Orix Leasing Pakistan Limited (PSX: OLPL) was set up as a joint venture between ORIX Corporation, Japan and local investors in 1986. It was a private entity before it was converted into a public limited company a year later in 1987. The company carries out Investment Finance Services as a Non-Banking Finance Company (NBFC).
Some of its product offerings are corporate lease, auto lease, commercial vehicle lease, operating lease, micro credit, e-business and Islamic finance.
Shareholding pattern
As at June 30, 2020, nearly 50 percent of the shares of the company are held by associated companies, undertaking and related parties. This category solely includes ORIX Corporation. The local general public holds about 21 percent shares followed by nearly 11 percent in “others”. Foreign companies and insurance companies hold 8 percent and almost 6 percent shares, respectively. The remaining 4 percent shares are with the rest of the shareholder categories.
Historical operational performance
Income from operations has mostly been rising over the years with the exception of FY16 when it contracted marginally by less than 1 percent. Finance lease has continued to make a consistent contribution to income from operations, while that of operating lease has declined. Net margin gradually rose and reached a peak in FY18, after which it declined.
During FY17, major chunk of income from operations was generated through finance lease, rather its contribution increased marginally to 70 percent, while contribution by operating lease reduced from nearly 16 percent in FY16 to nearly 14 percent in FY17. Given the relatively positive economic environment with respect to SME and consumer sectors, demand for commercial vehicles and saloon vehicles picked up. This was largely responsible for the company’s 3 percent growth in disbursements, that reached Rs 15 billion in value terms. The decline in operating lease recovered towards the end of the year as power shortages generated demand for rental generators. With finance expense reducing as a percentage of income, net margin improved to 24.5 percent.
In FY18, operating lease continued to dominate the total income pie from operations, contributing nearly 73 percent whereas share of operating lease dropped to 9 percent. The overall disbursements for the company increased to Rs 17.2 billion, while disbursements for the finance lease segment grew by 14 percent; vehicle financing registered a 19 percent growth on the back of auto sector boom. While the commercial vehicle business slowed down due to competition, it did make 34 percent of the total volumes. The operating lease segment saw divestment of its under-performing assets; the company sold some of the diesel and gas generators, leasing the remaining under Ijarah finance. In an attempt to diversify, it has acquired cranes while also exploring other sources. On the other hand, expenses reduced due to decline in total borrowings and disposal of generator fleet, in addition to significant contribution made by other income. This took net margin to an all-time high of almost 40 percent.
Total disbursements in FY19 dropped by 19 percent to Rs 13.9 billion as the company focused on risk management and portfolio diversification as opposed to asset growth. While the corporate customers continued to be a dominant portion, disbursements to this segment reduced by 18 percent. The company also intentionally reduced its exposure and reliance to the commercial vehicle business in order to avoid a major slump should this segment slow down. This resulted in business volume from the transport sector to drop by 33 percent. With total expenses declining as a percentage of income from operations, along with other income returning to its initial levels, that was unusually high last year due to capital and exchange gain, net margin was recorded at over 26 percent.
With the outbreak of the Covid-19 pandemic in FY20, many industries faced a slowdown in business volumes, demand, and placement of orders. Orix leasing was no exception as its disbursements reduced to Rs 19 billion, down from Rs 22.7 billion in FY19. In order to facilitate businesses and individuals, the SBP allowed the relaxation for deferment of principal repayments. Following this, the company acquired very little new business. Share of finance lease was sustained above 70 percent, while operating lease continued to decline during the year. However, the jump in finance expense reduced net margin to 17 percent- the lowest seen since FY15. Finance expense increased significantly since interest rates remained high for a large part of the year; they only declined in the last quarter when the SBP provided relief to the businesses.
Quarterly results and future outlook
As the lockdown eased three months after the pandemic first hit the country, disbursements increased by 35 percent during 1QFY21 year on year, as interest rates were lower, and demand was curtailed for several months. The reduction in interest rates reflected in the lower revenue, but it also meant that finance expense was lower.
By the second quarter as business activities resumed, disbursements increased by 40 percent reaching Rs 8.3 billion year on year, for the period 1HFY21. The impact of low interest rates was also seen in this period as finance expense reduced to near 36 percent of revenue, compared to nearly 45 percent in 1HFY20. Thus, net margin was also improved over 29 percent for 1HFY21 despite a lower net profit year on year in value terms.
Given the continued demand for saloon cars, and newer models of saloon cars expected in the second half of FY21, the vehicle business segment will continue to post healthy growth. However, with the vaccination drives and a simultaneous rise in Covid-19 cases, there still exists some degree of uncertainty.
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