KARACHI, Aug 9: The 10-rupee share in Crescent Textile Mills Limited — the composite textile mill at Sargodha Road, Faisalabad — stood quoted at Rs28.80 at the week-end. Nearly 29 weeks ago on January 3 this year, the stock was trading at Rs19.80. That represents capital gains of 45 per cent in seven months and is more or less in line with the KSE-100 index performance over the same period.

The share seems to have galloped on the back of a raging bull market and the investors’ interest in the company’s massive expenditure on balancing, modernization and replacement (BMR). In the nine months since the close of the last audited accounts on September-to June, Crescent Textile Mills had made investment of Rs259 million on BMR, while letters of credit valuing Rs105 million had been established for some more of the new machinery.

For the year ended September 30, 2002, the board of directors had disbursed cash dividend at Rs2 per share. On the current market price of Rs28.80, that produces a dividend yield of around seven per cent. On the annualized earning per share (eps) of Rs1.82, based on the nine-month to June 30 earnings, the stock is trading on the price-to-earnings multiple of 15x, which looks a little expensive with the KSE-100 benchmark still in single digit multiples. But the company has built-up reserves surplus amounting to Rs1,754 million, which are more than four times its paid-up capital of Rs407 million. All of which produces the break-up value of the share at Rs53.10, which is nearly one-half the stock’s market value.

The recently released 3Q03 earnings and nine-months to June 30, 2003, results of the company showed 38 per cent drop in profit after tax to Rs55.8 million, from Rs89.8 million in the corresponding period of the previous year. This was in spite of five per cent growth in sales to Rs3,410 million, from Rs3,249 million. Cost of sales rose by a disproportionate 9.1 per cent so that the gross profit percentage to sales declined to 11.88 per cent from 15.23 per cent in the similar period of the earlier year. Quantum jump in the price of raw material — cotton — was understood to be the major reason for the drop in earnings.

Between September 2002 and March 2003, cotton prices had risen by 31 per cent from Rs1,980 per maund to Rs2,600 per maund. In his report, chairman Muhammad Anwar mentioned that the textile industry had remained sluggish worldwide because of vague and uncertain situation caused by the political scenario in the Middle East/Iraq and the anticipated attack on Iraq. Also, “outbreak of Sars virus in China kept textile demand suppressed during the third quarter under review,” said the company chairman.

But according to official data, total textile exports from Pakistan have increased by 23 per cent during FY03, which is fairly healthier than the five per cent growth in Crescent Textile’s sales, which could indicate that the company’s sales have not increased in line with the overall textile exports. Unless Crescent’s exports catch up in the fourth-quarter, directors might wish to comment on that aspect and the reasons for the same in the annual report, which would be due in winter.

Like most other corporate units, the company benefited tremendously from the decrease in interest rates. Financial charges at Crescent Textile dropped 24 per cent to Rs150.8 million for the period under review, from Rs194.4 million in the similar nine months of 2002.

Total assets of Crescent Textile Mills Limited stood at Rs6.1 billion at June 30, 2003, but the company had substantial sums of Rs1.4 billion tied up in long-term loans and advances and Rs1.1 billion in trade debts.

Looking ahead, the company chairman stated that following the control over Sars virus in China, prices of cotton and polyester filer were showing upward trend. Yet the global textile markets looked dull. “There are weak signs of picking up of demand for textile products in the fourth-quarter,” said the company chief, adding that the management was concentrating on up-grading spinning, weaving and processing facilities “and is endeavouring to achieve better financial results by improving yield, efficiencies and better marketing strategies”.