Hafiz Limited’s (PSX: HAFL) existence dates to pre-partition times. However, post the sub-continent partition and the fall of Dhaka, the company was reorganized in Karachi. It was formerly known as Hafiz Textile Mills Limited when it was dealing in spinning of textile fibers. Today the company’s principal activity is “to earn rentals on land and building”.

Shareholding pattern

The company is primarily held by the directors, CEO, their spouses and minor children with nearly 35 percent of the shares under this category. Mr. Fakhruddin Usmani, the CEO of the company holds 3 percent shares in Hafiz Limited. About 55 percent of the shares are distributed among the general public whereas close to 10 percent are held under the category of associated companies, undertakings and related parties. The latter solely includes Textile Trading Company Limited.

Historical operational performance

As mentioned before the company’s primary source of income is the rentals on land and building. In addition to this, it also earns from “gain on change in fair value of investment property”. During FY15, the company saw a 33 percent climb in its rental income. The extent of this increase is due to a low rental income in the previous period. during FY14 the country saw a major sit-in in Islamabad that affected business sentiments. In addition, factors such as war against extremism, energy shortages etc. created obstacles for attracting FDI. By FY15, the government in office launched plans to attract foreign investors that also led to positive performance in the KSE 100.

There was a very marginal decline in rental income in FY16, however net profit nearly doubled in value terms due to the contribution by gain on change in in fair value of investment property of about Rs 23 million. The rationale for changes in rental income are unexplained and mostly are unaffected by frequent occurrences in the business environment as the company deals with providing storage facilities to major clients such as Lever Brothers that are unaffected by daily happenings as mentioned by a company representative.

While rental income saw a marginal incline in FY17, gain on change in fair value of investment property fell year on year that affected net profits for the year. Since FY14, gain on change in fair value of investment property, for the most part, has exceeded the rental income for the company. Therefore, any significant changes in the same affects the net profits of the company. The real estate market was rather bearish in FY17 as noted by a lower gain on change than the last year. Thus, there was an almost 30 percent decline in net profits.

Rental income saw an 11 percent rise in FY18 while gain on change in fair value of investment property, although a positive figure, further reduced to Rs 11 million. With negligible support coming from other income, net profit continued to fall, reducing by 15 percent to clock in at almost Rs 17 million. In FY18 it was the second time in a row for building on free hold land to witness a revaluation loss whereas other income was generated from gain on sale of fixed assets.

The company saw its highest contraction since FY15 of 17.5 percent in rental income in FY19. With the given environment of currency depreciation and increase in policy rates it did not make business sense to make investments according to the company. Gain on change in fair value of investment property increased drastically to more than Rs 19 million. This was largely brought about by revaluation gain on free hold land while building on free hold land continued to experience a revaluation loss. A noticeable Rs 493,000 was also brought in through other income that raised the net profit to Rs 24 million- a significantly higher than normal level.

Quarterly results and outlook

During 9MFY20 rental income saw a 37 percent incline year on year- of which nearly half was earned in the third quarter of FY20. This likely to depend on terms and conditions of the company according to which the godown would have been rented out. According to the company representative, some clients are provided facility for three months, while others demand for a longer period. In rare cases, rental income for a month could also amount to nil depending on the two parties agreeing or disagreeing to terms of contract. Given the significant rise in rental income during the period, net profit almost doubled.

The company stopped its textile business back in 1998 as revealed by the company representative, however it still looks out for investments in the same sector. Given the gradual decline in the output of the sector due to unmatched production of cotton with demand along with other factors, the company has not returned to the sector as an industry player. With the ongoing pandemic, prospects seem even more dim.

© Business Recorder, 2020

Comments

Comments are closed.