Masood Textiles

Much like in politics, a year is a long time in stocks.
Take the case of Masood Textiles (MSOT). About twelve months ago few knew the fate of the firm. And then, in came the stories of Chinese investors seeking opportunities in Pakistans textile industry. Their poster transaction was Shandong Ruyi Technologys plans to acquire about 52 percent stake in MSOT in a deal that was expected to be around $57 million.
Those who had smelled the transaction had started accumulating the stocks long before the firm had officially announced the buying interest expressed by Shandong. The stock rallied; more like sky rocketed. By mid-January 2014 the stock had hit Rs155 from about Rs25 at the start of October 2013. Surprisingly, few questioned that rise, and as a consequence the herd buying had pushed the stock towards a forward multiple of about 14x, when in fact historically textile firms hardly traded around the multiple of 5x-7x.
Now, in recent developments, the company has announced that the potential acquirers have withdrawn the public announcement of intention to acquire the stakes. The reason: the lapse of the deadline during which the transaction was supposed to be closed.
BR Research sources say that the lapse comes on two accounts: (a) the extraordinary delay in audit and other related affairs that dragged the process for four and half months, and (b) the postponement of the Chinese Presidents visit to Pakistan.
Sources add that while MSOTs prospective buyers haven completely shelved the idea; the progress, if any, will come at a leisurely pace. This is so because ever since the sit-ins have started, Chinese investors have reportedly been told to go slow.
Needless to add that these developments would negatively affect the countrys already slowing FDI. But its impact on textile sector as a whole would also be felt.
According to data released by State Bank of Pakistan, net FDI in textile sector has remained less than $35 million (on average) in the last ten years, or about 2 percent of the total. In fact, last fiscal year (FY14) textile sector saw a net inflow of $3.7 million or about quarter of a percent of the total FDI inflow last year.
The textile ministry has been trying to bring foreign investors in the sector since 2006, to benefit from transfer of technology and management skills that would hopefully help Pakistani textile industry gain competitiveness in global textile trade.
But those efforts had mostly been in vain, and now the MSOT deal saga also marks a bad omen for the textile industry and for FDI inflows in general, and MSOTs shareholders in particular, especially those who had bought shares sometime in January 2014.
The moral of the story: avoid falling for hypes and euphoria, in stocks, and in politics.