Loss-making Khan Brothers' rally on DSE goes unabated

Khan Brothers PP Woven Bag Industries surged an astonishing 975 per cent on the Dhaka Stock Exchange (DSE) since September 18 last year, with its monthly trading volume indicating investors' persistent interest in the stock.
The irony is the company reported losses for the last four fiscal years and has kept itself relevant only by subcontracting works.
The stock's rally continued unabated even after the auditor expressed skepticism about the FY23 financial statement, saying the company had overstated assets, sales, and inventories.

Khan Brothers experienced the highest appreciation on the Dhaka exchange in 2023 and has been climbing higher this year. It has frequently taken positions on the top daily turnover chart.
On Thursday, the company saw a turnover of more than Tk 164 million while blue chip company Square pharmaceuticals posted a turnover of Tk 103.43 million for the day.
A senior official of a brokerage firm, wishing not to be named, said a speculation that the company would be acquired by another group led to the stock's escalation.
But company secretary Tapan Kumar Sarker rejected it as a mere rumour. He also said the company had no involvement in the stock price movement.
Any abnormal rally of a junk stock does not sustain, and manipulators exit the company offloading overvalued shares to general investors.
Giving a reference to Orion Infusion, Md. Ashequr Rahman, managing director of Midway Securities, said unjustifiably high-priced stocks were bound to suffer a plunge.
Orion Infusion escalated 1159 per cent between May 22 and October 26, 2022. Later, it plummeted 270 per cent to close at Tk 262.10 per share in nearly five months to March 27 last year.
After the imposition of floor price in the second phase in July 2022, a majority of large-cap companies failed to see price movements. That was when a group of traders shifted their focus to small-cap stocks for quick gains.
Then the stocks' high turnover volumes drew other investors.
"It's not wise to label all investors having investments in junk stocks, including Khan Brothers, as manipulators. But manipulators definitely played a role in pulling investors into transactions of the company's shares," said Mr Rahman.
Whether brokers were responsible for the rally
Brokers' dealer accounts can be checked to see if the intermediaries have bought junk stocks that have been rallying, said Md. Sajedul Islam, former senior vice president of the DSE Brokers Association.
There might be other ways to influence stock trading.
Mr Islam said senior officials of some brokers might purchase such stocks through accounts opened with others' name. Then they could provoke margin account holders to participate in transactions of the junk stocks for the sake of their own exit.
However, brokers do not encourage investors to buy particular stocks, according to Mr Islam. Investors place buy/sell orders through authorized representatives who do not have permission to speak about any scrip, he said.
"Brokers cannot be charged with any wrongdoing unless shares of junk stocks are found in dealer accounts," Mr Islam added.
Asked if the premier bourse looks into the involvement of brokers or any vested quarters in the abnormal price hike of any stock, DSE Managing Director ATM Tariquzzaman said such responsibility lies with both the exchanges and the regulator.
Except for the DSE's surveillance department, no one else has any clue about such issues, he said.
Meanwhile, the DSE on Thursday sent a query letter regarding the rally of Khan Brothers. The DSE said the company had not yet provided any response.
However, company secretary Tapan Kumar Sarker said a response had been made by email, saying there was no undisclosed price sensitive information behind the price hike.
Auditor's opinion
The company's auditor explicitly said its performance was not good in FY23.
Apart from identifying exaggerated figures of sales, assets, and inventories, the auditor found discrepancies during a physical examination between FY23 records and the stocks of raw materials and finished goods.
The company showed materials and finished goods worth Tk 597.46 million whereas the auditor found items worth only Tk 407 million. The missing stock of items was also not in the bonded warehouse.
The auditor said they were not provided with any copy of the annual audit report submitted by the office of the bond commissioner.
The FY23 financial statement showed revenue of Tk 100.94 million earned by subcontracting works, and that Khan Brothers realised Tk 74.35 million in the year. But the auditor was unable to trace the money since it had been received in cash, not through bank transactions.
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