The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Assigns Initial Entity Ratings to Dawood Equities Limited

Rating Type Entity
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch -

The ratings assigned to Dawood Equities Limited ("DEL" or "the Company") draw comfort from improved financial performance, revamped business strategy, improved cost control measures and enhanced customer base. The assigned rating also incorporates the Company's high exposure to market risk due to the proprietary book, augmented by well-established policies to mitigate conflict of interest. Revenue base of the Company largely comprises earnings from equity brokerage through mix of investors along with support from capital gains on investments. Over the past few years, the Company has posted a steady growth in revenue leading to reduction in accumulated losses however, given the lack of diversity in operations profitability is likely to remain volatile. Going forward, the Company is planning to diversify its revenue stream through underwriting and advisory services. Zero leveraged capital structure and strong liquidity buffers continue to provide support to overall financial risk profile. During 9MFY21, the brokerage commission witnessed an increase of ~2.4x resulting in profit after tax of ~PKR 42mln (9MFY20: ~PKR 9.2mln). While the equity of the Company stood at PKR 276mln at end Mar'21. This is supplemented by pledge of sponsor's shares ,with latest market value of above PKR 150mln, in favor of DEL. Based on these securities, in addition to the securities available on balance sheet, a credit line of PKR 150mln is exclusively available to the Company. The assigned rating is also supported by experienced management team. The Company has a lean organization structure with most of the heads reporting to CEO. Sound risk assessment and dedicated personnel for compliance function provides further support to the ratings. The internal audit function of the Company is in house and reports independently to the audit committee. The Company has accustomed IT infrastructure in place.
The ratings would remain dependent on the Company's ability to sustain stable equity, improved profitability and stable market share. Furthermore retention of key personnel, strong Board framework, insightful monitoring of market risk, liquidity management, upholding strong internal controls would remain imperative.

About the Entity
Dawood Equities Limited, was incorporated under the Companies Act 2017, on May 3, 2006 as public limited company. The Company obtained listing on Pakistan stock Exchange in 2008. Mr. Ayaz Dawood owns 19% stakes in the Company followed by Bank of Khyber (15%) and Mr. Asim Abdul Ghani (10%). While 55% pertains to free float shares. The Company’s service offering includes Economic and Investment Research, Equity Brokerage, and Corporate Finance & Financial Advisory service. The Company’s equity brokerage mainly comprises of services including dealing in securities on Ready and Future counters and MTS & MFS. The Company operates through three branch offices, located in Karachi and Hyderabad, reporting to the Head Office in Karachi. Mr. Aziz Habib is the CEO of the Company having diverse experience brokerage business. The Company’s Board of Directors (BoD) comprises seven members, which include one independent director, five non-executive directors and one executive director including a female director in conformity with the Code of Corporate Governance (CCG).

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.