Bolstered by monumental growth in operating revenues, Meezan Bank (MEBL), the countrys largest Islamic commercial bank, reported a whopping 130 percent, year-on-year growth in its bottom line during the first nine months of CY11. Tall profitability came on account of a higher net spread, stemming from growth in returns on investments. The financial intermediary expanded its investments base by 62 percent during the first nine months of the current year to Rs.89 billion at the end of September 2011, with Ijarah Sukuk (issued by the government) alone accounting for around 75 percent of the total investment portfolio. In the same breath, the banks financing portfolio took a knock, declining by 14 percent to Rs.46 billion as of 30th September 2011. This was primarily due to a dearth of optimal financing avenues amid fragile economic condition. However, higher seasonal financing will likely haul up the banks financing portfolio in the last quarter. Aided by expansion in the banks infrastructure and growing popularity of Islamic banks, the bank outdid the rest of the industry on the deposits growth front. MEBLs deposit base increased by 16 percent during the period under review to Rs.151 billion at the end of September 2011, while the industrys (all commercial banks) deposit base grew by 6 percent. In consideration of a growth in fixed deposit base, the banks CASA eased down by 1 percentage point to 64 percent. However, MEBLs net spread ratio (net spread/return earned on assets) improved by 4 percentage points, year on year, to 52 percent in 9MCY11. As toxic loans increased by 6 percent to Rs.4.5 billion amid decline in the financing base; the banks infection ratio increased by 145bps to 8.9 percent during the period under review. Whereas, the banks non-performing loans remained well covered, given that the banks coverage ratio improved to 105 percent, as opposed to 89 percent at the end of December 2010. Stronger dividend income, arising from investments in mutual funds, primarily, those which invest in Ijarah Sukuk (issued by the government), lifted the banks total other income. In light of inflationary pressure, along with expansion in infrastructure, the administrative expenses grew by 30 percent, year on year, to Rs.4.35 billion in 9MCY11. The best part is that despite higher expenses, MEBL operating revenues to expense ratio improved to 2 in 9MCY11, from 1.7 the corresponding period of last year. The bank now owns 235 branches as against 202 branches at the end of CY10. Moreover, the bank aims to expand the current network to 275 branches by the end of this year.
=================================================== Meeezan Bank Limited =================================================== (Rs mn) 9MCY11 9MCY10 chg =================================================== Profit earned 13,257 9,038 47% Return on deposit (6,368) (4,696) 36% Net spread earned 6,890 4,342 59% Provisioning (1,159) (848) 37% Net spread after provision 5,731 3,494 64% Other income 1,968 1,518 30% Operating revenues 8,857 5,860 51% Other expenses (4,421) (3,385) 31% Profit before taxation 3,278 1,628 101% Profit after taxation 2,292 995 130% EPS (Rs) 2.85 1.24 ===================================================
Source: Company Accounts NetSol at a loss! The outgoing quarter saw a disappointing start to the ongoing financial year for the leading software house of Pakistan. NetSol Technologies Ltd declared net loss for the first quarter ended September 30, 2011 yesterday, as a sharp slump in overseas sales and ballooning cost of revenue battered the firms traditionally lucrative margins. NetSol is a multi-dimensional technology company which focuses on developing software solutions and providing IT services in areas of finance and leasing. The firms bread and butter remain its overseas sales which accounted for over 90 percent of total revenues during each of the last two years. NetSols top line, which is heavily dependent on sale of software licenses and provision of IT services, declined by 19 percent in the first quarter ended September 30, 2011. In the absence of detailed accounts, it appears that the fall in revenue has come from a slowdown in the exports of IT services and licensing fees. Despite the dip in revenues, the cost of revenue has more than doubled for NetSol in 1QFY12. Such unrestrained growth has led the cost of sales to consume nearly 60 percent of revenues in 1QFY12, almost double the percentage in the same period of last year. The bulk of this cost is expensed in pursuit of overseas sales, mainly on salaries and benefits, travelling, conveyance and software licenses. Negative growth in revenues and sharp spike in cost of revenue led the gross profits to decline by 52.45 percent. Thereby, NetSols gross margins shed 2,821 bps to come down to 40.21 percent in 1QFY12. In keeping with the declining revenues, both the selling and administrative expenses declined during the period by 10.5 percent and 22.2 percent, respectively. Despite a miserable operating performance, the ensuing margins could have been positive for NetSol had the other income - derived from foreign currency translation gains and dividend income - not decreased by Rs.90 million during 1QFY12. Hence, the operating margin was at negative 0.81 in 1QFY12, shedding 5,615 bps over the period under review. Incurring losses is a rarity for the software giant. But that rarity is NetSols reality in 1QFY12, thanks to the significant slide in revenues and the inexplicable spike in the cost of revenue. Though the net loss is very thin, net margin stood at negative 2.95 percent compared to a net profit of 53.18 percent a year earlier. The still-unresolved eurozone sovereign debt crisis and the current adverse geopolitical mood vis-à-vis Pakistan have hurt the countrys IT firms in their overtures to sign up foreign clients. Same goes for NetSol which has been banking on the markets of Asia-Pacific, Middle East and Europe. Going forward, NetSol would have to look for new opportunities abroad. In this regard, NetSol management is optimistic that NFS-R2, the next generation version of their flagship product NetSol Financial Suite, would develop a market of its own and deliver much-needed growth to the top line.
=============================================== NetSol =============================================== Rs (mn) 1QFY12 1QFY11 chg =============================================== Revenues 296 366 -19% Cost of revenue 177 116 53% Gross profit 119 250 -52% Gross margin 40% 68% - Administrative expenses 80 103 -22% Other income 3 93 -96% Operating profit / (loss) (2) 202 Net Profit / (loss) (8) 194 ===============================================
Source: KSE notice
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