Orix Leasing Pakistan Limited

Orix Leasing Pakistan Limited (PSX: OLPL) was incorporated as a joint venture between Orix Corporation, Japan, and local investors, in 1986. Orix was first established in 1964 in Japan; it is one of Japan’s many financial service groups. The company carries out Investment Finance Services as a Non-Banking Finance Company (NBFC).

Orix Leasing Pakistan’s product portfolio comprises of corporate lease, auto lease, commercial vehicle lease, operating lease, micro credit, e-business and Islamic finance

Shareholding pattern

Close to 50 percent of Orix Leasing Pakistan’s shares are held under the category of associated companies, undertakings, and related parties. This category solely includes Orix Corporation. About 15 percent of the shares of the company are categorized under ’others’ whereas 17 percent are distributed with the local general public. The directors, CEO, their spouses, and minor children hold less than 1 percent of the shares in the company. The remaining about 17 percent shares are distributed with the rest of the categories.

Historical financial performance

Income from finance lease has been the company’s primary source of revenue, remaining consistently above 50 percent of the total revenue generated through operations. This is followed by operating lease that contributes about 18 percent on average. However, the share of the latter has been on a decline, being replaced by finance lease. Finance lease includes vehicle finance, loans, micro finance segments while operating lease includes generator rentals and e-business, among others.

During FY15, there was a marginal increase in income from finance lease while operating lease saw a year on year decline of 30 percent. The company reduced its investment on gas generators due to prevailing market conditions marked by increase in cost of generators accompanied by low demand; this was due to gas shortage which led to lower utilization of gas generators. Revenue from operating lease was also affected by a reduction in revenue from e-business segment. According to the company, its investment “has not kept pace with technology changes and major capital expenditure will be required in future to avail opportunities”. With most other factors remaining similar, the company was able to improve profit margin to near 19 percent.

During FY16, revenue from operations declined marginally by less than a percent. However, finance lease revenue continued to increase, with commercial vehicles and saloon cars making up 80 percent of the disbursement, whereas plant and machinery made up the remaining 20 percent. Operating lease on the other hand witnessed relatively lower revenue due to reduced demand for short term rental of generators due to gas shortage specifically in the northern region of the country. Both finance cost and direct cost of lease registered a decline as a percentage of total revenue due to lower interest rates and reduced operating leases revenues, thus profit margin increased further.

In FY17, the country’s GDP improved to 5.7 percent, with Large Scale Manufacturing (LSM), Services and Agriculture sector registering a growth rate; inflation was in check and the expectation for next year’s GDP stood at 6 percent. With this environment, business activity in both, SME and consumer sectors picked up stimulating demand for commercial and saloon vehicles. Commercial vehicle segment has been a prominent growth driver for the company. With total expenses remaining constant at 86 percent of revenue, and low interest rates lowering finance expense, profit margin continued to increase.

While the country faced twin deficits in FY18 on one hand, positive sentiments also flowed with LSM, Services and Agriculture sector showing positive growth, in addition to CPEC providing stimulus to the economy. Finance lease for corporate clients showed 14 percent growth in disbursements while vehicle finance witnessed 19 percent growth due to boom in the auto sector.

Operating lease segment, seeing a downward trend over the past few years, Orix Leasing Pakistan sold some part of its inventory of diesel and gas generators and focused on assets with higher demand such as mobile cranes. Other income, coming from gain on sales of Oman Orix Leasing Company SAOG (OOL) shares, provided considerable support to the bottomline, while finance cost reduced due to proceeds coming from gain on ale of shares and rights issue that reduced the need for borrowing. This allowed profit margins to reach its highest level of almost 40 percent.

With changing government policies, the company shifted gears and focused on risk management and portfolio diversification instead of asset growth in FY19. Revenue from operations increased due to higher interest rates, whereas business volumes were lower. The unusually high other income that supported bottomline last year, was not seen this year, that brought profit margins back to normal levels, around 26 percent.

Quarterly results and outlook

During 9MFY20, total revenue increased by a little over 11 percent year on year, despite decrease in loan and lease portfolio. This was due to high interest rates for a large part of the reporting period. the effect of this was also seen in finance cost that was 29 percent higher year on year. Thus, profit margin reduced to 21 percent.

Expectations for the future have naturally been changed due to the outbreak of Covid-19 that has impacted nearly all the sectors, exports, and small and medium businesses. The company hopes to focus on risk diversification and “high degree of credit assessment for new lending”.