Pak-Gulf Leasing Company Limited

Pak-Gulf Leasing Company Limited (PSX: PGLC) was set up as a public limited company in 1994 under the repealed Companies Ordinance, 1984 (now Companies Act, 2017). It is engaged in the business of leasing.

Shareholding pattern

As at June 30, 2020, close to 31 percent shares are held by the directors, CEO, their spouses and minor children. Within this, Mr. Pervez Inam, one of the directors, holds the majority of the shares- at 15 percent of the total shares of the company. About 55 percent shares are with the individuals, followed by nearly 11 percent in associated companies, undertakings, and related parties. The latter includes Unibro Industries Limited and Mid East Agencies (Pvt) Limited, holding 5.9 percent and 5 percent, respectively. The remaining about 3 percent shares is with the rest of the shareholder categories.

Historical operational performance

Throughout the years, since FY08, the company has seen a growing income, with the exception of FY11. Net margin has largely remained stable, while only decreasing towards the end, that is, after FY18.

During FY17, total income rose by almost 14 percent, with both income from leasing operations and other income picking up. During the period, 104 new leases were written compared to 80 in FY16, although the value was higher in FY16 at Rs 901.15 million, versus Rs 810.13 million in FY17. While the company’s investment in lease is majorly in the machinery and equipment category, sector-wise lease portfolio reveals that the “others” category makes up nearly 71 percent of the portfolio. Moreover, net investment in leases stood at Rs 1.8 billion compared to Rs 1.5 billion in FY16. On the other hand, with administrative and finance expense reducing as a share in revenue, net margin improved very marginally to 27.3 percent.

FY18 saw total income rising by a little over 16 percent; similar increase was seen in income from leasing operations, and a 21 percent increase in other income, although the latter made a smaller share in the total revenue pie. Number of leases written increased to 132 compared to 104 last year, in addition to two diminishing musharaka contracts; together the value stood at over Rs 1 billion. The share of machinery and equipment category in investment in lease reduced slightly to 76.6 percent for the year, while the sector-wise distribution saw construction making a significant portion of the lease portfolio. The rise in revenue led to an improvement in net margin for the period to 34.5 percent.

At 22 percent, FY19 witnessed one of the highest growth rates in total income since FY17. Income from leasing operations increased by 23 percent. Number of leases written stood at 104, while the value was close to that of last year, at Rs 1 billion. On the other hand, share of machinery and equipment in lease portfolio further reduced to 72 percent, while share of vehicles gradually picked up. Sector-wise, energy, oil and gas made 21 percent of the lease portfolio. Finance charges, combined with provision against diminishing musharaka receivables, the latter being non-existent thus far, increased during the year, trimming net margin to 26.6 percent.

FY20 saw total income growing at single-digits, by around 8.6 percent. While other income fell, income from leasing operations continued to rise, at 12.3 percent. In addition, keeping in view the growing demand for high value vehicles, the company launched a new product- Vehicle Finance/ Auto-Finance Loan. On the other hand, number of leases dropped to 49, with seven Auto-Finance loans; value also fell year on year to Rs 778.9 million. moreover, share of machinery and equipment reverted to above 80 percent, while the “others” category continued to lead the sector-wise breakdown. However, given the Covid-19 pandemic and sudden halts in business activities, expenses in terms of provision for potential losses, and against lease receivable held under litigation escalated. This led net margin to drop to an all time low of 4 percent.

Quarterly results and future outlook

During the first quarter of FY21, total income was higher by 15.5 percent, despite the slow down in business activity initially due to the outbreak of Covid-19 pandemic that struck the country at the end of FY20 and led to a strict lock down. on the other hand, finance expense reduced year on year due to a lowering of discount rates. Despite this, net margin remained flat at 26.8 percent, due to increase in provision for doubtful receivables.

The second quarter saw lower revenue, both compared to the first quarter of FY21, as well as year on year. In addition, taxation expense was significantly higher for the quarter that led the company to post a loss for the period. The third quarter of FY21 saw an even lower revenue, with cumulative nine months ended seeing an almost 9 percent decline in total income year on year. In addition to this, provision for doubtful receivables escalated that led the company to post a loss of Rs 23 million for 9MFY21, compared to a profit of Rs 8 million same period last year. Given that revenue has decline throughout the quarter and if it continues unless a major turnaround happens, the company will post a loss for the first time since FY08.