Orix Leasing Pakistan Limited

Orix Leasing Pakistan Limited (PSX:OLPL), the country's top leasing pure-play, was established in 1986 as a joint venture of Orix Corporation Japan and local players. The former, a financial services giant in the far east, has an asset base of $95 billion.
OLPL is present in 30 cities and towns across Pakistan, offering numerous financial products and services. The firm specialises in vehicle and equipment leasing business, which constitute its core business. It has a separate Commercial Vehicle Division to cater for the logistics and transportation needs of consumers. The firm also runs a Consumer Auto Division with a flexible product range. OLPL's operating lease segment rents equipment including generators and communication equipment, among others, to consumers.
The extent of Orix's operations goes beyond. The firm offers certificates of deposit for savers and also deals in micro and agri-finance. Observing the scope for Shariah-compliant products in the country, Orix Pakistan set up an Islamic Finance Division in 2011. The leasing giant sees a lot of potential in small and medium sized enterprises (SMEs) and is pursuing a strategy of expansion in smaller cities. On the liability front, the company maintains a 55-45 ratio of direct and indirect funding.
Recent financial performance Owing to mediocre economic growth in prior years, leasing businesses haven't had an ideal growth trajectory. Low confidence levels in the business community and the overall dis-ease of doing business in the country have hurt leasing firms. More recently however, Orix's financials have seen a boost.
In FY15, the firm reported total disbursement of Rs 13.4 billion, nearly 21 percent more than the year before. Before that though, the four-year compound annual growth rate in disbursements was only 7.1 percent.
Propelled by SMEs, vehicle leasing - passenger and commercial combined - remains the busiest segment for Orix. Vehicles are the main leased assets for the near-30 year-old firm, accounting for nearly three-quarters of the firms' total disbursements. The next big category for Orix - Machinery/equipment made up 21 percent of the disbursements.
The hefty disbursement growth in FY15 was led by 22 percent YoY rise in corporate and commercial vehicle disbursements. In wake of increased competition from commercial banks, Orix's growth in consumer auto leases was subdued, with disbursements increasing 13 percent.
In FY15, Orix saw its lease revenue rise eight percent. In the prior four years, the average growth in lease revenue was only two percent. Similarly, overall top line for the firm jumped 10 percent in the last completed fiscal year, against a four-year CAGR of around one percent.
Profitability, on the other hand, has been strong in recent years and continues to do so. From Rs 104 million in after-tax profits in FY10, the firm's bottom line has expanded consistently to Rs 671 million in FY15 - yet another record profit for the firm. The bottom line growth did lose steam in FY15 though in wake of falling interest rates. Gross spread declined from 34.2 percent in FY14 to 26.9 percent in FY15.
On the balance sheet side, deviations have been palpably minute. As of June 2015, the company had Rs 28.3 billion in assets, out of which Rs 23.9 billion (or 84.3 percent) were gross receivables. In the past five years, the firm's assets have growth at an annual pace of 3.6 percent. Orix's borrowings stood at Rs 16.3 billion at the end of FY15 - 68 percent of the firm's total assets.
Stock Price and Outlook Maintaining a solid bottom line growth over the years has kept Orix investors pleased. OLPL stock has managed to outperform the benchmark index in each of the past four years. The shares that exchanged hands for under Rs 20 apiece in mid-2013 are worth around Rs 57 today. According to data compiled by FT Asia, the stock yielded an average 98 percent return per annum from 2012-2014. In 2015, OLPL finished 19 percent in the green in spite of tough market conditions for investors.
The leasing giant's bet on the SME sector has paid off to date and is expected to do so in the future as well. The firm is backed to face strong demand from infrastructure and power generation sectors in particular. In terms of products, vehicle leases are expected to drive growth in the firm's top line.