ORIX LEASING PAKISTAN LIMITED
Research Analyst, PAGE
Dec 14 - 20, 2009
ORIX Leasing Pakistan Limited (OLP), is a subsidiary of ORIX Corporation, Japan's leading integrated financial services company spread over 26 countries.
OLP's main business activity is leasing of moveable assets. Its strength lies in an extensive branch network, a diversified portfolio of clients, and a wide range of financial products, personnel development, and business automation. OLP has strategically located branch offices throughout Pakistan that make it easy to provide quality service to its broad client base.
OLP is listed on Karachi, Lahore, and Islamabad Stock Exchanges. OLP has assets of Rs. 27.81 billion and a net worth of Rs. 2.60 billion as at June 30, 2008. Based on the company's results for the year ended June 30, 2008 and subsequent downfall in the business, the Pakistan Credit Rating Agency (PACRA) has lowered the entity rating from AA+ to AA for long-term senior unsecured creditors and maintained the highest rating of A1+ for short-term senior unsecured creditors. The company's Term Finance Certificates have been assigned ratings of AA+ by PACRA.
During the first quarter ended September 30, 2009, the company recorded a pre tax loss of Rs. 39.3 million compared to a pre tax profit of Rs. 43.3 million in the comparative period last year. Net loss after tax amounted to Rs. 49.7 million as against profit of Rs. 45.4 million. Loss before tax attributable to the company's own operations, excluding ORIX Investment Bank results, amounted to Rs. 19.6 million, which is a considerable turnaround from the immediate previous quarter (April-June 2009) loss of Rs. 166.7 million.
FINANCIAL PERFORMANCE OF ORIX LEASING
INDICATORS 30TH SEP 2009 30TH JUNE 2009 Total Assets 26,420,196,085 27,323,206,780 Current Assets 13,357,228,854 13,857,574,419 Current Liabilities 7,892,127,242 7,438,066,058 . 30th Sep 2009 30th Sep 2008 Administration Expense 147,361,184 147,475,054 Loss/ Profit Before Tax (39,289,788) 43,385,122 Loss /Profit After Tax (49,789,788) 45,385,122 Loss/ Earning Per Share (0.62) 0.57
An immediate consequence of the financial crisis of October 2008 was a drastic reduction in business levels. As conditions improve, the company is steadily increasing lease volumes.
Although disbursement during the quarter amounted to Rs. 1.76 billion, this was still 35% lower than business volume of Rs. 2.72 billion achieved in the comparative period last year. Lower volume of business over the last twelve months has eroded the company's lease portfolio, which contracted 19% to Rs. 19.0 billion from Rs. 23.5 billion in September 2008.
Lease and installment loan revenues also decreased 19% to Rs. 510.7 million (2008: Rs. 632.3 million). Operating lease revenues improved 6% to Rs. 163.6 million (2008: Rs. 154.8 million).
The company's borrowing cost benefited from the falling trend in interest rates and reduced borrowing level. Consequently, finance cost, at Rs. 556.1 million (2008: Rs. 610.4 million), was 9% lower than the comparative period last year.
Administrative and general expenses were controlled and amounted to Rs. 147.4 million. These were maintained at last year's level of Rs. 147.5 million despite inflationary pressure. Provision for potential lease losses of Rs. 66.1 million was made during the period in comparison to Rs. 23.3 million in the corresponding quarter of 2008. The company's share in associates' profits was 18% lower at Rs. 42.4 million (2008: Rs. 51.9 million). In wake of the global financial crisis, overseas associates prudently reduced business to strengthen risk management.
There are total 27 companies making the leasing sector of Pakistan. These include 16 leasing companies, 4 investment banks, 2 investment companies, and 5 Modarabas. In 1997, 32 leasing companies were operational in the country. This number has been decreasing since then, especially after 2000 when the minimum paid-up capital requirement for leasing companies was raised to Rs 200 million, resulting in mergers and acquisitions. The recent performance of the leasing sector was affected by strong competition from commercial banks, which are increasingly offering products and services similar to the NBFC's, including the leasing companies. This, along with the slowdown in private sector credit off-take, decreased new business volume of members by 14% to Rs 36 billion in 2007, compared to Rs 41 billion in 2006.
The total assets of the leasing sector increased to Rs 128 billion in 2007, a 4% rise from Rs 123 billion in the year before that.
During the same period, investments in lease finance decreased to Rs 73.6 billion in FY07 from Rs 75 billion in FY06, while the revenues increased marginally by 2% to Rs 15 billion from Rs 14.7 billion. Increasing interest rate environment resulted in sharp upsurge in borrowing costs, which were higher by 14% at Rs 8.5 billion from Rs 7.4 billion. The average spread, which is described as the difference between the average rate of cost of funds and lending rates, decreased to below 2% jeopardizing the profitability of the sector, which reached to Rs 635 million in 2007 from Rs 2.06 billion in 2006.
Uncertain economic conditions and tight liquidity situation are still major concerns. Nearly 70% of the company's leasing activities are made of consumer finances, which are affected by high interest rates, soaring inflation, and the resulting lack of purchasing power of the potential customers.
However, the company is steadily increasing business and expects to return to profitability in near future.