The Pakistan Credit Rating Agency Limited
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Afnan Iqbal

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PACRA Maintains Broker Entity Rating of Aba Ali Habib Securities (Pvt.) Limited

Rating Type Entity
(15-Mar-23 )
(31-May-22 )
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Aba Ali Habib Securities (Pvt.) Limited (“AAH”) is primarily engaged in the provision of equity brokerage services while diversity exist in the form of commodity brokerage, MTS, MFS and IPO distribution. AAH enjoys a good market share whereas the clientele is fairly diversified between institutions/corporates and HNWI’s/Retail. The business model of equity brokers is inherently prone to market volatility. Rising interest rates, political uncertainty, and increasing inflationary pressure during CY22 have impeded investors' sentiments, adversely impacting volumetric activity at PSX. Consequently, the traded volumes of AAH also suffered, resulting in a decline of commission on equity brokerage by ~35% during 1HFY23 as compared to 1HFY22. AAH earned revenue from equity brokerage of ~PKR 34mln in the 1HFY23 (1HFY22: ~PKR 52mln) whereas for FY22 it stood at ~PKR 51mln (FY21: ~PKR 101mln). On the other hand, AAH earned mark-up on MTS/MFS amounting to ~PKR 39mln in addition to dividend income of ~PKR 17mln during 1HFY23 providing the necessary support to remain in profits. Moreover, AAH also realized a capital gain of ~PKR 45mln from the sale of securities. The profit after tax has declined when compared with 1HFY22 to stand at ~PKR 56mln for 1HFY23 mainly due to a fall in re-measurement gains of short-term investments. AAH has a strong equity base of ~PKR 1,024mln at end-Dec’22 (Jun’22: ~PKR 968mln) which provides a cushion against unexpected shocks. The rating takes comfort from a low leveraged capital structure. AAH actively manages its investment book whereby the funds are strategically moved between equity and fixed income avenues based on market expectations. The ongoing volatility of equity market may impact the commission revenue going forward. AAH provides sound client services whereas a strong internal control environment supported by outsourced internal audit provides comfort to ratings. However, the extent of policies may be enhanced further with the addition of more detailed guidelines. The assigned rating takes into account a sound business acumen of the sponsor family. The governance framework may be enhanced further with the induction of certified independent directors. In the near future, once clarity emerges on the economic and political front, the management has plans to enhance the institutional clientele. The improvement of technological infrastructure and geographical diversification is also under consideration.
Going forward, improvement in core income, sustainability of market share and profitability and materialization of planned business strategies remains critical. Meanwhile, upholding strong internal controls, sound governance structure, retention of key management personnel and diligent monitoring of risks is important.

About the Entity
Aba Ali Habib Securities (Pvt.) Limited is a TREC holder of Pakistan Stock Exchange and a Member of Pakistan Mercantile Exchange Limited. While AAH has been operating since 1970, it was incorporated in 1996 as a Private Limited Company. AAH is registered with the SECP under Securities Brokers Regulations 2016. AAH is primarily owned by Mr. Aba Ali Habib who has been associated with the Capital Markets for over forty years, and has diversified experience in the field of Equity Brokerage. AAH has six directors on the board including the CEO and four non-executive directors. The CEO, Mr. Zahid Ali Habib is a qualified professional with a diversified experience in capital markets.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.