term interest rates aggressively in an attempt to contain inflation. The policy has helped in containing the inflation but it is still higher. The next policy statement is expected to be a little less stringent, which is evident from the recent auction of Treasury Bills. The central bank also does not seem to be willing for auction of Pakistan Investment Bonds. The financial sector analysts believe that the interest rates may remain flat in the near future.

The PSF industry has been experiencing sluggish demand globally. The record production of cotton around the globe has also led to lower cotton prices. This situation has also dampened of the man made fibre. Major producers of PSF worldwide have been operating well-below full capacity utilization. Global petrochemical prices after remaining around US$ 50/barrel have been hovering around US$ 60/barrel lately. PTA prices are currently hovering around US$ 810-820/ton. Similarly while MEG prices are moving in a range of US$ 800-830/ton. Global PSF prices also seem stable around US$ 1,250/ton. As against the prevailing international scenario local manufacturers have reduced prices PSF once, this time to Rs 82/kg. This reduction in local prices has been prompted by the reduction in global prices, keeping local prices at the same level. Local manufacturers have been operating around 60% capacity utilization during April-June period. Despite arrival of cotton from new crop local cotton prices are a little higher. Recent rains and floods have raised some concerns about the size of new crop. It is feared that if there is a shortfall in supply the prices may remain higher. The governmentís decision to provide relief to the textile sector, by lowering import duty on PSF in the budget also seems to be pushing up PSF demand.

In the recent past equities markets in Pakistan has shown a robust growth at the back of improving macroeconomic situation, rising corporate earnings, low interest rates and limited availability of other investment options. As a result the mutual fund sector also registered phenomenal growth. Normally their performance is compared with the KSE-100 index. However, this results in a distorted picture because the index is highly skewed. The hike in the index was due to rise in prices of oil related stocks (OGDCL, PPL, PSO) and the telecom giant PTCL, all having significant weightage in the index. Accirding to the rules mutual funds cannot invest more than 10% of its assets in any one company or more than 25% in any one sector. Therefore even fund mangers that had the foresight to buy oil related stocks, they could not avail the opportunity. Mutual funds enjoy a positive outlook because of a number of reasons. These include: 1) expectation of a robust economy leading to improved corporate earnings, 2) investors gradually realizing benefits of investing in mutual funds, 3) introduction of specialized funds and 4) opportunities for growth due to very low quantum of assets being managed by them.