KARACHI, July 5: On Friday, the 10-rupee share in Nishat Mills Limited — the largest listed composite textile unit in the country — closed at the market price of Rs35.15. Six months ago on January 2, the price of the company’s stock was Rs17.75. That represents a 100 per cent gain in six months. Investors who may have had the good sense to put their money in the scrip, would have gone to double their fortune in a matter of six months. The Nishat share outperformed the KSE-100 index gain of 29 per cent during the period and presented the second best performance among all quoted scrips, after D.G. Khan Cement Company Limited, which had posted spectacular rise of 120 per cent.

Nishat Mills Limited is a spinning, weaving, processing, stitching unit with a captive power plant all its own. “Interest in Nishat Mills can be attributed to booming textile exports and falling interest rates,” says Khalid Iqbal Siddiqui, analyst at brokerage InvestCap.

For the half year ended March 31, 2003, Nishat Mills Limited posted an after tax profit amounting to Rs224 million, which represented growth of 346 per cent over after tax profit of Rs50 million in the corresponding period of 2002. The huge improvement in profit stemmed mainly from reduction of 34 per cent, equivalent to Rs193 million in financial charges, due to low interest rate environment. The company reaped huge benefit, because almost 62 per cent of its total interest-bearing debt at March 31, 2003, was costly short-term running finance, whose costs are usually quickly adjusted in line with falling interest rates.

One of the largest exporters, Nishat Mills also benefited from the boost in export trade. Textile exports of the country during July-May (11 months) 2002-03, stood at $6.2 billion, which accounted for 63 per cent of total exports. Nearly 90 per cent of the sales at Nishat represented exports — with the US being the company’s largest market. Sale at Nishat Mills were up 20 per cent to Rs6,732 million for the six months to end-March 2003, from Rs5,621 million in the similar period of last year.

Khalid Iqbal at InvestCap observed that the full-year impact of quota increase by the European Union had been visible during company’s 2003 accounting year. The recently signed Trade and Investment Framework Agreement (TIFA) with the US was also expected to benefit the textile sector. Gross margin for the company during the first half of the year, had, nonetheless dropped to 15 per cent, from 18 per cent in the same period of last year.

Earning per share (eps) for the half year works out at Rs2.01, which on the current market price, places the stock on price-to- earnings (p/e) multiple of 8.7 on annualized basis. Nishat had distributed cash dividend at 25.5 per cent for FY 2000; cash at 15 per cent for 2001 and bonus shares, one-for-ten (10 per cent) for 2002. Including the tangible fixed assets valued at Rs7.3 billion, total assets of Nishat Mills at March 31, 2003, stood at Rs15.0 billion. Paid-up capital of the company amounted to Rs1.1 billion; reserves were a healthy Rs3.6 billion, which added up to a shareholders’ equity of Rs4.7 billion. This worked out to a break-up value of Rs42.28 per share.

In spite of the 100 per cent surge in price of company stock, there may still be potential in the Nishat scrip. But for investors who may be waiting for the market to open on Monday so as to go up for grab, here is a sobering thought: Putting money in stocks — particularly in second and third-tier scrips — is always a tricky game. It would do well to recall that during the bear rampage that began in 1994 and continued intermittently till the end of last century, the 10-rupee share in Nishat Mills Limited had been one of the major casualties on the textile composite sector. The share had hit its record high at Rs135 in 1994, but dipped to below the par value of Rs10 in 1996. It is not to unnerve those who may want to back the company, based on its improving financial numbers, prospective view, and a generally healthy textile climate, but to caution investors that some of the price spiral may have more to do with speculators and punters and less to fundamentals.