PARAMOUNT LEASING'S 10% CASH DIVIDEND
What are the implications for the rest of the industry?
Aug 10 - 16, 1996
Kicking off the reporting season for the leasing sector, Paramount Leasing surprised other players in the industry by posting their results for the year ended June 30, 1996, just a month after the close of the year. And there were more surprises to come as the Board of Directors recommended a 10% cash dividend- translating to Rs 1 per share and a total of Rs 25 million.
They reported a profit before tax of Rs 40.696 million and profit available for appropriation was Rs 40.37 million; with analysts' forecasts at Rs 25 million, and a return on paid-up capital of 16.1%, Paramount had reason to rejoice.
Total Income amounted to Rs 53.68 million with just over 72% being contributed by income from leases, almost 18 % from mark-up on placements, and 0.2 % from capital gain.
On the expenditure side. administrative and operating expenses made up just over 86% while financial expenses came to less than 14 %.
Paramount Leasing went public on April 23, 1995, and with a paid-up captal of Rs 250 million, they had the highest initial paid-up capital in the sector. Although they reported a Rs 17.125 million after-tax profit for the half-year ended December 31, 1995, the close of the year ending June 30, 1996 represents the results of the first full financial year; they are also the first company to declare a cash dividend after the first year of operation.
The announcement of the cash dividend, however, would appear to be important not only for the shareholders of Paramount but for investors of other leasing companies and other investors at large.
Although the leasing sector has so far not been an attractive industry from the investors point of view, with most scrips trading below par, the announcement of this dividend would seem to be an encouraging sign for the market.
It would seem now, that some measure of investor confidence would be restored, if not in the market as a whole, then at least in the leasing sector. And according to Etrat H. Rizvi, the Managing Director and Chief Executive at Paramount Leasing, this was exactly the intention; aside from making a payout to shareholders, the management had also hoped that the move would go some way in reversing market sentiment on the sector.
Furthermore, we believe that the move may serve to exert some pressure on other market players to make similar announcements or at the very least some form of a payout. And while it would be unrealistic to forecast equivalent levels of profits and payouts for most other leasing companies, if Paramount's actions can be replicated to some extent at even two other companies, it would be a boost for the industry as a whole.
According to Etrat H. Rizvi, the Managing Director and Chief Executive Officer of Paramount Leasing, total disbursements in the year 1995-96 totalled some Rs 10.5 billion. And he is optimistic about the growth prospects of the sector, pinning the figure at about 20%; with some of the newer segments of the industry to be lucrative for investors.
The ability to achieve this level of profitability and disburse a 10% cash dividend, Mr Rizvi attributed to their cost efficiency, their potential to access long-term credit lines and their astute management of funds, keeping a maximum of Rs 1.5 million in the bank at any given time.
Staff levels are kept low, at just fifteen at the main office in Karachi and expansion and growth are high on Paramount's agenda. They opened a branch office in Peshawar during this past year with the aim of attracting smaller and medium term leases, and they also recently contracted a technical consultancy job from a Bangladesh firm, International Leasing and financial services to design and implement their system.
Mr Rizvi was confident of the company's financial strength and of their ability to disburse at least a 10%, if not a higher cash dividend in the future, since he does not anticipate any major resource mobilisation problems and since this most recent move is likely to boost investor confidence to some extent.